If it is almost everything, we really haven’t done well

The old line is that if productivity isn’t everything (about economic performance) it is almost everything in the long run.  And multi-factor productivity (or total factor productivity) is typically seen as the best type of productivity (ie not just throwing more inputs into production, but getting more from them).  At least, that is, when it is not just measurement error (and there is inevitably some of that).

In the last few days the Conference Board released the annual update of its productivity estimates.  The Conference Board data are really useful because they use a common methodology across a very wide range of countries.   There might be better estimates for many individual countries in national data, but there are valuable insights in cross-country comparisons.  Many of you may have seen the Financial Times feature on productivity a few days ago (it is reprinted in today’s Herald)

I’ve only had a quick look at the latest data.  For cross-country comparisons, when I can I like to cast the net widely and capture as many advanced countries as possible. In this case, I’ve taken all EU countries, all OECD countries, and added Singapore and Taiwan.  That gives a good range of advanced countries both richer and poorer than New Zealand, and a reasonable number of commodity exporters too.

This chart just looks at MFP growth since 2007, in other words since just before the global recession.  MFP growth has been lousy over that period –  only a small number of these countries recorded any growth at all.  In fact, MFP had been slowing even before the recession, but here I was just interested in the cross-country perspective: who did relatively well, and who did relatively badly.

mfp

As you can see, New Zealand has not done not very well – we are in the lower half of the sample.  On the other hand, we did do better than most of the other commodity-exporting countries (beating Australia, Norway, Chile and Mexico).  The thing that struck me in looking at last year’s version of the chart was how relatively well the United States had done.  The US had been at the epicentre of the initial crisis, and had had multiple failures of financial institutions and disruptions to the intermediation process.  And yet, over these seven years, only six countries did better than the US.  A little surprisingly, half the countries in the euro did better than New Zealand on this measure (although not on actual GDP per capita)

I’ll be writing more on some of this data over the next few weeks. I’ve been intrigued for some time as to why New Zealand, which has had such a good terms of trade, and had no serious home-grown financial crisis has not done better over the last few years.

5 thoughts on “If it is almost everything, we really haven’t done well

  1. Some guesses: investment-savings imbalance, excessive public investment, over-taxation of income and capital, labour market churn, red tape on land use, relatively little labour shedding, lack of competitive pressure in several non-tradeable industries.

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  2. You might be right Blair, but few/none of those have got worse over the last few years. In many respects I might have expected NZ to have done relatively well in the last few years – just because most other advanced countries had really bad stuff happening.

    One NZ-specific story which is recent is the earthquakes. A lot of resources have had to be diverted to repairs and rebuilding in Chch, and that will probably have acted as a drag on MFP, If so, fortunately the effect should unwind over the next decade.

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  3. I believe there’s a bit of GDP accounting going on here too. Australia’s recent poor productivity performance can be explained in part by ballooning commodity prices which result in increased employment and capital being deployed to extract the same (or less) volume of mined product, as well as massive investment in long lead time capital projects.

    So it looks shocking, but it’s still a massive inflow of income and a sound allocation of capital and labour.

    I think, anyway.

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