Improving productivity – one research paper at a time?

The latest report from the Productivity Commission, ‘Productivity by the Numbers : The New Zealand Experience”  offers a snapshot of the productivity performance of New Zealand’s economy.  Sadly, it confirms what is generally well known, that as a country we feature at the wrong end of the relevant statistics. We are told that “New Zealanders work about 15% longer than the OECD average to produce about 20% less output per person”.

Not only is our productivity very low in both relative and absolute terms, but our rate of growth in productivity is also in the doldrums.  This does not bode well for our collective wellbeing, either now or in the future.

With all due respect to the authors of the report, who have produced a solid piece of work and no doubt fulfilled the brief they were given, I find it very frustrating that almost three years after its establishment the Productivity Commission is still fiddling about gathering data about the nature of the problem, and promising to do ‘further research and inquiries’,  to periodically ‘publish a productivity outcomes monitoring report [series]‘ starting next year.

The problem has been identified, analysed, scrutinised, sliced and diced for years – note for example a speech from the Secretary to the Treasury in 2008. There is no simple one off solution to raising our productivity, but there are some very obvious and practical steps we could be taking right now, as I pointed out in a (much) earlier blog on the issue.

One of these is to educate and encourage more businesses to understand the value and importance of staff engagement.  There is ample evidence that companies who listen to their staff, involve them more intimately in the business, who give people reason and purpose to actually think about how they can do a better job, and reward them for that attitude, invariably do better.  The skill is to create a positive and affirming workplace culture,  a place  where people want to do well. This is not high-minded abstract theory, it is based on practice, observation and measured outcomes.

Investing in people, their skills and wellbeing, is not always easy, but is probably the single best investment any business can make.  Government’s time and resource would be much better spent supporting business to get on with implementing this and similar strategies that are tried and proven to work, rather than simply adding to the already voluminous literature about the nature of the problem.

32 thoughts on “Improving productivity – one research paper at a time?

  1. Thanks David,
    They to higher oroductivity seems to me education…but
    The current government has restricted access to education for many, for example the tighter controls for the Training Incentive Allowance, and MSD other tool, the Course Participation Allowance is now only granted if the applicant has an identified job to go to say nothing of reduced access to the student allowance.
    The opposition to the Living Wage by Key et al is also insightful. Where the LW is in, Baltimore for example, businesses have less staff turnover, thus less need to train new recruits. The places where LW is have not faced rampant inflation or closures of business.
    Check out pages 203-7 in Max rushbrooke’s Inequality for some comments on productivity by Nigel Haworth.

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  2. Is productivity per capita a worthwhile measure? Does mechanisation and automation increase our personal satisfaction? Why does the Green Party care about such a measure?

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  3. Why does the Green Party care about such a measure? [productivity per capita]

    The obvious answer is that the Green Party is ideologically a socialist party, and the money to do socialist things has to come from somewhere. And the only sustainable “somewhere” is taxation, which, in reality, is a fraction of GDP per capita.

    Thus the higher the GDP per capita, the higher the tax take, thus more funding is available to support the disadvantaged of society. Which is a Good Thing.

    It doesn’t really matter if you are a left winger, a right winger, a centerist, or no winger whatsoever, GDP per capita is an important measure, and the more of it, the better.

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  4. The problem is…. GDP per capita is (sadly) not a useful measure of how hard individuals work, it is a more measure of the value the work they do. It it were a measure of effort put in, we’d do quite well.

    Our GDP per capita is, in real terms declining. Of course, it isn’t really, more we are not making progress whereas the rest of the world is, thus we are being “left behind”. To quote the report:

    At the aggregate level, New Zealand’s productivity performance shows no evidence of catching up, with labour productivity declining relative to other OECD countries for a number of decades. So despite having one of the lowest levels of labour productivity in the OECD in the 1980s, labour productivity growth in New Zealand has still been among the lowest of comparator countries since that time

    I’ve quoted this before, but I’ll repeat it source:

    Back in 1951, our GDP per capita was 60% higher than the OECD average, but by 2002 it had fallen to 14 points below the OECD average (86%). That’s a pretty massive decline, and it has continued since: the most recent OECD figures are for 2007 and have us at 84%.

