Productivity: any hope from Treasury?

In my post yesterday I noted briefly the dismal productivity record in New Zealand in recent years, nicely captured in this chart.

real GDP phw dec 18

That poor record builds on decades or underperformance, dating back to the 1950s.  In all the time since then, there has never more than a year or two at a time when New Zealand has outperformed other advanced countries, and mostly we’ve achieved less productivity growth than they have.  As a result, we’ve moved from being among the very richest and most productive economies in the world to one where the top-tier of OECD countries have rates of labour productivity about two-thirds higher than those in New Zealand (and countries like Turkey and various former eastern-bloc countries –  where market economies were unknown for decades –  are nipping at our heels).  This table is from a chapter on New Zealand economic performance in a forthcoming book (which I foolishly allowed myself to be persuaded to participate in)

GDP per hour worked
USD, constant prices, 2010 PPPs
1970 1990 2017
New Zealand 21.4 28.6 37.2
Netherlands 27.4 47.5 62.3
Belgium 25.0 46.7 64.6
France 21.7 43.3 59.5
Denmark 25.1 44.8 64.1
Germany 22.3 40.7 60.4
United States 31.1 42.1 63.3
Median of six 25.1 44.1 62.8
NZ as per cent of median 85.4 64.9 59.2
Source: OECD

You might have hoped that this shockingly poor performance would worry someone in office –  political or bureaucratic.  But there is no sign it ever does, for long anyway.  It occasionally provides a good line for Opposition parties (of whichever stripe), or even for incoming governments in the heady days when everything is the fault of the previous government and you’ve not yet been expected to produce results yourself.  Our current Prime Minister and Minister of Finance were occasionally heard to refer to the problem in 2017, but hardly at all since then.

Once upon a time it was something one might have expected The Treasury to care about, have views about, and be offering rigorous advice to the government of the day (of whichever party) on.  After all, productivity is the only secure foundation for material prosperity, and material prosperity allows societies to make all sorts of other choices with fewer constraints than otherwise.  But that isn’t today’s Treasury.  If there are people in the organisation who still think about these things, it certainly isn’t an issue that ever seems to trouble the senior management – the more so under the lamentable stewardship of Gabs Makhlouf over the last eight years.  As I noted late last year, when Treasury is forced to write down its view on the productivity outlook, results make it clear they have the wrong model.

After my post yesterday, a commenter observed

The only hope on the horizon is the appointment of a new Secretary to the Treasury who is given or [secretly] works on a single goal of devising policy to genuinely increasing productivity…..

The Treasury has lost its sparkle over the last 30 years and it is time it regained some lustre, it’s ‘reason for being’ and grew some courage.

I couldn’t disagree with the sentiment, even if I wasn’t optimistic that there was any hope at all.  But the comment prompted me to have a look at the documents on the SSC website supporting the current advertisement for a new Secretary to the Treasury.

The procedure for the appointment of public service chief executives is set out in the State Sector Act.  Section 35 provides that when there is a vacancy the State Services Commissioner must

invite the Minister to inform the Commissioner of any matters that the Minister wishes the Commissioner to take into account in making an appointment to the position.

That is the Minister’s opportunity to scope the job, and identify his or her priorities.  And although there is now a perception that appointments are made by the State Services Commissioner, in fact the law is clear that the Cabinet can not only reject a nomination, but can appoint their own preferred nominee.   In other words, while Peter Hughes (the State Services Commissioner) has considerable influence, appointments ultimately reflect to a substantial degree the choices and priorities of ministers.  Thus, under the previous government it was ministers who fast-tracked citizenship for Gabs Makhlouf to allow him to be appointed. (And thus Bill English –  who later acquiesced in the reappointment of Makhlouf –  bears responsibility for the failures of The Treasury this decade –  including the complete absence now of any comprehensive analysis and advice on the productivity failure).

But what of the current search?  The advert and supporting documents will reflect the Minister of Finance’s own priorities and views of what The Treasury should be doing.

