But how many of those policies will actually make New Zealand more productive?
University of Otago economics associate professor Dennis Wesselbaum told The Front Page that there’s no single cause but a combination of structural weaknesses.
“A couple of factors that drive our low productivity, and the puzzle that we’re facing is we are a country that has generally weak competition, and that means that the pressure to innovate is quite small, so that’s a problem.
“We have seen quite a fall in educational performance, especially in STEM – the math, the sciences. We are not really that great in taking up and diffusing new technologies, partly because of skill shortages. So that’s the immigration argument.
“We don’t really have that deep of a capital market, so for new firms, startups to get funding, that’s quite difficult compared to other countries.
“High energy costs, that is not just a current phenomenon but quite a structural thing. Planning regulation. And just the fact we are a small domestic market. There are more than five million Kiwis around, and we are quite far from the global supply chains.
“So if you put all of that, and probably more factors, together, you get these quite low productivity numbers that we’ve been talking about,” he said.
New Zealand has struggled on this measure for years. Treasury estimates productivity growth averaged around 1.4% a year between 1993 and 2013, but just 0.2% over the following decade.
OECD data also shows New Zealand’s output per person remains well below that of the most advanced economies, with little sign of the gap closing.
“I haven’t really seen much big-picture thinking around productivity or that being highlighted as a structural problem that needs to be fixed.
“Of course, there is some good policymaking around reducing barriers … Trade deals as proposed by National are a way to reduce trade barriers; that’s a good thing. But other than that, I haven’t really seen much that would immediately be a policy that comes to mind that would, to me at least, raise competition and productivity,” Wesselbaum said.
So, how might New Zealand fix its productivity problem? Again, there’s no single solution.
“Regulation is one of those things that has been, in the past, heavily discussed. And it is true that if we reduce adjustment costs, barriers to entry, trade liberalisation, that increases foreign direct investment.
“These are issues which are just good policymaking. And that’s the stuff that we definitely need. But then if it’s about things that we maybe have not quite debated to the degree that we might should … industrial policy, I think, is one issue that hasn’t received much attention, and for some people it’s a bad word.
“Targeted subsidies, tax incentives, especially research and development … The innovation aspect, if you think about AI. New Zealand tried to create clusters back in the, I think, ’90s that didn’t go too well because of infrastructure and just the fact that New Zealand is quite a spread-out country.
“But you could think about doing that these days with new communication technologies and a policy agenda that would create incentives for new businesses to be started,” he said.
Listen to the full episode to hear more about:
Is this uniquely a New Zealand problem?What happens if we don’t fix it?How to improve competition.
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5pm. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
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