    The problem is our primary industries. Farming and tourism are both low productivity industries, and both are below the average of the OECD productivity index. The more farming and tourism we do, the lower we sink.

    We do have employees that generate lots of value: a F&P healthcare employee generates over $400K GDP. Someone at Tait Radio generates $300K. By way of contrast, a tourism worker generates $80K.

    Sir Paul Callaghan suggested that as few as one hundred high value small industrials could turn the New Zealand decline around. I believe he’s right. I’m still waiting…

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  5. dbuckley,

    It doesn’t really matter if you are a left winger, a right winger, a centerist, or no winger whatsoever, GDP per capita is an important measure, and the more of it, the better.

    I’m a no winger and I don’t think it is an important measure and we certainly don’t need more of it.

    This is orthogonal to Green values, I would have thought but the Greens are as much of a political party as the others, sadly. They seem to be for GDP growth (or, in this case, reduced number of workers for the same GDP) and yet have supported the GNH index in the past. Isn’t happiness much more important than productivity to the Greens? Perhaps not.

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  6. It isn’t just about the tax take. A worker who produces more is likely to be paid more, allowing them to get a better quality of living, and of course that better quality of living requires production – whether locally or exports exchanged for imports.

    However GDP is a poor measure – the quality of what is produced also matters. A simple example – if we made light bulbs that lasted twice as long, GDP would fall (because we wouldn’t need to buy as many) but our quality of life would improve – by not having to replace the bulbs as often.

    Trevor.

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  7. I dont think that measuring GDP is a ‘bad’ thing, except when it is used as a standalone measure of wellbeing rather than as one of a suite of indicators (including quality of natural capital, ‘happiness’, resource flows, etc). Productivity measures tell us (among other things) how long and how hard people are working for a given output. There are significant social and environmental, as well as economic, benefits that flow from higher productivity – like allowing people more time to live well, enjoy family time, engage in community activities.

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  8. “A worker who produces more is likely to be paid more”

    I would say the value of wages compared to the value of production is so little linked, and so hard to assess, as to be barely worth considering. A worker in a sweatshop turning out top brand shoes is producing a huge amount of value, whereas a top ranked lawyer may be doing a wonderful job of producing no real value at all (or at least, none you can assess). Wages are determined by power relations, not productivity.

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  9. Wages are determined by power relations, not productivity.

    A bigger element is supply and demand. A sweatshop worker is easy to replace, and there are lots of people who could do that job, so there is no incentive to pay any great wage. A software engineer won’t work for minimum wage. Neither will a doctor, or a lawyer. So if you want software written, or need medical attention, or want to go to court, then you need to pay what the going rate for the job is.

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  10. Tony notes:

    I’m a no winger and I don’t think it [GDP per capita] is an important measure and we certainly don’t need more of it.

    Which is fine, as long as you don’t expect stuff like a funded welfare system.

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  11. Why does a funded welfare system require GDP growth?

    If it does then it is unsustainable and will end at some point. In which case, we’d better think of an alternative.

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  12. David,

    When you say “measures”, are there “official” measures of just how hard people work? I thought a productivity index would just be the value of an economy divided by the people working (or subdivisions of that).

    I’m not sure how a simple measure of how many hours the average employed person works is a measure of happiness. Some people love working long hours and some people don’t. Some people need to work long hours, some people don’t.

    Of course, productivity might just be a factor of automation (less jobs), which I would guess you wouldn’t be happy with? Why get upset over our position on the productivity ladder? We need the detail. What exactly are you upset about in these figures and would that be a personal feeling or a Green value?

    I’m surprised that you would see GDP as an important measure in a wellbeing index. Since a sustainable economy cannot grow then that factor in happiness should be a constant, at best.

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  13. Tony, I don’t think David said GDP was an important measure of a well-being index. GDP is a measure of output of some description….and it is flawed in this regard. GDP per capita, or productivity measures are useful comparing progress from year to year, industry to industry, but not well-being.
    It certainly makes no pretentions about well-being in and of itself, or at least realities like improved happiness…but improved GDP, particularly after intervention to fix market distribution in incomes/wealth will build on happiness….or at least improved health, better housing, less isolation, better work-home balance.
    And with regard statistics…comparing NZ that was the UK’s bread-basket (and wool and meat) in 1951 to most of the OECD which was still on its hands and knees post WW2 (despite the Marshal Plan funds stimulating US manufactouring)is flawed. But that is not to say those in the bottom 80% of NZ income earners are poorer now than then, and some/most of the blame is the lack of investment by capitalists and their governments in training/education and infrastructure over the last (nearly) 30 years.
    I think the dominant paradigm was trickle down.

