Professor Robert MacCulloch: The Treasury Doesn't Have a Clue why Productivity is falling in NZ

The Treasury's latest report, The Productivity Slowdown: Implications for the Treasury’s Forecasts and Projections states that, "There appears to be no one factor driving NZ’s productivity slowdown, but a range of drivers contributing to the trend". It mentions pretty much everything in the kitchen sink, including "falling educational attainment, our relatively low managerial capability and low, albeit growing, levels of research and development", not to mention "uncertainty from geopolitical and climate risks, leading to reduced risk-taking" as well as "mismeasurement, weak investment, lower productivity benefits from innovation, the slowdown in trade and slowing dispersion of innovation and new practices across firms".

Of course, its fine if a large number of factors are contributing to our currently negative productivity growth, provided one knows their relative contribution - then one can focus on fixing the most important factors that are causing the slow-down. For example, if our weak productivity is just "mismeasurement", then we have nothing to worry about. So what is the size of the contribution of each of the factors which Treasury lists? Don't hold your breath. It turns out that Treasury "has not done a full quantitative analysis that would provide more understanding of the quantitative significance or scale of the different drivers for NZ".

Oh, after pouring hundreds of millions of dollars into the Productivity Commission and the Treasury & employing hundreds of staff, they can't offer even a clue about the importance of the different drivers. For all we know, one of them may be accounting for 99% of the decline and the others 1%, or vice versa. No-one knows. That lack of knowledge means its not possible for Treasury to give sound advice to the Minister of Finance on how best to allocate scarce resources. What is most remarkable about the Treasury report is that not one of the reasons it lists has anything to do with regulation, nor the quality of infrastructure in our biggest cities. Yet business surveys tells us that these factors are top of the list across a swathe of industries. Why Treasury left them out is a mystery. Why it has no clue about the relative importance of these different factors makes its report empty of useful information.

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Sources:
https://www.treasury.govt.nz/sites/default/files/2024-05/tp-productivity-slowdown-implications-treasurys-forecasts-projections.pdf

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.