I think we\u2019d broadly describe sectors that produce tangible goods and services as productive.<\/p>\n
They create wealth by adding something new to the economy \u2013 hopefully improving it.<\/p>\n
A factory that makes something is a simple example of a productive enterprise.<\/p>\n
That\u2019s in contrast to sectors that involve speculative investment where wealth is created simply by trading on a perceived market value.<\/p>\n
There are plenty of speculative investments we could talk about, such as currency, gold, Bitcoin or shares in companies that don\u2019t seem to produce anything or make any profits.<\/p>\n
But, as you point out, property investment gets all the attention in New Zealand.<\/p>\n
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.<\/p>\n
So it\u2019s important to note that the construction sector is productive \u2013 as are the manufacturing, retail and service sectors that contribute to it.<\/p>\n
But investing in pre-existing property isn\u2019t productive.<\/p>\n
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.<\/p>\n
It hasn\u2019t added anything new and tangible to the economy.<\/p>\n
Of course, any money the investor makes when they sell flows into other things and can boost GDP.<\/p>\n
But where has the new wealth come from? Is it really a net gain for the economy?<\/p>\n
For the investor to cash out, somebody else had to pay 10 times what the house was worth 40 years ago.<\/p>\n
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.<\/p>\n
And if it\u2019s an Australian bank, a good percentage of that interest will head offshore as profits, adding to the nation\u2019s current account deficit<\/a>.<\/p>\n So wouldn\u2019t it be great if Kiwis invested in the productive end of the economy instead?<\/p>\n Before I look at the options (or lack of them) for doing that, there\u2019s one more point I\u2019d like to make to head off emails from angry property investors.<\/p>\n It\u2019s not their fault.<\/p>\n Property investment remains one of the easiest and most straightforward pathways to wealth for many working middle-class Kiwis.<\/p>\n 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.<\/p>\n Expecting people to invest in certain ways for the sake of the national interest is unrealistic.<\/p>\n The debate about encouraging more productive investment should be focused on Government policy, not individuals.<\/p>\n We need policymakers to step back and ensure that regulatory and tax policy is encouraging the kind of investment that best helps the economy.<\/p>\n Of course, that\u2019s where it gets political. Those on the right typically don\u2019t trust the Government to do this efficiently and want it to keep stepping back until it\u2019s barely involved.<\/p>\n On the left, there are arguments for capital gains and wealth taxes.<\/a><\/p>\n I tend to prefer the idea of offering tax breaks and incentives for those investing in the productive end of the economy.<\/p>\n It seems less punitive and easier to introduce.<\/p>\n 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?<\/p>\n 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.<\/p>\n I\u2019m sure my friends in the financial sector would like me to make the case for sharemarket investing.<\/p>\n But I should point out that it is a mixed bag when it comes to the productivity equation.<\/p>\n If a company needs capital to expand, then sharemarkets can greatly help with productivity, but there\u2019s also plenty of speculation going on in the markets.<\/p>\n It\u2019s 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.<\/p>\n It sounds like you\u2019ve dipped your toes into the sharemarket by buying into individual companies and have been burned.<\/p>\n You certainly are in good company, as many Kiwis lost money on Brierley Investment.<\/p>\n I won\u2019t offer specific advice but I would say that there are many managed funds which offer ways to get involved while spreading the risk.<\/p>\n Some big local players<\/a> 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.<\/p>\n You can also directly invest in Exchange Traded Funds <\/a>(ETFs) which track specific industry sectors \u2013 such as agriculture, forestry or technology.<\/p>\n I\u2019d remind anyone keen to get involved that it\u2019s important to do some research and get some advice from a qualified financial adviser.<\/p>\n NZ\u2019s productivity problem?<\/p>\n It\u2019s no revelation to say New Zealand has a productivity problem.<\/p>\n 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.<\/p>\n According to Treasury<\/a>, that\u2019s worsened since the pandemic and it\u2019s making forecasts for the Crown accounts worse as the tax take is coming in lower than expected.<\/p>\n 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.<\/p>\n Some highlight issues with our education system, and our infrastructure and, some argue, a cultural outlook that doesn\u2019t encourage entrepreneurship.<\/p>\n Others point out that social inequality is a big drain on New Zealand\u2019s productivity. Consider how many people are excluded from contributing to economic growth because they are poor and lack opportunity.<\/p>\n We can debate big structural issues around productivity or we can take a look at the productivity of Kiwi workers on an individual basis.<\/p>\n Are men or women more productive?<\/p>\n In 2018, the Harvard Business Review published a survey that allowed people to rate their own productivity<\/p>\n 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.<\/p>\n The survey found three general patterns.<\/p>\n First, working longer hours does not necessarily mean higher personal productivity.<\/p>\n We\u2019ve seen that in New Zealand, where hours worked has risen over the decades but our productivity rate hasn\u2019t.<\/p>\n We are all familiar with the saying: we need to work smarter, not harder.<\/p>\n A second and more surprising finding was that age and seniority were highly correlated with personal productivity.<\/p>\n Older and more senior professionals recorded higher scores than younger and more junior colleagues, the Harvard Business Review reported.<\/p>\n That makes sense (although as an older worker, I would say that).<\/p>\n Those who\u2019ve been in a job for a long time know the pathways (or shortcuts) to get things done quickly.<\/p>\n We might struggle with the latest IT upgrades but experience counts for something.<\/p>\n The third and most interesting finding was that while overall productivity scores of male and female professionals were almost the same, there \u201cwere gender differences on particular habits that promote personal productivity\u201d.<\/p>\n \u201cMore specifically, we found that professionals with the highest productivity scores tended to do well on the same clusters of habits,\u201d the Harvard Business Review said.<\/p>\n Women scored higher when it came to running effective meetings.<\/p>\n \u201cWomen 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,\u201d the Harvard Business Review said.<\/p>\n Women were also more likely to say that they prepared their calendars the night before and responded promptly to important emails.<\/p>\n By contrast, men did particularly well when it came to coping with high message volume \u2013 not looking at their emails too frequently and skipping over messages of low value.<\/p>\n 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.<\/p>\n Fascinating stuff, although I\u2019m not sure what to make of all that without getting myself in trouble, so I\u2019ll leave the productivity challenge there for this week.<\/p>\n 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. <\/p>\n He joined the Herald in 2003. To sign up to his weekly newsletter, click on your user profile at nzherald.co.nz<\/a> and select \u201cMy newsletters\u201d. For a step-by-step guide, click here<\/a>. <\/p>\nProductivity is different for men and women Photo \/ 123rf<\/p>\n