Bob Edlin: Marama Davidson focuses on social inequality.....

Marama Davidson focuses on social inequality, but other factors come into NZ’s poor productivity performance

Green Party co-leader Marama Davidson has a somewhat simplistic view of productivity, as she demonstrated in Parliament yesterday.

At question time, she asked:

Does the Prime Minister care about productivity or just growth; and if so, how exactly does relying on offshore money from big corporates attending his privatisation festival address New Zealand’s productivity crisis, which is created by entrenched social inequality?

Deputy Prime Minister Winston Peters was standing in for Christopher Luxon and failed to challenge his inquisitor on how the productivity crisis was created.

Rather, he replied in words that left PoO none the wiser about what the PM cares about productivity or growth, or about how overseas investment will help lift our flagging productivity performance.

Rt Hon WINSTON PETERS: To the manifestation of a number of questions, first two questions, both the answers—tahi, rua—are āe and āe.

Davidson then asked if the Prime Minister agreed with with his statement that “We have a fair tax system”; and if so, why had the OECD consistently said that New Zealand’s productivity and equity was hampered by “shares, land, and residential property being tax favoured”?

Rt Hon WINSTON PETERS: The Prime Minister agrees with the statement, otherwise he wouldn’t have said it. On the second thing: the OECD’s had a lot of suggestions for this country, but if you look at it, the former Government went through this experience and decided in the opposite and, in fact, in the bonfire of inanities, the present leader of the Labour Party got rid of them.

PoO can find dozens of papers and reports to help Marama Davidson better understand productivity, including a Treasury paper by Kevin Sampson headed …

Improving New Zealand’s Productivity – A way forward

The purpose of this paper was to extend recent analysis of why productivity in NZ was much lower than other OECD countries and to make some suggestions as to future policy directions.

Sampson set out several often-cited reasons for NZ’s low productivity. 

• Weak international connection and distance from foreign markets.
• The effect of ‘high’ real exchange and interest rates.
• Small insular domestic markets.
• Weak investment in knowledge-based capital.

Sampson then listed….

THE MOST IMPORTANT REASON WHY NZ HAS LOW PRODUCTIVITY

It is the board/managers of a firm who make the decisions as to what to produce, how to produce it (especially the mix of capital and labour), how to market their output, etc. It is the leadership aspect of high level management that encourages all the people in the business to work cooperatively to the common objectives. Managerial decisions and leadership are the only things that determine whether a firm is more or less productive than other firms in the same market segment. It is the managers who make the decisions about innovation and capital investment and motivate staff to perform well. The severe shortage of knowledge based capital in the form of leadership and management is by far the primary reason NZ is failing.

In his conclusions, Sampson said the keys to improving NZ’s productivity are: 

• Increased training and education for workers at all levels within firms.
• Encouragement /pressure for the multitude of small firms to merge into entities that can internally have almost all the skill sets necessary to run a successful business.
• Improving the competition regime in NZ.
• And most effectively a gradual real increase in the minimum wage that forces firms to either improve their productivity or exit their industry

That last one, we imagine, will gel with Davidson.

Perhaps she would endorse all of them.

And no doubt there are plenty of economists to advise her by chipping in with their own ideas.

But more is needed than simply banging on about “entrenched social inequality”.

Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE. - where this article was sourced.