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  14. Tony asks:

    Why does a funded welfare system require GDP growth? If it does then it is unsustainable and will end at some point. In which case, we’d better think of an alternative.

    Whoa! Back up the bus!! you’ve done the equivalent here of 2 + 3 = 7.

    A funded welfare system doesn’t require growth; it just requires money.

    The sums go like this:

    GDP x taxation_rate = government_funds

    government_funds – other_stuff_government_spends_money_on = welfare_funding

    Note they are all linear equations, no change over time is required.

    If you believe that welfare is now fully funded, then everything is OK, go no further. If you don’t, then by the sums above, then one or more of three things has to happen:

    * More GDP
    * Higher effective tax rate
    * Less “other” government spending (education would be a good one, $4b/annum on staff)

    We’re outrageously overtaxed already (we’re at double the rate at which the people should start revolting and take up arms against their government), and the proportion of the tax take the government spends (on our behalf) on welfare is already very high. Trimming a lot of millions here and there wont make a huge difference.

    Thus the non-contentious, non-damaging, non-political-suicide option is to increase GDP.

    “Increase” is very different to “requiring growth to continue”; increase may or may not be sustainable, whereas growth will eventually fail.

    And the other important thing is that this is real, new money. As PhotoNZ has pointed out often enough that by now surely everyone gets it, just revaluing our existing national wealth by inflation or printing money gets us nowhere; the increase needs to be real.

    As others have noted, there are other, far more direct benefits of higher GDP. It really is an all to gain and nothing to lose scenario. There is no real downside. Well, there is, which I’ve all ready spouted on about many times, but more GDP provides the welfare funding necessary to paper over the financial gap.

    The final point I’d make is that New Zealand really has chosen not to participate in the ways of the world for over half a century. Which is why our financial standard of living has (and continues) to drop. It really is a good job the Japanese have figured out how to make flat screen tellys cheap, or we would look like a third world country too. Our car stock would look like that of Cuba. Though probably without the pride associated with Cuban cars.

    We have the rot, and we need to stop the rot.

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  15. Mr?Ms Buckley, another way of viewing a nations wealth created than GDP minus taxation minus other spending equals welfare is that in any period it is a mix of the individual’s and society’s efforts.
    NW = IE + SE
    SE is society’s. IE stays with the individual…. as it that the individual could create by their own effort without anyone else involved or reliance on public goods such as sunshine or rainfall.
    SE becomes UBI and spending on other areas such education, health, housing, state funded infrastructure.
    The debate then is: Is IE 10%, 20%, 30%…. with SE 90%, 80%, 70%….
    I favour the 20:80 split….and that is being generous to the individual.

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  16. dbuckley, fair enough. However, higher GDP is not a no lose scenario. The environment loses and so everyone loses. If you want GDP to reach a certain level and then be maintained at that level, what level is sustainable and why?

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  17. Graham,

    GDP per capita, or productivity measures are useful comparing progress from year to year, industry to industry, but not well-being.

    I don’t think “progress” is the right word. “Change” maybe. But just measuring change isn’t useful in itself.

    There have been quite a few studies over the past decade or so that show happiness is unrelated to wealth or GDP once a certain standard of living is reached. Beyond that fairly modest level, increased wealth doesn’t equal increased happiness, which is probably why so many people seek more – they are never satisfied.

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  18. In any league table of any measure, there will be nations in the top quartile and there will be nations in the bottom quartile. Governments and politicians will always be trying to leapfrog other countries. The measurements can always be cut up in different ways. The question should not be where is New Zealand in relation to other countries, but how happy are we?

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  19. The Productivity Commission does deserve credit for being the first to highlight how the housing market was being ruined by the lack of new residential zoned land. The govt (whether left or right) will now be able to fix that mess over the next few years. Sustainable economic change doesn’t happen overnight.

