Smart working key to closing gap

HUBBUB: Staff at Hawke's Bay's business hub expect to move from EIT to a permanent venue.

Low incomes in Hawke's Bay are because the region amplifies New Zealand's "productivity paradox", says Productivity Commission economist Patrick Nolan.
On paper New Zealand looks like it should be more productive than it is because of plentiful resources, a skilled workforce and good business environment, he said.
"If you look at our resources and our policy settings we should do a lot better than we do," he said.
"It is very easy to set up a business here and we have a very skilled labour force - we do quite well in terms of when people come out of school, yet we have relatively low incomes.
"The OECD has estimated our GDP per person at about $30,000. The OECD average is about $37,000.
"Based on our policy settings we should be about 20 per cent above the average - we should be on about $43,000 per person. So we are about 20 per cent below the OECD average for incomes when we should be 20 per cent above. This is a real puzzle."
Just as New Zealand's productivity compared poorly to the rest of the OECD's, Hawke's Bay's productivity compared poorly with the rest of New Zealand's.
The lag was in all industries.
"Hawke's Bay, as a region, has a particular challenge around productivity.
"It is not just about the nature of the industries or the concentration of your industries. The challenges faced in finding answers to these problems is not easy."
The region provides 3.6 per cent of employment but accounts for 2.9 per cent of national GDP, according to this year's Regional Economic Activity Report from the Ministry of Business, Innovation and Employment.
Dr Nolan said how wealth was distributed in New Zealand was a challenge but his focus was on "the first part of the equation", creating wealth through greater business productivity.
"You have a better discussion around distribution when you have more resources to distribute."
Since the turn of the century New Zealand has been less productive than most OECD countries and the gap is widening. In that time the country's growth came from working harder, he said.
"We have high levels of labour participation and people who are working tend to work very high hours. So yes, the country works quite hard, but we don't produce enough per hour that we work compared with other countries."
He said 30 per cent of the productivity gap was due to the structure of the nation's economy - reliance on primary industries - but a greater blame lay on the country's "economic geography".
"Because we are a smallish economy and a long way from markets our businesses aren't connected into global value chains as much as businesses in other countries. New Zealand businesses have access into international markets but it is harder for them - access to suppliers is also harder."
While the country's free-trade agreement with China was a good connection it did not solve the underlying problem.
"It is the nature of the connections. Our businesses tend to have a major make, pack and export model whereas a lot of international connections worldwide are much more what we call an intermediate good - one part of a production chain.
"We are not plugged into the production of things that cross national boundaries.
"The geography can explain a lot of that - we are far from markets and suppliers. The connections into global value chains is important for knowledge-based capital. There is evidence that is where a lot of the ideas get fused. If a supplier develops a new process they will tend to share that with your company.
"The fact that we are not tied into these global value chains as much as we could be is impacting on knowledge and productivity."
He said an OECD report said 55 per cent of productivity gaps was due to international connections and 40 per cent due to under-investment in knowledge-based capital.
"I agree that it is good to have more skilled workers and cheaper capital, that obviously won't hurt, but that is about five per cent of the gap. International connections and knowledge-based capital seems to be where we can make really big gains."
Knowledge-based capital is the skill and experience of a company's employees that can improve efficiencies and inspire innovation. A firm with skilled staff and access to knowledge has a comparative advantage.
He said Hawke's Bay's high rate of young people not in education or training was a concern.
"You do pretty well at the school level but it is when people go out of the compulsory education system - the 25 to 30-year age group - you have relatively low qualifications.
"In terms of employment there tends to be quite a high concentration in low-skilled employment. So there are a lot of particular challenges facing the region."
He said improving management and the creation of hubs were two key strategies for Hawke's Bay to lift productivity.
A lack of higher-level thinking by management was evident in the country's approach to technology, he said.
"I think it is quite clear that New Zealand invests pretty low in ICT but we don't get the productivity gain that other countries have seen.
"So, for example, we have the computer sitting in the corner of the office but we haven't figured out how we could re-orientate our business processes or do things different with the new technology."
The second key to improving productivity was through collaborative business hubs - people working together "to make sure we are all singing from the same song sheet".
He commended Business Hawke's Bay on its efforts to create a business hub for the region's business-development agencies.
Business Hawke's Bay (BHB) CEO Susan White said several organisations were in negotiations regarding a shared space, to be a one-stop shop for businesses needing help.
"This would be one place where they know they can receive help," she said. "People don't always have the time to find out who they need to speak to if they need help, or there is some confusion."
The logistics of who, where, when and how it would work were being discussed but EIT was a temporary staging post in Taradale. Both Business Hawke's Bay and the Hawke's Bay Chamber of Commerce moved to EIT from their shared space in Hastings at the end of June, joining Food Hawke's Bay and Hawke's Bay Winegrowers Inc.
With the chamber came regional business partner Brett Johnston, who is hosted by the chamber. He administers government agency NZTE's capability development voucher scheme The scheme supports business owners to grow their business and/or become export capable, giving funding to build capability.
Non-hub agencies support the concept of a "hot desk" at the hub, where personnel would be available at set times.
BHB CEO Susan White said the temporary hub was working well thanks to the generosity of tertiary institute EIT. The close proximity of the agencies allowed for "immediacy" of action and improved understanding of how each operated.
There was good assistance for businesses but some owners were "very protective", she said.
Guardedness about a business' status, a pre-requisite for programmes such as the High Performance Work Initiative (HPWI) was frustrating, she said.
"The real buzzy bit for me is seeing the differences that it makes in businesses for companies that go through - Icehouse would be the same."
The local programme was hoping to secure funding to have taken 90 companies through the programme by 2019.
Dr Nolan said studies had shown management quality was a key ingredient for growth "time and again".
"The ability to read a profit and loss statement and to think about how you respond to the market. I think it is so important what Susan and all those people are doing."
Quoting New Zealand physicist Ernest Rutherford, Dr Nolan said thought and collaboration was a solution for Hawke's Bay.
"We haven't the money, so we've got to think," he said.
"When you don't have money to throw at a problem, or you don't have people to throw at a problem, you have got to be smarter in the way you approach things.
"If you can think, if you can put things together in a better way, you can actually achieve what you want to achieve."
"I think it is about people working together a lot more on how we bring all the different factors at our disposal together in order to achieve our goals. And the goals are not just financial ones. If you talk to business owners who have become more productive some of the things that they will often say is they now have more time for a work/life balance - they spend more time on the golf course or out fishing. So we are talking about productivity as a means for enhancing well-being, not just incomes.
"This is the challenge we have as a country. Why can't we have that higher level of productivity and income? That would not only allow a more generous welfare state but allow us to have a better work/life balance.
"It would also allow us to spend more on caring for the environment."