Even the short advertisement itself starts in an unpromising way.

The Treasury is the Government’s principal economic and financial advisor. Its work improves the wellbeing and prosperity of all New Zealanders by ensuring the nation’s macroeconomy is stable,

In fact, if anyone does macroeconomic stabilisation at all well it would be the Reserve Bank –  that is a key part of the Bank’s role.   Sure, The Treasury advises the government on policy around the Reserve Bank, but the Bank is both operationally independent and has a direct line to the Minister on the policy issues.  But not a mention of productivity –  lifting the level of economic performance –  or any of its cognates.

Later in the advert, I was briefly encouraged

The Secretary will be both an expert in financial and economic policy leadership and  state sector management and strategy.

Good luck finding a person with both sets of qualities, but I don’t want to cavil just yet –  an “expert in financial and economic policy leadership” would be good.   An expert in financial and economic policy itself might be even better –  someone who would command credibility among staff, ministers, and the wider policy community.

Three other documents accompany the advert.  One is purely process oriented, and I’m not commenting any further on it.

The second is the position description.  In the opening bumpf  about the organisation there is finally some welcome reference to Treasury’s responsibility for things around the level of economic performance (emphasis added)

The three key outcomes the Treasury works towards are improved economic performance and prosperity for all New Zealanders, macroeconomic stability, and a higher performing State sector.

But that’s it.  Once the document gets on to the specific position of Secretary to the Treasury, it is all lost once again.   There are the specific accountabilities for the Secretary, moving beyond the generic statutory responsibilities:

The Secretary of the Treasury is also accountable for:

• Leading and overseeing New Zealand’s public finance system;

• Working collaboratively with the State Services Commissioner and the Chief Executive of the Department of the Prime Minister and Cabinet to ensure a consistent and aligned approach to State sector system leadership;

• Advising on, and implementing strategies for, managing the Crown’s balance sheet including debt; risks; contingent liabilities; and the government’s investment in companies and other entities;

• Advising and reporting on fiscal management for the Crown and monitoring departmental operating and capital expenditure; and

• Building succession for the Treasury’s leadership team and working with colleagues to leverage the Treasury’s talent for system benefit while building a diverse and inclusive organisation where staff have career pathways.

Nothing about economic performance (level or variability) –  advice thereon – at all.

And these are policy-related “critical success priorities”

• Leading, organising and managing the Treasury so it delivers on the Government’s goal of a shared prosperity where all New Zealanders benefit from the wealth that growth in the economy provides;

• Refreshing the macroeconomic framework (fiscal, monetary and financial stability) to ensure it is fit for purpose for the next twenty years, including driving the further development of a wellbeing approach;

• Promoting greater transparency and understanding of the Government’s economic goals through supporting the embedding of wellbeing measures in the Public Finance Act and through the Secretary’s and other Treasury communications and engagements;

• Providing advice to assist the Government to meet its policy priorities within its Budget Responsibility Rules;

• Working collaboratively with others, including Māori, to collectively develop and deliver creative solutions to resolve long-term challenges including child poverty, housing, climate change, and freshwater;

The first of those is about distribution (not “growing the pie”), and the second is about some odd mix of stability and the wellbeing approach.  The third is about transparency, the fourth about fiscal policy, and the fifth perhaps illustrates the government’s priorities.  Productivity appears not to be one of them, from the agency styled as the government’s principal economic advisers.    I’m not necesssarily suggesting there is much wrong with what is on the list –  one can debate the vacuity of the wellbeing approach another day –  but what isn’t there is telling.

The third document is the application form, which is useful because it sets out the capabilities SSC (on behalf of the Minister) says it will be assessing applicants on.  These are the capabilities applicants are required to demonstrate (in writing)

Think, plan and act strategically; to engage others in the vision, and position teams, organisations and sectors to meet current and future needs.

Lead and communicate in a clear, persuasive, and impactful way; to convince others to embrace change and take action.

Work collectively across boundaries to deliver sustainable and long-term improvements to system and customer outcomes.