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  20. We’re outrageously overtaxed already

    New Zealand’s tax rates on personal income are relatively low. Its top marginal tax rate is the lowest in the OECD.?

    http://www.parliament.nz/en-nz/parl-support/research-papers/00PLEcoRP99081/taxation-a-statistical-comparison-of-new-zealand-with

    We have no Capital Gains tax.
    We have no Inheritance tax.

    http://www.newzealandnow.govt.nz/investing-in-nz/rules-law/taxes

    New Zealand has the largest proportion of its taxes on goods and services made up by value-added tax (GST).

    So we lean on the most regressive POSSIBLE tax we can have, we cut income tax on the wealthiest and we don’t trouble ourselves to ensure that Capital Gains are taxed equally with other forms of income.

    I might say that NZ workers are being screwed big time by this arrangement, but THAT WOULD BE UNDERSTATING THE CASE.

    The GST component is of course, the nastiest piece of work in the mix and National saw to it that THAT got raised when it was cutting income taxes.

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  21. I would argue that there is no such thing as “society effort”. There is “society benefit”, and “cost to society”, but at no point does society ever do anything, individuals do things.

    But what you are trying to do here is to change the system. Which may or may not be good. However, without changing the system, we’ve managed to completely screw over our relative standard of living (for which GDP per capita is not a wholly unreasonable measure) relative to the OECD generally, and thus it is reasonable that without changing the system, we can fix what we’ve broken.

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  22. We changed the system in the mid-eighties.

    We adopted “comparative advantage” as our idol and we abandoned the idea that we could actually do anything but farm and dig stuff out of the ground.

    Since then our “progress” has been most notable by its absence, and we are noticing the failure now because it is large enough compared with other nations of better sense to BE noticed.

    The idea that a society doesn’t do things is a denial that any government has any use whatsoever and flies in the face of reality. It is a clearly libertarian sentiment and that philosophies failure through history to produce ANY surviving footprints (I know of no notable libertarian society of any sort at all), ought to be a warning to its adherents that they are pushing on a door labelled “pull”.

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  23. Agree, right up to the last paragraph. Where you do a 2 + 2 = 5. Governments are “of use”. Just, as an organisation, they don’t do the work. They employ people to do the work, sure. And the government takes the credit for the results of those peoples work. Thats what I mean by “society benefit”. Basic principle is no different to any corporation.

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  24. dbuckley, fair enough. However, higher GDP is not a no lose scenario. The environment loses and so everyone loses.

    Not necessarily. Environmental damage is a measure of the combination of what you do, and how much you do of it.

    The biggest contributor to New Zealand’s greenhouse gas emissions is farming, and farming is a low productivity activity. And we do a lot of it. Imagine, as a ludicrous example, if we were to stop farming and become Luxembourg. Taking that as the model, that would triple our GDP per capita, and despite that trippling of GDP, our greenhouse gasses would be 15% of what they are today.

    If you want GDP to reach a certain level and then be maintained at that level, what level is sustainable and why?

    Thats not quite what I’m calling for. Yes, I want New Zealand as a country to be more productive, and that means we will have a higher GDP per capita. But this is as the result of a different aim: I want New Zealanders to work in higher value businesses, businesses that pay decent wages, have decent benefits, are not sweatshops or hell holes, and produce world leading products and/or services, and do it in an environmentally acceptable and sustainable way.

    As a result of New Zealand having better value (more productive) businesses, New Zealand will have a higher GDP both per capita, and in absolute terms. GDP forms the basis of the tax take, and thus we’ll have a bigger tax pool, and so the big ticket, really important items of health, welfare and education can be better funded by taxpayers.

    There really is no downside to New Zealand having better businesses. And that is what this is really about.

    New Zealand may be the easiest place on the planet to start a business, but many of those businesses are crap businesses, that waste the labour efforts of Kiwis, and reward them poorly for their efforts. And as a final insult to injury, the employee pay is so low that taxpayers have to prop employees up with benefits, which is another problem, the downside of bad busionesses goes on and on.

    There have been quite a few studies over the past decade or so that show happiness is unrelated to wealth or GDP once a certain standard of living is reached.

