New technologies will not lift all the boats if the benefits are captured by a few firms or a narrow workforce sector, like highly skilled workers. Photo / Andrew Rich, Getty Images, File
New technologies will not lift all the boats if the benefits are captured by a few firms or a narrow workforce sector, like highly skilled workers. Photo / Andrew Rich, Getty Images, File
OPINION
The Productivity Commission calls for “a fair chance for all”.
Its latest inquiry report says 700,000 (18 per cent) of working-age New Zealanders experience “persistent disadvantages”. They are left behind, doing without or on low incomes, unable to thrive.
Dani Rodrik, Professor of International Political Economy at Harvard KennedySchool, argues that the common perception that a country can increase its productivity and standard of living by adopting new technology, research and development, globalisation and free trade, will not work. He says it could even set a country back without complementary policies to enhance the productivity of all the people.
While the Industrial Revolution started the period of modern economic growth for developed countries, it did not advance the well-being of most ordinary workers for almost a century. It took another revolution of democracy, fighting for workers’ rights, such as the 40-hour work week and safe working conditions, to improve the standard of living for all.
Rodrik argues that government policies to boost productivity, like plugging into global value chains, subsidising R&D, or investment tax credits, often target the wrong problem.
Raising the bottom – providing training, public inputs, and business services to smaller, service-oriented firms – can be more effective than lifting the top.
The intuition that productivity is driven by innovation and new technology is from our understanding of how a business can improve. Improving a country’s productivity is very different.
A firm can improve by increasing the productivity of its resources and shedding staff; a country has to improve the productivity of all its people.
New technologies will not lift all the boats if the benefits are captured by a few firms or a narrow workforce sector, like highly skilled workers.
The hyper-globalisation era after the 1990s, as trade costs fell and state-of-the-art manufacturing production spread, improved the productivity of many firms in developed and low/middle-income countries. The productivity of these firms increased exponentially.
Yet developed world economies stagnated or even regressed.
Even global productivity growth slowed over the past 50 years despite the hype about the internet, automation, and increasingly powerful computers and smartphones.
Economists offer many possible explanations - technology being not transformative as rail, trucking and air travel, growth of the nonproductive financial sector (housing etc), neoliberalism’s excesses not spreading benefits widely, the difficulty of measuring service sector productivity (think streaming TV, GPS).
Scientific and technological innovation is necessary for productivity growth that enriches societies, but insufficient.
Investments in manufacturing, which is shrinking (now only 9 per cent of our workforce), cutting-edge technologies and frontier–firms, a minute sector of the economy (IT employs only 1 per cent of our workforce), are less important than the service sector (health, education, retail), which is now the bulk of the workforce and created virtually all of the new jobs over the past 40 years.
Transforming technological progress into broad productivity growth requires policies to encourage a wide take-up of technologies and a “good jobs” strategy to pull more people into the middle class.
While IT and globalisation reduced the costs of things like computers, clothing, communication and toys, costs of healthcare, food, and especially housing increased.
Poor social, economic and tax policies left large swathes of society worse off.
The looming AI revolution presents risks and opportunities which must be managed if the country is to benefit. The technology must be spread throughout the economy.
Its productivity benefits may be limited if important parts of the economy like construction, housing, and healthcare don’t change. And if disruption is not managed, and those displaced supported and retrained.
The kicked-to-touch unemployment insurance is an example of short-sighted politics ignoring future needs.
Kushlan Sugathapala.
The NZ Productivity Commission issued its latest Productivity by Numbers report in July. Our lower productivity and slower growth in productivity compared to other developed countries is a longstanding concern.
Over the past 25 years, our GDP growth came from more people working longer hours, i.e. immigration and many working long hours or two jobs to survive.
The gains since 1992, after the Employment Contracts Act and defanging unions, went mainly to owners of capital, not workers.
Worse, the labour gains primarily went to highly skilled workers. Lower-skilled workers faced stagnant wages and insecure work.
Also, an increasing share of New Zealand’s income flows overseas through the profits of Australian/multinational companies, while our large firms are not competitive overseas.
“A Fair Chance for All” reports sole parents and Pasifika experienced the highest disadvantage rates, followed by Māori and disabled people.
New Zealand has a history of valuing fairness and giving everyone a fair go; is that history now?
Dr Ganesh Nana, Chair of the Productivity Commission, said most New Zealanders agreed with the sentiment of “Fair chance”; however, “it remains an illusory concept” and “successive governments have failed to address persistent disadvantages”.
He calls for “adapt[ing] our responses to … the challenges people face”.
The report calls for a “social floor” to prevent and alleviate poverty, ensure social inclusion and protect the vulnerable, and a cross-party agreement to ensure productivity improvement strategies are consistent over the long term.
Perhaps our biggest challenge to improving the country’s productivity and prosperity is divisive, short-sighted party politics.
- Kushlan Sugathapala is a researcher and writer on social justice issues.
