Friday, May 24, 2024

Professor Robert MacCulloch: Productivity in NZ will continue to stagnant

Fifteen Reasons why Productivity in NZ will continue to stagnant (or "You Can't Have Your Cake and Eat It Too").

These past six years productivity has stagnated in New Zealand and may have even fallen. It went nowhere under John Key's government as well, by the way. So let's not get too partisan about this matter. Will the trend continue? Probably. Here are fourteen reasons why:

1. The brain drain is lowering the average skill level of NZ - we're losing many of our most talented youth abroad. Globalization, whilst opening up trade opportunities, has also opened up more opportunities for young Kiwis to leave the country for greener pastures, especially as there is now a global race to hire young, top talent. There is a trend for those folks to buy a nice coastal property in NZ when they retire from their careers abroad - but not to contribute to increasing productivity in NZ during those careers, since they're not even here.

2. A great deal of the national energy is going into arguing about race issues. It is now consuming significant amounts of time & resources. That's well & good, but the opportunity cost of that time & those resources has become vast. It's practically the only thing our biased mainstream media want to talk (& make trouble) about.

3. The subject that the tech world is built upon, namely mathematics, is particularly weak in NZ. Our schools are suffering from a chronic shortage of maths & science teachers, especially ones who have studied these subjects at university. There are strong correlations between mathematics skills & country productivity nowadays - we do not fare well in that respect.

4. The debate about different interpretations of the Treaty has legal ramifications that go to the heart of the nature of the constitution of NZ, which has become opaque. Parliament is at odds with the Courts. Our once proud judiciary is now mired in accusations of bias, even from within its own ranks, and of trying to over-ride democracy by building a State within a State. Countries which enter that kind of uncertainty about the nature of their property rights have bleak futures regards productivity performance - it puts off long-term investors.

5. Whilst concern for the environment is, of course, so important for youngsters to acquire, too much effort in schools is now put into endlessly repetitive classes on that topic copied over year after year. The lines being repeated ad-nauseum are no longer about learning - they have become about indoctrination & building religious zeal. The view that climate change will only be solved by technological innovation - creating green energy sources cheaper than coal or oil - is not emphasized.

6. Our universities have become so leftist that students are increasingly focused only on the distribution of wealth & have been trained to see injustices everywhere they look in society, rather than focused on the issue of how to create wealth in the first place. The emphasis is now thoroughly on equity, not efficiency.

7. Our cities need to be vibrant hubs that attract smart, hard-working folks who want to be around other smart, hard-working folks. However, many of these types are drawn from the international talent pool & want to send their children to top schools, are super-averse to crime & want to get around fast, with quality infrastructure that frees them from congestion. Yet NZ's big cities are failing on these fronts. Given urban areas drive productivity growth around the world today, this issue has become a great weakness. These past six years, Auckland went from being one of the most "live-able" cities in the world, to one of the least. If you're from Auckland & want to return home, there better not be a pandemic on. The message from Mr Hipkins was stay away (and if you do live here, stay home & endure never-ending lockdowns).

8. Nearly two-thirds of Kiwis are now "working" at least one day a week from home, with one in five between 3 and 4 days (Workplace Wellness Report, Business NZ). Kiwi studies on this issue confuse wellness with productivity. Wellness may go up - productivity falls. The best paper on this issue is in the highly regarded Journal of Political Economy: "We study employee productivity before & during the working-from-home period of the pandemic, using personnel & analytics data from over 10,000 skilled professionals. Productivity fell 8%-19%. We analyze determinants of productivity changes. An important source is higher communication costs. Time spent on coordination activities & meetings increased, while uninterrupted work hours shrank. Employees networked with fewer individuals & business units inside & outside the firm & had fewer one-to-one meetings with supervisors. The findings suggest key issues for firms implementing remote work". Investment Bank JP Morgan ended remote working for senior staff - it stated they need to be "visible on the floor" to set an example. The more senior you are in management in NZ, the more likely you are to skive off & force juniors to go into work. Why? JP Morgan cares about productivity. Our big government & big corporates do not.

