Improving NZ's productivity

by Linda Sanders / 17 January, 2013
Why we are getting relatively poorer, which is encouraging our brightest people to leave.
Improving NZ's productivity

Back in the 1950s, New Zealand was one of the richest and most productive countries in the world, largely thanks to our efficient pastoral industry being the “farm” for Britain. Fast-forward 60 years and we are a very different country – multicultural and international in outlook but comparatively less well off financially. The experts tell us we are far less productive – we’re now 26th on the OECD list we once led.

Why does it matter? Because we’re becoming relatively poorer, and that’s luring our brightest people overseas for better opportunities – compounding our woes. We’re educating people with great potential and then other countries are reaping the benefits of that talent.

Families are scattered all over the world. At last count 700,000 Kiwis live in other countries. This happened in reverse after World War II when young people from the UK, the Netherlands, and Slavic and southern European countries came here for better lives – my parents among them.

The term productivity always puzzles me, because Kiwis are known worldwide as hard workers (we work among the longest hours) and our farming industry, for example, is very efficient.

Why are we sliding down the productivity ladder? It’s because we are not increasing our productivity as quickly as other countries. Unless we produce a bigger cake, we can’t raise living standards or fix disadvantage, so more of our population will become poorer.

We are trying to do something about it. New Zealand set up a Productivity Commission a couple of years back similar to a like-named organisation in Australia established in the mid-1990s. It’s a research body that aims to give us a greater understanding of what works overseas and to provide advice for the Government on what we could and should be doing better.

The commission says open competitive markets are generally crucial to lifting performance because they encourage innovation and the efficient use of resources. Smart investment is obviously important (especially using clever technology), as is employing well-educated and trained people who are encouraged to continually improve efficiency rather than simply working harder.

It’s also about no longer doing some things that are not working, which can mean closing down businesses, industries or roles within organisations to free up people and capital for new ventures.

We need governments making wise decisions about how public money is sourced and spent, and policies to encourage investment. Finally – and perhaps most importantly – we need a nation of people who want to achieve.

A holiday topic on the Kea social media site for expats commented on our low pay and the high cost here of food and eating out. Many had a hankering to come home but – outdoors lifestyle aside – their standard of living was higher in their chosen countries. These mostly professionals aren’t prepared to sacrifice income or career for the lure of family or high quality – but expensive – food at home.

Is our famed relaxed lifestyle at fault for our poorer performance? Perhaps. More specifically our small size, distance from markets and narrow economic base are disadvantages.

Interestingly, a Motu economic study found Auckland far more productive than other parts of New Zealand. There’s a link between productivity and population density, because large cities attract industries and skilled labour. Nevertheless, a large chunk of the world’s richest nations are small; successful countries find ways to adapt and exploit their advantages.

According to the Productivity Commission, improving productivity requires creating an attractive environment for business, including high-quality and low-cost regulations and less red tape without putting our communities’ welfare at risk.

We have to find new ways to build our economic well-being. The good news is even a small boost in GDP growth over a long period would make a substantial difference to our fortunes.

The world is competitive. Just as on the sports field or in any commercial endeavour, we need to keep on getting better – and at a faster clip than our competition.

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