    Maybe. But the New Zealand problem is so many families are supported by minimum wage workers holding down two (or more jobs). These people surely would be more happy if they have one reasonably paid job rather than multiple poorly paid jobs? Is that such an unreasonable expectation?

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  25. IS different from a corporation as long as we are talking about a democracy of any stripe.

    This is not a “for profit” arrangement. It works for the society as a whole. No corporation is ever organized along those lines. A corporation does not have the same rights and responsibilities that a government does, and so they cannot be compared.

    However, I think you were thinking about the more limited principle that the implementation of decisions taken in the boardroom is up to the worker at the coalface (one wonders when we are going to be rid of that phrase). Motivating those workers to do something is the basic employment contract… they get paid… but the decision belongs to the society as a whole acting as a democracy, not to the corporate masters, and this is going to be obvious when “great leader” runs into the buzz saw of having ignored the desires of the society in order to pursue his ideological and financial prejudices in selling assets.

    When the government does it, it is “we” who are the authors, or we are not governed properly and must change the government. This is not the corporate model. We are not owned. We are not property. We are not the slaves but the masters. Yet all that is only true if we have a working democracy.

    Which we have been losing to big money over the past few decades.

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  26. Re: BJ’s rant on taxation, adressing my statement:

    We’re outrageously overtaxed already

    You’ve illustrated that there are ways we could be even more outrageously taxed, and that other people in other countries are outrageously overtaxed too. But none of this addresses the basic issue: we are outrageously overtaxed, and we should be taxed (a lot) less as a percentage.

    Just over a third of our GDP is tax. When did this become acceptable?

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  27. The tax rate is only half the question – the other half is what do we get for that tax? Low tax rates are associated with user pays services rather than government funded services. New Zealand has a high rate of government funded services such as ACC, health, education, police…

    Trevor.

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  28. Indeedy, this is a postion I am internally conflicted with, as I believe both in low taxation, and also good health, walfare and education services, as well as many other things provided by governments.

    We have, in absolute terms, a huge tax burden. Thus I want a lot for that huge burden. I dont really give two hoots about how other countries choose to manage their affairs.

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  29. Just over a third of our GDP is tax. When did this become acceptable?

    Dunno mate… it seems low for a society to run on if we are properly supplying the needs of everyone in the society. It would only be high if you asserted that everyone has to make it on their own.

    Since only the upper half of the population in terms of intelligence and skills is going to be able to do the “skilled” labour and make decent bux a third seems to be scraping low. Government has other costs besides the need to redistribute wealth to ameliorate the effects of free-market capitalism and debt based currency. That’s a basic and fundamental requirement of those two things, as they act to concentrate wealth if not corrected by the state.

    We aren’t overtaxed. SOME are taking advantage of others and theres a lot of tax and income inequity but taking the POV that the right to social justice is JUST as important if not more important than property rights, one can very well see that we are not “overtaxed”.

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  30. dbuckley,

    It is necessarily. Economic growth damages the environment. How can it do otherwise? More goods and services means more resources are needed, and probably more land. The extraction of resources and the making of goods or carrying out of services damages the environment. Expropriating more land also contributes to habitat loss.

    Now, you want New Zealand to export all the damaging stuff to other nations and to become somehow sustainable supporting this unsustainable global economy, by producing, sustainably, high value goods and services. Perhaps we can even retain a sustainable tourist industry?

    So, you believe that higher wages will always produce happier people. When is the happiness so good that you wouldn’t want more wages? No, I’m afraid you’re looking for something that doesn’t exist, a sustainable high (and getting higher) wage economy that doesn’t harm the planet, supporting other economies that are harming the planet.

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  31. I guess comparisons are only useful if they support one’s argument…be it GDP growth by nation-to-nation or year-to-year or industry-by-industry…Tax (or government spending as a share of GDP) indicates NZ is not highly taxed”…. Ho hum
    And as for society’s effort… that is all the effort not a single individuals. So JK’s efforts (take your pick of John Kirwin or John key) versus the other 4.5 million of us, or Dave Clendon’s versus 4.5 million.
    Besides makiing NZ a “Luzemburg” (and I suspect transport and population density and nearness to trading partners could all influence thw success from such revolutionary change we need a re-think on education and training…so bring back theb Training Incentive Allowance for a start.

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