Colin James: If Cullen is right we’ll all be getting smarter and richer

Michael Cullen has come over very self-congratulatory about the economy. "Our achievements in government so far are indisputable," he told a public meeting last week.

He sketched a saga of "rough waters" through which, by having worked hard, "my Government" had guided this country to "one of the most successful economies in the Western world" and "the top half of the developed world on so many indices it is hard to keep up".

He recited a list: jobs delivered, the macro-economy stabilised, skills built up, technology "invested heavily" in, trade deals under negotiation and debt controlled.

The result: "Extra dollars to spend on health and education and law and order", not to mention handouts to "working families" and many other kinds of redistributions.

Conveniently absent from his list were high export prices and the twin mountains of household and country debt which fuelled the consumer boom on which his edifice has been in part erected and for which the bill will come in some time. The Government has been fiscally prudent. The private sector has not.

Also absent from Cullen's list were the profit-paring re-regulation of parts of the economy, most notably the labour market, which the boom has masked.

So was his proprietorial attitude to tax: a boom-stoked bumper tax harvest that has pushed people on average earnings into the 33c bracket, plus increased and new taxes and charges. Again, the boom has masked the downside.

Instead, Cullen aims to jump the economy to a level that can genuinely afford the higher social spending without impairing the economy's ability to grow.

To do that he needs a higher productivity growth rate.

Doubling that rate in the 1990s on the back of the 1980s deregulation and lower taxes was the foundation of his happy economy.

Now he needs another lift to fund world-class health, education and social spending and reverse the spiral of New Zealanders leaving for richer places and staying there, which constrains potential growth, and so wealth and services, and reduces the attraction to stay.

Productivity growth is now central to Cullen's economic policy.

The point is to get people paid higher wages and salaries for the same effort.

That requires, among other things:

* Better machinery and more computing power for each employee. Firms have to invest more instead of relying on 1990s-type cheap labour.

* More innovation at all levels, from high-class research to small employee-driven incremental improvements.

* More skilling of employees, starting with teaching reading and writing.

* Better organisation of workplaces. Poor organisation gets by in a cheap labour market but not a tight one.

* Friendlier workplaces which encourage worker input, co-operation and loyalty, and so innovation and higher output, including "work-life balance", which, a report next month will say, is not pitting work against life but putting more "life" into "work", so getting more from workers and recruiting more workers, especially women.

One barrier to higher productivity growth is the cost of capital and its availability.

Tax plays a part in fixing that. Cullen is readjusting depreciation but not general rates. Another barrier is inadequate schooling.

But much depends on micro-improvements at firm level.

They, in turn, depend on both employers and employees believing that they will benefit.

For 15 years "productivity" has meant "cuts" to most employees.

This is the subject of a working group's report that Labour Minister Paul Swain will launch today.

The report draws on international studies and local experience to make 67 recommendations designed to get firms up to world best practice.

If employers and employees take it to heart, we will all get richer.

Swain wants a small group, involving Business New Zealand and the Council of Trade Unions, which will send emissaries into workplaces to spread the word and get managers and staffs actively reforming their work practices and cultures, and training organisations more tightly focused.

He wants six-monthly reports from June 30 of firms visited and productivity lifts resulting from those visits. Broad-brush waffle won't do. And here is the rub. For more than a century "reform" of the workplace has meant regulation, deregulation, re-regulation and policing.

Labour Secretary James Buwalda wants his officials to reform "reform" so that it means better and smarter - and richer - workplaces.

That is a huge mental wrench, as big as getting Occupational Safety and Health staff to work with employers instead of against them, or getting the Immigration Service to tighten its focus on speedier approval of the right people into jobs. It requires also a huge mental wrench from business leaders, for years mired in a culture of complaint, and from union leaders, more at home battling than building.

It is a major change of focus and culture. It is central to the Government's forward thrust. Check back in three years to see if it is working.