Regulation is suppressing productivity growth in the primary sector, says Dr Jacqueline Rowarth.
OPINION
It’s the economy that should be dominating the airwaves in the next few weeks, not hot air and more promises, Dr Jacqueline Rowarth writes.
“It’s the economy, stupid.”
These words resulted in Bill Clinton becoming President in the 1992 US election, so the story goes.
The other two messages of the campaign were “Change versus more of the same” and “Don’t forget health care”.
James Carville was Clinton’s strategist in the campaign, and he coined the phrases as a focus for the campaign workforce.
In the current unfocused morass of political promises around tax changes, free dental care, more investment in the police force, education and health... the E word seems to be missing.
Productivity has been absent as well.
Yet economic growth, fuelled by productivity gains, is the main way to pay for all the promises in real-time.
Debt is the procrastinator’s way. Debt has to be repaid at some point in the future, but in New Zealand that future keeps being kicked down the road while debt increases.
Business owners understand the issues and the Deloitte Chapman Tripp Election 2023 survey has the numbers.
Eighty-five per cent of respondents do not think the Government has a coordinated plan of action focused on improving New Zealand’s economic performance.
Ninety-three per cent think the costs of doing business have increased in the past three years.
Number one for achieving sustained economic growth for 43 per cent of responders is the economic environment.
This is over four times as many as the numbers of responders concerned about infrastructure (10 per cent) and over six times as many concerned about the employment environment (7 per cent).
It’s the economy that should be dominating the airwaves in the next few weeks, not hot air and more promises.
Economic growth is not a new problem.
In its 2020 briefing to the incoming minister, the Productivity Commission (established under its own Act in 2010) stated that New Zealand’s productivity performance has been weak for decades.
The commission identifies the challenge as “lifting productivity by generating more value from productive inputs while preserving and improving the environment, and making sure the benefits of growth are enjoyed by all New Zealanders”.
Just like the business community, the Productivity Commission understands the link between income and the ability to improve wellbeing, infrastructure and all the rest of it.
But the commission is having a hard time being heard.
Productivity by the Numbers, released in July, did receive some brief coverage, mostly because of the dire comparisons (New Zealand’s productivity being among the worst in the OECD), but more needs to be done than highlighting the problems productivity-slide, and the Deloitte Chapman Tripp business survey can help.
So can the commission’s report and its historical analysis.
The commission states that the primary industries have been the productivity growth leaders in New Zealand since the 1980s, built from the foundation of investment in research and technology and subsequent technology transfer and adoption.
Further, the comparatively rapid productivity growth in the primary industries over the 1980s and 1990s was attributable to the comprehensive “economic reforms that reduced agricultural subsidies and regulation”.
Decreased regulation increases productivity. Research supports the link.
A report from George Mason University found that in the period between 1997 and 2010, the least regulated industries experienced 63 per cent growth in output per capita, 64 per cent growth in output per hour, and a 4 per cent decrease in unit labour costs.
Listen to Jamie Mackay interview Dr Jacqueline Rowarth on The Country below:
Over the same period, the most regulated industries experienced 33 per cent growth in output per person, 34 per cent growth in output per hour, and a 20 per cent increase in unit labour costs.
Author Antony Davies, an economist and senior affiliate scholar with the Mercatus Centre at the university, suggested that greater regulatory burden is associated with lower levels of industry productivity.
This is certainly the experience of the primary sector.
Farmers have identified that the burden of compliance is escalating, and recent regulatory changes are creating costs.
Almost two-thirds of respondents to the DairyNZ “View from the Cowshed” survey indicated that Government regulations directly affect economic viability.
Economic viability then affects succession planning.
Federated Farmers’ election document “Restoring Farmer Confidence” states that succession planning is getting harder and harder “as regulation and obscure policy creates barriers to investment”.
This theme is echoed in the Beef + Lamb New Zealand manifesto.
Further, the manifesto states that “For us, pragmatic policy and regulatory settings are critical if we are to continue to lift productivity, foster innovation and produce world-class, sustainable and premium food”.
Regulation is suppressing productivity growth in the primary sector.
But the primary sector continues to be the bulk of the export economy, bringing money into the economy to support the goal of the Productivity Commission – improving the wellbeing of New Zealanders.
Productivity gains, enabled by the regulatory environment not stifled by it, are associated with income to improve wellbeing.
To create change and avoid “more of the same” while never forgetting health, education and the police force, the focus must be on the economy.
Doing anything else is, frankly, stupid...
Dr Jacqueline Rowarth, Adjunct Professor Lincoln University, is a member of the Scientific Council of the World Farmers’ Organisation and on the Board of Directors of several agricultural organisations. The thoughts and analysis presented here are her own jsrowarth@gmail.com
Jason Te Brake, Peter Newbold, Chris Russell, Jo Luxton, Mike Petersen.