Drive innovation and continuous improvement to sustainably strengthen long-term organisational performance and improve outcomes for customers.

Bridge the interface between Government and the Public Sector to engage political representatives and shape and implement the Government’s policy priorities.

All probably fine and reasonable in their own way –  if what you want is some generic public service manager –  but again what is notable is the absences.   Neither here, nor anywhere in any of the documents, is there any sense of wanting someone who might model excellence as a policy adviser, or lift the performance of the organisation in a way that might deliver credible and compelling answers to the appalling productivity underperformance of the New Zealand economy.

And why not?  Presumably because neither Grant Robertson, nor his boss, nor his party, nor the parties they govern in league with, care.  Nothing –  in these documents, in speeches, interviews or anywhere –  suggests otherwise.

To revert to my commenter’s hope, I guess there is nothing to stop the person who is eventually appointed choosing to make productivity a priority and foster work developing compelling analysis and recommendations.  But it doesn’t seem very likely.  Even if Treasury isn’t as resource-constrained as some government agencies, there won’t be lots of capable staff resources readily able to be diverted to something that just isn’t a government priority.  But more importantly, what sort of person do we suppose is likely to get the job?   And why would such a person, who got through the selection process (acceptable to both SSC and the Minister) be likely to change their spots once in office.  What would be their incentive?  And how likely is it that they’d be the sort of person who would even care much, or understand the issues well enough to know where to start.

As was the situation eight years ago, there are few obvious strong contenders for the role –  at least among people with any serious economic or financial expertise.    Looking through the list of current Treasury senior management, there are some capable people (although part of a leadership team that appears more interested in, say, diversity than in productivity), but really only one of those people could conceivably offer that level of expertise at this stage.   Around the rest of the public sector, I wonder if Geoff Bascand (Deputy Governor at the Reserve Bank, who was open about the fact that he applied to be Governor and missed out) might be interested.  Perhaps there are ambitious people at MBIE – an agency better known for delivering on ministers’ priorities than for serious analysis.   One can’t help thinking that applicants who are female will, all else equal, have something of an edge. But none of the names that spring to mind seem any better than the likely underwhelming field of male applicants.

Then again, Grant Robertson isn’t serious about dealing with the country’s most important economic failing, so perhaps it doesn’t really matter much who oversees the playground where analysts divert themselves thinking about concepts of wellbeing, while New Zealand is likely to keep drifting further behind.

17 thoughts on “Productivity: any hope from Treasury?

  1. Higher productivity requires less government subsidies in the Primary Industries. I am tired of having to queue up at the airport for an hour everytime I return from my holidays overseas because they want all baggage checked for fruit. NZ is the most militant airport compared to my visits to China where entry was a breeze with zero baggage checks. Of course the USA was another nutcase entry point. It took 2 hours to clear Customs and Border control at Los Angeles even before Trumps US government shutdown antics. For entry you have to have already applied for a ESTA Visa Waiver online. When you arrive you still need to register hand and finger print scans even with a Visa Waiver approved earlier.

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  2. Wikipedia
    “The NZ economy has been ranked first in the world for Social Progression, which covers such areas as Basic Human Needs, Foundations of Wellbeing, and the level of Opportunity available to its citizens. However, the outlook includes some challenges. NZ income levels, which used to be above those of many other countries in Western Europe prior to the crisis of the 1970s, have dropped in relative terms and never recovered. As a result, the number of New Zealanders living in poverty has grown and income inequality has increased dramatically”

    Liked by 3 people

    • Take the unnecessary political last sentence out the extract and the statement is correct. The sentence adds nothing to the debate about productuvity.

      The arguments about poverty and income inequality are relative. Equally, if you look arounfd your home and look at what you consider essential to your life when compared to your parent’s era, you’ll find you’ll have much more. Does that make you relatively more wealthy than your parents? in comparative terms of then and now, probably, yes, but in terms of your piers today, probably, no. Then you can do relative comparisons of one country against another and the comparisons become equally spurious.

