Our agricultural sector is universally recognised as one of the most productive in the world, yet our overall productivity compares poorly. Photo / Duncan Brown, File
Our agricultural sector is universally recognised as one of the most productive in the world, yet our overall productivity compares poorly. Photo / Duncan Brown, File
OPINION
There is wide agreement New Zealand's lacklustre economic performance is attributable to low productivity. In fact, as an agricultural export nation our productivity is extraordinarily high.
The explanation for our mediocre economic performance lies elsewhere.
An advanced nation's economy is comprised of three principal sectors. These include the industrial/high-techsector, the service sector and the agricultural sector.
All the nations in the developed world are primarily industrial/high-tech nations with ancillary service sectors and typically very small, invariably protected agricultural sectors.
By contrast, New Zealand is an agricultural export nation with a substantial service sector, notably tourism, and a small industrial/high-tech sector.
New Zealand's agricultural sector is universally recognised as one of the most productive in the world.
The concept of productivity - greater output from fewer inputs - is inapplicable to the service sector. And 70 per cent of our GDP derives from services. A waiter, for example, can serve only so many drinks in an hour, a hairdresser so many cuts before service quality - and business - deteriorates. Similarly, a tour bus driver is restricted to prescribed, set hours otherwise safety is compromised.
There is no universally accepted definition of the term productivity. For example, America's standard productivity metric is output per man-hour in the non-farm business sector. And America is an advanced, high-income industrial nation while New Zealand is an advanced but relatively under-developed agricultural nation. Accordingly, statements such as the average American worker is far more productive than his or her New Zealand counterpart are simply futile.
A nation's labour productivity or output per man-hour in the industrial/high-tech sector is easily calculated. Any industry-level, cross-country divergence in labour productivity will invariably reflect different labour to capital ratios. For example, workers using state-of-the-art machines and equipment will always outperform those saddled with outdated plant. Since 1984 productive investment in New Zealand has lagged far behind stock market and property speculation, hence our low, often outdated capital stock.
Economists often prefer multi or total factor productivity as a measure of real output across different countries but this metric is notoriously open-ended, difficult to quantify and beset with inconsistency. Comparisons between nations are often distorted by differences in the way real output is measured. To give one example, American economists regard computer software expenditure as an investment while in Europe it is just a business expense and excluded from final output.
The infamous Employment Contracts Act, 1991, was the legislative outcome of the low productivity argument. It was acclaimed (by the 1 per cent) a huge success in finally lifting New Zealand's productivity. But there was a problem.
John Gascoigne. Photo / Supplied
Textbook theory states productivity increases drive higher wages and living standards but New Zealanders (the 99 per cent) soon discovered they had to work far harder, for far longer, for far less than the citizens of every other developed nation, including even Australia.
Our focus on productivity deflects attention from the real imperative: New Zealand's transformation into an export powerhouse. That will require a massive expansion of our tradeables or export sector. But a greater output of milk solids, logs, wine, rockets - and more tourists - will simply not cut it. More of the same will get us nowhere. We must develop entirely new, global-scale areas of dynamic comparative advantage.
We should learn from other countries. All the tiny, high-income nations are super-exporters. They all have massive, global-scale, nationally owned industrial conglomerates. In fact, no nation in the post-war era has achieved prosperity (very high per capita income) without becoming an export powerhouse.
We have now come full circle. The key to New Zealand's future prosperity is that simple, proven formula: think big and plug into the world.