9. Meritocracy has been abandoned in NZ, in favor of selecting applicants, particularly for government jobs, on the basis not of ability, or work ethic or experience, but on other (political) factors. A student told me last year she had applied to the Treasury which had put her through all kinds of weird psycho-metric evaluations. Seems it was important she was of a type that the bureaucracy liked, more than anything else.

10. Our Members of Parliament are increasingly looking unimpressive. Over 40% of them have never won a seat, couldn't if they tried, and are made up mostly of party hacks who schmoozed their way onto "The List". National & Labour are presently governing by reversing each others policies around every six years. Charter Schools come in - then they are abolished - now they are in again - and would likely be abolished again should Labour win again.

11. The country is on a path to becoming divided between three different major racial groups (Asian, Māori & European) each of which has different values & beliefs, which seem increasingly hard to reconcile. Achieving consensus is becoming fraught.

12. NZ has begun to define itself more as a lifestyle country than a Singapore-style high productivity country. High productivity has not become an aim that most Kiwis even aspire to anymore. We have become a (Ardern-Robertson-Hipkins) "well-being" styled nation, best suited to laid back types who want to "chill out". That's all very nice, but who is going to produce stuff to pay the bills?

13. None of our political parties has outlined a plan to solve the problem of "structural deficits" that are projected to worsen, particularly in a few years time, after 2030. We're in for a worsening fiscal & debt situation because of the ageing population. Not a single MP has proposed a plan how to reform our health-care & retirement systems to deal with it. I tried - the plan was based on building savings for all NZ'ers to help them pay for these bills, yet both our major parties threw it back in my face.

14. NZ is culturally anti-intellectual & anti-boffin - preferring folks who "live in the real world", as evidenced by the small proportion of honors going to the likes of our top mathematicians, computer scientists & teachers, not to mention their appalling pay. Yet as the Kiwi-born Chief Scientist of Artificial Intelligence at Google told me, every time you do anything nowadays, from banking to clicking on your smart phone, you couldn't be relying more than ever in the "real world" upon high-brow maths & computer science & engineering & physics. Anti-intellectualism & being anti-ivory tower means anti-productivity in our times. At the same time, our academics are losing respect and credibility by pursuing partisan agendas in the media.

15. Labour never weakened monopoly power, which sweeps from aviation (Air NZ on domestic routes & Auckland Airport) to food supply (the supermarket duopoly) to finance (the Big Banks) to construction (Fletcher Building & other large property companies) - that is nearly everywhere one looks. Why? Because Labour was scared to do so & did not know how to deliver such changes. National will also not go after the cartels - though for a different reason - it has too many mates in those industries.

None of these issues are easy to solve, which is why I think productivity will continue to stagnant. By the way, cutting taxes and regulation is only a small part of the problem - they're not even mentioned in the above list.


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.


Murray Reid said...

Number 16
Road cones, scaffolding, hard hats, vizi vests, and men with clipboards.
OSH & Worksafe have a lot to answer for.

Basil Walker said...

The budget is days away now and if the axe is not swung against spending Mr Luxon will have a short reign.
No 13 The retirement age can be incrementally increased in small easy to manage steps without fuss by parlianmentary decree.
Health is more difficult .e

Anonymous said...

Great, but very disturbing to read your incisive comments Professor. You have nailed most of the issues, which perhaps could be summarised as institutional corruption writ large in many or most of our major structures. Of course the fish always rots from the head, and you are spot on about our political scene. It has been said ‘the best lack all conviction, while the worst are full of passionate intensity.’ This is certainly the case in our Parliament, which must surely be approaching its use-by date. I suggest a return to the Athenian Option. An end to political parties is essential. Only the most qualified and capable should be trusted to guide the state, and then only for a limited period. (‘Power corrupts, absolute power corrupts absolutely’.). We have a tough road ahead.

Anonymous said...

The result of 4 decades of CRT based on cultural Marxism and marching through NZ's key institutions = a failing state.

For the hard Left, mission - almost - accomplished.