Jordan Small: US trade reveals a path to tackling New Zealand's productivity challenge

The idea that New Zealand would be a testing ground for Wisk's autonomous aircraft, known as a 'flying taxi', would have been unimaginable for most just a decade ago. Photo / Supplied

Opinion

OPINION:

New Zealand's decades-old challenge of poor productivity continues to hold all of us back. Simply put, this means that as a nation we work much harder for much less relative to those we like to compare ourselves to. The resulting broad-ranging environmental, societal and prosperity consequences ultimately constrain our choices as a nation. It is imperative that we find a way forward.

Our latest independently commissioned research from economic consultancy Sense Partners: The NZ-US Trade Relationship - Stability and Diversity in a Time of Change, revealed the mature, diverse, innovative and increasingly transformative trading relationship we share with the United States.

Top-line annual growth, of over 5 per cent over the last 15 years, only tells part of the story. When we look at what's behind that growth, it's much more interesting. Like no other trade and economic relationship, our dealings with the US provide some hope on how we might respond to the productivity challenge.

This challenge has not silently crept up on us. It's been front and centre for policymakers and the interested public for decades.

At a public level, we can go back 20 years to the Clark Government's 2001 Knowledge Wave Conference, followed by the late Sir Paul Callaghan's oft-cited speech to the StrategyNZ: Mapping our Future summit in 2011. The issue was revisited again just last year in the Productivity Commission's report, New Zealand Firms: Reaching for the Frontier.

Governments have implemented some structural and policy-setting changes, often following OECD and World Bank best practices, all aimed at addressing our lagging productivity levels. That the problem persists reflects how difficult it is to lift productivity in New Zealand - we're not the standard case.

Examples of the success of other small, advanced exporting economies can provide inspiration and lessons, but we can also look to sectors where we are seeing transformation playing out right now.

With the US, already our third-largest trading partner, our traditional agricultural goods exports continue to feature prominently. However, what our research highlights is the focus underway on productivity growth through premium products and continued innovation across production and supply chains, and the emergence of scaleable and niche opportunities.

Our largest goods exports to the US are now, compared with 30 years ago, a much more diverse mix of traditional pastoral-based exports and new products that didn't exist in 1990.

Today, in terms of volume, our dairy exports to the US are about half what they were in the peak of 2006 but with very little loss in export revenue. This is due to our dairy products now being highly diversified across a range of high-value specialised products, such as milk and whey protein concentrates, casein and caseinates.

This shows a clear volume to value shift. It is not necessarily the consumer-level branded product that is often associated with value, but it is undeniably value.

Our big firms and industries, or what the Productivity Commission terms frontier firms, have also provided the cover for new innovative spinoffs in high-tech manufactured goods and services, often building off our national strengths in agriculture and horticulture.

This includes Tauranga's Robotics Plus' fruit sorting and packaging machinery going into US packhouses across the West Coast, and UBCO's electric farm bikes. These capital goods not only generate export revenues, they are productivity-enhancing for US primary producers' supply chains.

Then there's the scaleable opportunities, best represented through New Zealand's digital firms for whom the US is their most important customer base and source of potential partners and investors.

Our exports of computer-related services to the US have doubled over the past four years and now account for around 25 per cent of services exports to this market. While these software, creative, gaming and other digitally-focused firms do come with significant upfront costs, once created their products are almost infinitely scaleable, able to be sold to unlimited numbers of customers at little additional cost.

Then there is the random, niche, or paradigm-breaking. In our report they're described as pockets of dynamism. For example, at $260 million in 2020, sleep apnoea machines now account for a larger share of New Zealand's exports to the US than timber or casein.

The idea that New Zealand would be a testing ground for Wisk's autonomous, electric vertical take-off and landing air aircraft for urban mobility, otherwise known as a 'flying taxi', would have been unimaginable for most just a decade ago. As would have the likelihood of New Zealand being a player in the space industry. With Rocket Lab now established as a 'frontier firm' there is a diverse sector and ecosystem spanning manufacturing, space operations, ancillary services, R&D, education and training, and space applications.

There is enough happening in New Zealand today to know that we have at least some policy settings right to enable diverse, innovative and transformative businesses to thrive. The challenge is to ensure we are clear on the settings that are helping, and those that are hindering, so we don't unintentionally kneecap those who will lead our productivity transformation.

By continuing to provide well-targeted support to these innovative firms, most of whom experience few to no barriers to trade in the US, we can set our ambitions high.

- Jordan Small is Executive Director at NZUS Council.