      So, as I wrote the last sentence is meaningless political nonsense that does not add to the discussion about NZ’s poor productivity.

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      • There is nothing rocket science about NZ productivity problem. It is very simple. Our nutcase NZ economists over the last 40 years told our government that Primary industries in NZ produces a high productive economic outcome. The government subsidises our Primary Industries to the tune of billions of dollars each year, building roads that only Fonterra uses to run their trucks, irrigation water for grass, border control, an entire research and development facility for new types of crops, disease control etc. The latest billion dollar expenditure is culling cows and compensating kiwifruit growers for some idiotic non existent duty of care due to an idiot judge who writes an idiotic 500 page interpretation of how suddenly the government has a border control duty of care to protect farmers from disease. They forget to count the army of military DOC workers busy counting the number of shell animals in the boot of your car or the army of border control military looking for apples in your suitcase armed with hundreds of millions of dollars of the latest technology in Xray equipment looking for leftover apples.

        Our idiotic economists forgot to count the 10 million cows and 30 million sheep it takes to generate an abysmal $17 billion in GDP. They just counted the few working farmers and cowhands and called it highly productive. They forgot to count the enormous amount of land, water resources, air pollutants, waste and disease control that is demanded by primary production.

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  3. Would it be fair to say that the National government (in conjunction with ACT) made all the right noises in 2008 (establishment of the productivity commission and all that) but did very little in turning that analysis into action?

    Perhaps it is more honest (although extremely concerning) to not bother calling it out at all if there is no intention of doing anything meaningful about it…?

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    • The Productivity Commission was mostly a sop to ACT (even more so, the 2025 Taskforce, set up to focus on closing the gaps with Aus by 2025), but also fairly harmless – the PC only produces reports on topics the govt of the day asks them to look into, and while some of the chosen topics have been important – and reports sometimes useful – the topics chosen rarely get even close to the heart of the productivity issues. Both govts have consciously shied away from one of the most important.

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  4. Having spent a lifetime in productive businesses that actually produced stuff, it would be great to see some meaningful work done on the productivity front. I know what worked for my businesses; great software, up to date equipment, a minimum of paper sliding, flat structure and an appetite for some risk. Is it a mere coincidence that the productivity stall has been in tandem with the state safety net becoming a feather mattress?

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    • Your point about making actual stuff is pertinent. This posts reliance on GDP as a measure of productivity is problematic. Much of history sees money lenders, the shylock and what has become the financial services industry as unproductive and even a drain on productivity. Not until the 1930’s advent of national accounting did financial services get ‘made’ productive and in many nation states (eg. France) financial services wasn’t rendered productive until the 1970’s (here I’m trying to recall Brett Christopher’s book ‘Banking across boundaries’.
      If NZ is unproductive because of a constrained financial sector then compare that with the list of countries in this posts experience of the GFC, I’m happier to be in NZ, but the posts point I think is that genuine productivity is under-addressed by our elected officials.
      Perhaps this is because they, a) see increasing productivity as not contributing to re-election, and b) because the requirement to run a fiscal surplus (taxing more than spending) means that the non-government sector (you, me and businesses) must run continuous fiscal deficits (spend/borrow more than save) as an accounting identity. Business can’t invest if the government draws more financial resources from the economy than it inserts so struggles to increase productivity.

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    • That is why the IRD spent $1.5 billion on their latest computer and at the same time sent pink notices to 4,000 IRD staff and told them to pack their boxes and ship out. They certainly got their productivity. But hang on a minute $1.5 billion divided by 4,000 staff equates to $375,000 each. IRD staff are not known to be well paid so on average that would be 5 years pay each. In 5 years most computers are obsolete anyway so another round of multi billion dollar computer upgrades?

