Why New Zealand is heading for a Productivity crisis

Recap of previous article ‘Why New Zealand has Productivity Wrong?’:In my last Blog we reviewed some graphs which showed just how reliant the NZ economy is on Labour Utilization versus Labour Productivity.

I also covered off that the prior National Government did not do much in terms of encouraging companies to modernize their technology and mechanisation to increase Labour Productivity.

I also mentioned that the new Coalition Government is also tardy in slowing down immigration despite that being high on their election promises. This is because our economy is so reliant on more labour needed to work longer hours to get the output we need.

Labour Utilization is a down-hill slope.

The strategy of Labour Utilization is putting New Zealand on a down-hill slope. A recent measure of New Zealand’s Capacity Utilisation shows we are at around 95% capacity. This means that we have employed nearly all the people we can to produce what we need given our infrastructure, including roads, housing and size of factories/businesses to employ workers.

New Zealand has not seen such a high capacity utilisation statistic since the late 1960’s. Yes, you read right – 1960!

A recent interview with Liz Kendell, ANZ Bank Economist backs up the above;

“Actual weekly hours worked rose 1.4% in the June Quarter 2018 and 5.4% to year ended June 2018. This points to people having to work a lot of hours to generate the output we need”

She goes on to say; “The cost to produce an extra unit of output has actually been growing quite strongly because people are simply not able to produce growing amounts as they have been in the past”

This is referring to employers throwing people at production processes rather than introducing technology to mechanise output.

How does NZ compare to the rest of the world in competitiveness?

The IMD (A leading Swiss based business school and research institution) has released a World Competitive Yearbook each year for the past thirty years. This report ranks 63 countries in terms of their global competitiveness.

Competitiveness Ranking (Ranks 1-30)

Figure 1 World Competitiveness Ranking 2018 PDF

New Zealand has fallen to its lowest level in this ranking since the Competitive Yearbook was first produced (30 years ago). We are ranked 23rd in 2018, a drop of seven places from 2017. Our previous lowest ranking was 20th in 2014 when we fell from 15th.

There are 258 indicators the IMD use to calculate these rankings. To be fair, two thirds of the 258 indicators are ‘Hard data’ (i.e.) economic indicators and one third from surveys of the country’s leading executives.

In fact, New Zealand has struggled to lift its productivity in relation to other OECD countries over the past forty years.

So, what is the answer?

I believe the answer lies in several places including;

  • Poor technology diffusion into our local companies
  • The geographic distance between New Zealand and the rest of the OECD. This has tended to give us a false sense of security
  • Our NZ Psyche of No 8 wire. “I can build a solution myself”
  • Lack of Government policy to give kiwi firms an incentive to invest in ‘Knowledge Based Capital’ which is – software, R&D, product design and Organisational Know-How

In the following articles I will explore each of these in more detail.

Read on in my next article ‘What is Knowledge Based Capital and why is it important?’

About Me
I have been the General Manager at EDIStech since April 2015. I have gained extensive leadership and strategic planning experience, having worked in general management, regional sales and operations management and senior finance positions.

My career has covered positions in retail, manufacturing, importing as well as in the service industries – Public Relations and now IT. I hold a Bachelor of Business Degree from Deakin University in Australia as well as MBA modules in Marketing and Strategic Planning.

I invite you to read my coming blogs in this series about the connection between technology and productivity in the EDIStech blog.

The references used in this blog came from several sources;

  • JBWere article dated 10 August 2017.
  • Productivity Commission Report dated November 2016
  • National Business Review articles dated August 18, 2017 and June 15, 2018