Over the three and half years that Jacinda Ardern has been Prime Minister and Grant Robertson Minister of Finance it has become increasingly obvious that not only do they have no serious ideas for turning around decades of productivity growth underperformance, and no intention of doing much on that score, but they have no real interest either.
Appointments are among the things that help reveal priorities. A couple of years ago they had the opportunity to look for a new Secretary to the Treasury who might revitalise the agency and start generating serious credible advice on fixing that economic failure – with all its ramifications for opportunities in other areas of life. They chose to pass up that opportunity.
More recently – and the focus of this post – there has been the Productivity Commission, set up a decade ago with some vision that it might offer medium-term analysis, research, and advice focused on reversing that economic failure. It hasn’t done a great job at that over the years, partly because the Commission is heavily constrained to work on specific inquiry topics that the government of the day determines. Neither government has really been interested in tackling the decades-long failure.
Late last year the government had the chance to appoint a new chair of the Commission – the key position in this (small) organisation. They could have found someone serious: someone with wide credibility on these issues, and preferably not seen as a partisan figure. As it was, they appointed Ganesh Nana. I wrote a bit about the appointment at the time.
Nana took office on 1 February. There was always the hope that reality wouldn’t be as bad as I (and others) had feared. Unfortunately, this week we’ve had two public contributions from Nana – an introductory statement, and a first on-the-record speech – that suggest reality is at least as bad as feared.
Take first his introductory statement, posted on the Commission’s website the other day. I described it elsewhere as just another marker in the sad decline of the Productivity Commission. In 1000 words there was not one hint of any insight on New Zealand’s productivity challenges just – in the style of the modern public sector – lots of Maori words, together with straw men (as if any government – or person – ever has cared only about GDP). It wasn’t much more than, as one other observer put it, a “word salad”. Perhaps it warmed the hearts of parts of the Labour Party and places further left, but it was almost entirely substance-free. He just doesn’t seem that interested in the medium-term performance of the economy – for which productivity is a key marker.
Perhaps more disconcerting was his speech yesterday at a Waikato University event called the 2021 New Zealand Economics Forum (which continues this morning), an event focused on the longer-term economic challenges New Zealand faces, especially in the wake of Covid. The organisers seem to have attracted a reasonably impressive array of speakers. After a welcome and introduction from the Waikato Vice-Chancellor, Nana – newly inducted head of the Productivity Commission – was the first speaker. It would seem like a forum and topic tailor-made for a powerful and insightful speech from the Chairman.
You can watch the whole thing yourself – about 45 minutes into the recording of yesterday’s event here. It was quite remarkable for how little there was there (and in fact how low-energy it all was). His title was “Challenges and opportunities for inproving productivity in a post-Covid world” but I heard not a single serious idea and hardly any supporting analysis. He did acknowledge that New Zealand’s productivity performance for the last two decades “and probably longer” (as if there is any serious doubt on the matter) had been “sobering”, and that productivity growth had been slowing. But that was about it. And if one of his messages was intended to be “you can’t keep on doing the same thing over and over again and expect different results” well, I’d agree. But that was really it. And when he suggested -in the body of his talk – that perhaps tourism shouldn’t come back to the way it was pre-Covid, it was supported by precisely no analysis at all, nor any suggestion as to where – if his idle prognostication or wish came true – the earnings and employment that tourism has generated might be replaced from. Perhaps someone might ask the Minister of Finance, the Minister of Tourism, or the PM what they think of their new Chairman’s perspective.
To be clear, I do not regard international tourism as the sort of industry likely to lead us back to first world economywide productivity performance – there is no country I’m aware of that it plays such a role – but them I’m not the only idly, but publicly, as head of a significant government agency, suggesting that the industry might usefully shrink. There seemed to be no mental model behind the comments, no research, and no policy prescriptions. And, of course, no cross-country comparative analysis or perspectives, and no sense of how far behind the productivity leaders we now are. It was as if he really wasn’t that interested.
There was quite a bit – none insightful – about the “Four capitals” Treasury likes to go on about. And just to reinforce the doubts that Nana has little or nothing useful to say about productivity, and not even much interest, in the question time we got a comment about how while the Commission would continue to publish its annual statistical report on productivity, he didn’t really like to pay too much attention to productivity. There was a fair point – but one that no one disputes – that productivity is really a medium-term thing and that he doesn’t pay much attention to a couple of quarters (to which I’d add, among other things data revisions reinforce that point). He described it as akin to a “profit and loss” measure, while he preferred to look at the “balance sheet” – those four capitals again, which might perhaps sound good to some but (a) for economic assets, the value is in the returns they generate (or credibly could generate, but (b) by comparison with labour productivity for which there is a good time series data, and reasonable cross-country comparisons, most of the “lets value the capitals” approaches offer neither. If, of course, there is a well-understood, long accepted, point that simply raping and pillaging the environment is, all else equal, a less valuable form of economic growth than income that does not do so, it doesn’t help in the slightest address the issues of New Zealand’s economic failure.