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      • Retired after a lifetime working with computer systems I’m astonished by the costs of computer systems. I realise $1.5b is not unusual in NZ or other countries but this is my perspective: a few years ago I was looking after a system that accessed over 17 million spare parts and these parts had about 30 attributes each. I did so with free version of MSSQL and MS Access (part of MS Office) on a PC that was average ten years ago. I had no trouble get blindingly fast performance – you describe what you want and a list of parts and their suppliers was near instantaneous. Total cost including my time of hardware and software under $2000. If IRD gave me an extract from their database for the tax paid per year for the last 7 years by every personal and business taxpayer in NZ I could pull the data up by almost any criteria you can think of on the 2nd hand laptop I’m using to type this email and I’d backup to the cloud for nothing – i’d be ashamed if it took me a week (and there are better programmers than me). OK ‘proper’ commercial computer systems need security and backup and access trails but they shouldn’t cost $1.5 billion. The computer software companies are usually nerdy and bright and not corrupt – the problem lies with the user not knowing what they really need as opposed to day-dreaming pretty bells and whistles that can be left to later and costed accordingly.
        GGS – you are right for $1.5b 99% of tax terms could be processed by 4,000 staff with quill pens.

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  5. I am not surprised by the content of the documents for the position of Secretary of the Treasury.

    You wrote
    “And why not? Presumably because neither Grant Robertson, nor his boss, nor his party, nor the parties they govern in league with, care. Nothing – in these documents, in speeches, interviews or anywhere – suggests otherwise….”

    I think it is a little more blunt than than this. None of the personalities or parties you refer to have any experience or qualifications to suggest they know anything about economic management or advisory, so why should they know what to specify as requirements for the one position that will give advisory direction to government economic policy?

    Finally, one pedantic note, when the extracts you have selected contain grammatical errors/mistakes, what hope has New Zealand got if we have such sloppy standards?

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    • Re your “blunt” para, of course the same could be said for Roger Douglas, Richard Prebble, Ruth Richardson, Paul Keating, Margaret Thatcher or Geoffrey Howe (to name just a few reformers from recent decades in the Anglo world). We shouldn’t expect political leaders to be economists, but you don’t need to be one to recognise the fact or the implications of the productivity failure – even if getting from there to the answers is a bit harder.

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      • Interesting mention of Roger Douglas

        He drove more reform in 6 months than any other government since – I remember him on TV weekly announcing the next change – he articulated everything he was doing well – and it happened – I was in awe of the guy

        One that sticks in the mind was terminating the Forest Service. planting millions of trees on mountainous country that would be impossible to harvest – it simply made sense

        Douglas was a decision maker – some of the consequences may have resulted in poor outcomes – but – things got moving and moved so fast the captains of industry were so frozen by the time they found their voice Douglas had moved beyond them

        There is a heap of Douglas material and speeches on Youtube for those who know not of Douglas and how direct and smart he was

        That was a leadership and NZ today is better for it

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      • Terminating the Forest Service is rather unfortunate because NZFirst now has got a $3 billion provincial fund plus another $400 million to try and plant their 1 billion trees. It is called a Regional development fund which still would not be enough to plant a billion trees. Now we have Shane Jones learning how to plant trees by mulching $100 million worth of trees instead of planting them.

        Liked by 1 person

  6. The meaning of “Productivity” does not leap into the forefront of ones mind

    If you went out and asked “the man on the street” what productivity is, and what makes it up, and how it is measured I doubt if you would get much serious engagement on the topic. Periodically I have to remind myself by looking it up on “investopedia”

    The fact it is not getting any cut-through one wonders where our academics are and what they are doing – and publicly that is otherwise Wiremu and Hemi and Frank and Jack are going to be worrying about other things such as food on the table, paying the rent, paying for petrol, and buying a flat-screen TV

    As an aside I once worked for a subsidiary of NZ’s largest building company. It manufactured things. Shipped product out the door. The performance of the factory manager was assessed on how much product he shipped out the door. The Factory Manager did not care about a 20% reject return rate. He wasn’t measured on that

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    • I disagree. Most people do understand productivity ie How much I can get done with my limited time. But most people also understand profitability which most NZ economists getting big fat salaries to copy and paste economic theory tend to forget.

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