Chief Executive of Priority One
A couple of weeks ago the New Zealand Productivity Commission released a report about our country’s economic productivity and how we could improve it. The commission, chaired by Dr Ganesh Nana, is rightly concerned about New Zealand’s productivity, we rank poorly compared to other developed nations. The key measure of GDP per capita is below the OECD average.
Economic growth in this country is generally produced via adding more people to a problem to solve it – we have lots of people in the workforce and they work comparatively long hours. While our work ethic is admirable, growing our living standards in this manner will not be sustainable into the future, you can’t keep simply adding people, particularly as our population ages and our proportion of Kiwis in the workforce gets lower.
The productivity commission proposes that New Zealand focuses on what they call frontier firms. These are large companies that export at scale and can invest in research and technology to add value to their products and services. These firms have high levels of productivity that are good in their own right but also rub off on other firms in our economy through investments, spin outs etc. These firms tend to invest in R&D more, an area where we are weak as a country, spending around 60 per cent of the OECD average.
Xero is an excellent example of a frontier firm, more locally you might look to Zespri and Comvita as a high value exporters.
Other economic commentators prefer strategies that group similar exporting companies in regional clusters as a way of improving productivity; that might be agricultural technologies in the Waikato, horticulture technologies here – where we have a cluster of firms in related industries that often work collaboratively with each other. That method is also valid, particularly if one or several large firms are at the centre.
While it’s easy to be distracted by more pressing infrastructure issues, productivity is something we should all pay attention to. We need businesses investing in research and technologies so that we can create a valuable economy without being reliant on importing people to meet our labour needs. If we put this in the local context, we think that this economy will create around 40,000 new jobs during the next 30 years. Realistically that number will be difficult to achieve, and even if we did, we might struggle to house them. If we can achieve the same level of growth with fewer people, it will be a better outcome all around.