But perhaps that is the point. Robertson and Ardern have no interest in doing so – simply in cutting a small pie a bit differently – and so why bother appointing a chair of the Productivity Commission who might lead some hard thinking on the issues and offer options that might improve productivity – and wider “wellbeing” that stems from productivity possibilities. Easier simply to handwave and feel good.
Shame about the prospects for our country.
croaking cassandra 
Key and English all over again. Keep smiling and waving.
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I watched the presentation Michael.
Depressingly indeed – I heard nothing new – just a repetition of the narrative and treasury-speak about the need to consider natural/environmental and social capital as well as human and financial/ physical and that productivity is only a means to the wellbeing objective. A lot of cultural (indigenous) softness and words about not apologising for his approach (which seemed designed not to offend anyone anyway). Talked about focusing on assets not flows….No thoughts on how to incorporate natural and social capital measures into either the output side or input side of productivity, just the mantra that income and GDP is not all of wellbeing. Also no thoughts yet on “transformational change” but seems very keen on innovation and frontier firms – all very much conceptual rhetoric IMHO.
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Reblogged this on Utopia, you are standing in it!.
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1) Fixing our wonderfully distorted tax system would go a long way to helping redirect capital to where it can be used productively – increasing real house prices and free capital gains since the 1980’s dont help
2) A lot of the deadweight costs can also be reduced moving everything online with defined processes that can be worked on and further optimised over time.
NZ faces huge future risks. We have a wonderful non productive housing bubble and in the future farming is going to be replaced by industrial scale synthetic food production, and those factories wont be in NZ.
We need the structure of the the NZ tax and regulatory system set so that capital can flow into the areas where it can be most productively employed.
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As a business owner I can confidently say that we have been innovating our arses off to try and improve productivity. And achieving success. But I can honestly also say that we ‘spend’ our productivity ‘dividend’ on compliance. Nothing more. We are fooling ourselves in believing that process is an outcome.
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Compliance…it’s a can of worms it seems…
Recent opinion piece in the Otago Daily Times states: “(…)As an example, a meat company in New Zealand will have some sort of audit in their business approximately 300 days of every year(…)”. How does it affect productivity?
“Get out of your own way: unleashing productivity” 2014 report by Deloitte noted that 9% of Australian workforce in that year consisted of compliance workers. There’s no reason to expect that this number has decreased since. Also, there’s no reason to think that situation in NZ is any better.
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You may do but many if not most don’t. If the customers / managers etc are penny wise and pound foolish, they are unlikely to have resource to accept / realise / or even think that they can do better. I have seen numerous business that that have de-skilled due to automation / computers and not longer have sufficient process understanding to implement basic good practice that would increase work flow by 20% easily. Then there are ones that (particularity aviation) that pay lip service to the legally required processes and systems & then spend all their time lurching from one costly disaster to another simple because they through they were too smart to bother with good processes.
If this was just a political problem it would have been sorted but its not.
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“He described it as akin to a “profit and loss” measure, while he preferred to look at the “balance sheet.”
What a ridiculous statement.
Profit and loss is, ultimately, all that matters. Just ask Enron, WorldComm, and all the banks who marked their swaps books booking accrual profit as current earnings that profit and loss doesn’t matter.
Businesses fail mainly because of cost and cashflow mis-management.
That comment really encapsulates everything that’s wrong with New Zealand. The country is run by people who not only don’t understand business, but are actively hostile to it.
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If one were bending over backwards to be charitable, he may have been meaning something about year to year volatility in P&L (or productivity) or might even have had in mind that reported P&L does not necessarily bear a close relationship to the underlying cash generation capability of the business. On the other hand, coming from one of his ilk it was also quite odd to compare a country to a business.
But bottom line: yes, the state of NZ economic policymaking and officialdom really is dreadful. Mostly a, partly careless, partly conscious, outcome of the choices of political leaders who don’t care either.
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Neither Ardern nor anyone in her Cabinet possesses any economic competence, we have a government commission that has made “Year Zero” style proposals to run down GDP to meet the farcical UN goal of net zero carbon emissions, we are importing coal and shortly natural gas while banning the harnessing of our own resources, our public service is seriously degraded and politicised, we have a central bank governor who appears to worship a tree god, our students’ maths and literacy capabilities are in free-fall, legislation is being prepared to ban free speech, and racial division is increasing by the day. And three more years to run.
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This is by no means only a New Zealand problem. An interesting commentary by Phil Mullan at https://www.spiked-online.com/2021/02/19/the-economic-transformation-we-need/ identifies a problem with all of the developed economies as being on the supply rather than demand side:
“… a problem with the pervasive story of ‘neoliberalism’ is that it evades the real sources of our economic problems. These are not the conventional ones of greed, or inequality, or private-sector ruthlessness.
