We have tried shares with some success but also with some failures – like Brierley’s. It would be a great idea if you could write a financial article “naming” maybe a dozen options for investing in “the productive end of the economy” that we “mum and dad” investors could then consider instead of property.
Kind regards
David H.
A: This a great question.
I need to start by saying that I’m no investment adviser. It wouldn’t be appropriate for me to give specific investment advice but I’d like to offer some thoughts and perhaps they will help frame up your decision-making in the future.
First of all, what do economists mean by “the productive end of the economy”?
I think we’d broadly describe sectors that produce tangible goods and services as productive.
They create wealth by adding something new to the economy – hopefully improving it.
A factory that makes something is a simple example of a productive enterprise.
That’s in contrast to sectors that involve speculative investment where wealth is created simply by trading on a perceived market value.
There are plenty of speculative investments we could talk about, such as currency, gold, Bitcoin or shares in companies that don’t seem to produce anything or make any profits.
But, as you point out, property investment gets all the attention in New Zealand.
I know from experience that whenever economists or commentators describe property as non-productive, it annoys a lot of people who work in that sector.
So it’s important to note that the construction sector is productive – as are the manufacturing, retail and service sectors that contribute to it.
But investing in pre-existing property isn’t productive.
A house that was worth $100,000 in 1985, $500,000 in 2005 and $1 million in 2025 might have made an investor (or several investors) a lot of money over the years. But it still just houses one family.
It hasn’t added anything new and tangible to the economy.
Of course, any money the investor makes when they sell flows into other things and can boost GDP.
But where has the new wealth come from? Is it really a net gain for the economy?
For the investor to cash out, somebody else had to pay 10 times what the house was worth 40 years ago.
More than likely the purchase will be funded with a loan from a bank, which means that the new buyer will have to pay a lot of interest above and beyond the initial price.
And if it’s an Australian bank, a good percentage of that interest will head offshore as profits, adding to the nation’s current account deficit.
So wouldn’t it be great if Kiwis invested in the productive end of the economy instead?
Before I look at the options (or lack of them) for doing that, there’s one more point I’d like to make to head off emails from angry property investors.
It’s not their fault.
Property investment remains one of the easiest and most straightforward pathways to wealth for many working middle-class Kiwis.
I think it is entirely reasonable for people to invest in the areas that offer the best return at the right level of risk for their personal circumstances.
Expecting people to invest in certain ways for the sake of the national interest is unrealistic.
The debate about encouraging more productive investment should be focused on Government policy, not individuals.
We need policymakers to step back and ensure that regulatory and tax policy is encouraging the kind of investment that best helps the economy.
Of course, that’s where it gets political. Those on the right typically don’t trust the Government to do this efficiently and want it to keep stepping back until it’s barely involved.
On the left, there are arguments for capital gains and wealth taxes.
I tend to prefer the idea of offering tax breaks and incentives for those investing in the productive end of the economy.
It seems less punitive and easier to introduce.
We do need to invest more in commercial research and development in this country. So why not incentivise more private investment with tax breaks rather than taking the risk directly with public funding?
It is a bit of a chicken-and-egg scenario when it comes to investing and encouraging the development of enough good companies to invest in.
I’m sure my friends in the financial sector would like me to make the case for sharemarket investing.
But I should point out that it is a mixed bag when it comes to the productivity equation.
If a company needs capital to expand, then sharemarkets can greatly help with productivity, but there’s also plenty of speculation going on in the markets.
It’s also the case that some of the most productive investing involves helping commercialise new technology and start-ups. That can be too risky for most ordinary savers.
It sounds like you’ve dipped your toes into the sharemarket by buying into individual companies and have been burned.
You certainly are in good company, as many Kiwis lost money on Brierley Investment.
I won’t offer specific advice but I would say that there are many managed funds which offer ways to get involved while spreading the risk.
Some big local players now have investment funds which allow ordinary savers to get exposure to unlisted companies, which would otherwise be only available to wealthy private equity and venture capital investors.
You can also directly invest in Exchange Traded Funds (ETFs) which track specific industry sectors – such as agriculture, forestry or technology.
I’d remind anyone keen to get involved that it’s important to do some research and get some advice from a qualified financial adviser.
NZ’s productivity problem?
It’s no revelation to say New Zealand has a productivity problem.
Research by the Productivity Commission (for the year to March 2020) showed New Zealanders work 34.2 hours a week, compared with 31.9 hours in other OECD countries. And New Zealanders produced less, achieving only $68 of output an hour, compared with $85 in other OECD countries.
According to Treasury, that’s worsened since the pandemic and it’s making forecasts for the Crown accounts worse as the tax take is coming in lower than expected.
There are many possible reasons for this. Some people argue the Kiwi obsession with property (as per above) goes to the core. But the debate is far from settled.
Some highlight issues with our education system, and our infrastructure and, some argue, a cultural outlook that doesn’t encourage entrepreneurship.
Others point out that social inequality is a big drain on New Zealand’s productivity. Consider how many people are excluded from contributing to economic growth because they are poor and lack opportunity.
We can debate big structural issues around productivity or we can take a look at the productivity of Kiwi workers on an individual basis.
Are men or women more productive?
In 2018, the Harvard Business Review published a survey that allowed people to rate their own productivity
It got answers from almost 20,000 respondents across six continents. Roughly half were residents of North America; another 21% were residents of Europe and 19% were residents of Asia. The remaining 10% was comprised of residents (in descending order) from Australia, South America and Africa.
The survey found three general patterns.
First, working longer hours does not necessarily mean higher personal productivity.
We’ve seen that in New Zealand, where hours worked has risen over the decades but our productivity rate hasn’t.
We are all familiar with the saying: we need to work smarter, not harder.
A second and more surprising finding was that age and seniority were highly correlated with personal productivity.
Older and more senior professionals recorded higher scores than younger and more junior colleagues, the Harvard Business Review reported.
That makes sense (although as an older worker, I would say that).
Those who’ve been in a job for a long time know the pathways (or shortcuts) to get things done quickly.
We might struggle with the latest IT upgrades but experience counts for something.
The third and most interesting finding was that while overall productivity scores of male and female professionals were almost the same, there “were gender differences on particular habits that promote personal productivity”.
“More specifically, we found that professionals with the highest productivity scores tended to do well on the same clusters of habits,” the Harvard Business Review said.
Women scored higher when it came to running effective meetings.
Productivity is different for men and women Photo / 123rf
“Women were more likely than men to send out an agenda in advance, keep meetings to less than 90 minutes, and finish meetings with an agreement on next steps,” the Harvard Business Review said.
Women were also more likely to say that they prepared their calendars the night before and responded promptly to important emails.
By contrast, men did particularly well when it came to coping with high message volume – not looking at their emails too frequently and skipping over messages of low value.
Men were more likely than women to report keeping free slots in their daily schedules, getting quickly to the final product and composing outlines before writing memos, the survey found.
Fascinating stuff, although I’m not sure what to make of all that without getting myself in trouble, so I’ll leave the productivity challenge there for this week.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts.
He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz and select “My newsletters”. For a step-by-step guide, click here.
If you have a burning question about the quirks or intricacies of economics send it to liam.dann@nzherald.co.nz or leave a message in the comments section.