They derive from a dysfunctional, state-supported business sector that has become unable to create the wealth society needs to live well and prosper. Instead, Western societies [in which he includes Korea and Japan] muddle along, reliant on debt and asset bubbles for the appearance of any vitality. Until the state’s crucial role in preserving the failing private sector is grasped, it is extremely unlikely that the government will stumble upon the sort of bold measures needed to reinvigorate the economy.”
He points out the concern of the elites with preserving their influence over society, making them unwilling to endorse Shumpeterian disruption, and the failure of both fiscal and monetary policy to maintain a system of good economic growth and employment. Instead, there are successive asset bubbles, increased inequality, and continuing gradual decline. We may have it worse, but we are by no means unique.
But Mullan makes no mention of the Tree God. Perhaps this New Zealand innovation will achieve what fiscal and monetary policies have not, and the right set of karakias will restore our lost productivity without requiring the sort of change that would make our elites uncomfortable.
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Michael, you don’t seem to understand lots of things, productivity being one of them (work probably being another).
What we do is extract (not produce) raw resources from a finite planet. We process them, consume them (in physics terms, we degrade them) then eject them. We need energy to do the work, and human labour now does less than 1% of real work done (and a lot of that can trace it’s food to Fossil Energy, 10 calories of oil to one calorie of food). Most folk don’t ‘work’ in the physics sense; they do stuff that is perhaps socially gratifying, for which they are rewarded with chits for the results of real work.
Energy-use to do work, has to comply with the Laws of Thermodynamics; unlike anything in economics, they are immutable. We have been nudging up against thermal limits for a long time, diesel engines for instance. In other ways we haven’t; each box truck separately splitting the air at 100kmh, is a waste of energy (think of cyclists drafting each other).
But by and large cities can be seen as giant heat-engines (https://www.bookdepository.com/Creating-Sustainable-Cities-Herbert-Girardet/9781870098779 – well worth you reading) with energy and resource input requirements, and waste-removal ditto. There are limits to the efficiency with which this can be done. These are exacerbated by our best-first tendency; best highway route, best dam site, best concentration of oil or copper. So every ‘next’ option requires more energy (to do the more work). And that energy was tapped-into best-first too. This it once took the removal of 10 tons of ‘overburden’ to obtain one ton of copper. Now it takes the removal of 400 tons. And the fossil energy required has gone down from an EROEI (Energy Return on Energy Invested) of 100:1, to below 20:1 and dropping like a stone. So a compound Red Queen problem.
Economics doesn’t understand any of that – so flies blind. Worse, it appears incapable of acknowledging said flaw. So we get this endless bleating about inadequate ‘productivity’. The joke is that the need to form a Commission, forced by physics, saw a group formed which included no physicists. And most of its output has therefore been challengeable.
You would also do well to study – and understand – Entropy. Rather than ‘funding for depreciation’, in real terms we have to earmark an increasing amount of energy and an increasing portion of the remaining stocks of resources, to maintain entropy-bound infrastructure (of which we have never had more).
https://www.sciencedirect.com/science/article/pii/S0921800919310067
By the time you’ve read that link (and digested it cranially) perhaps you could do a post on the flaws in economics, as taught, believed and revered?
Murray G
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Lots to disagree with there – altho I’m not sure what most of it has to do with the post – but for now just note that whatever the merits of your arguments, average labour productivity in NZ is now only about 60 per cent of that in the leading bunch of OECD economies, all of whom we used to either match or exceed. That gap has implications for the material living standards of NZers.
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If entropy is a measure of chaos, there’s plenty of entropy in this post…
In simple terms, productivity is a measure of the efficiency of production, i.e. it allows us to describe/measure how to increase an output (production) with a constant (or decreasing) input. At the end of the day it’s quite simple really. There can be no consumption without production, but without consumption there can be no life. It’s all very well to express such Malthusian sentiments as yours, but how do they relate to the requirements of everyday life?
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Economic Productivity is actually both production and consumption as it measures GDP per person(or per Working hours re Michael Reddell). That is why it is questionable whether NZ ever had a modern economy that was measured accurately when Economic Productivity does not measure the number of animals(10 million cows or at our peak 70 million sheep) only humans.
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Well Michael, after all those years of musings and Blog posts about the state of New Zealand’s economic performance, nothing sums it up better than the title of this particular post. Sad Really. Belarus was right, time for Plan B
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A “word salad” sums it up nicely.
The use of words like taonga in an English text is absurd. A virtue signalling affectation? An attempt to obfuscate rather than communicate?
There’s about a million words in English, a hundred times as many as in Maori (fifty times if you allow the bastardised English ones) and a multiplicity of choices to give precision.
Taonga can mean literally anything valued. I’ve heard it applied to rivers, mountains, the sea, even ideas. A word that means anything means nothing.
Ganesh Nana: Commissioner of Cringe.
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Very well put David.
Regards
Stormy
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