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Productivity; a More Skilled Workforce

The Mapp Report

Productivity; a More Skilled Workforce

This year is going to be tough if the current low level of business confidence is a guide to the future. The effect will be that growth might be doing well to reach 1% per annum. This figure barely matches population growth, with the result that per capita income would be static.

It is time for the Workplace Productivity Group to make a real impact on how New Zealand can improve its growth. The Workplace Productivity Group was established in 2004 by government. It is intended to be a collaborative exercise between government and business, and given the ideology of the current government, the unions. The objective of the Workplace Productivity Group is to boost New Zealand's productivity.

Our productivity growth has remained stubbornly low at 1.4% per annum on average over the last 10 years, compared with 2% in Australia over the same period. The impact has been a growing gap in the wealth of individuals and families in the two countries. Australians have become richer compared to New Zealanders. Our low level of productivity is also one of the reasons why New Zealand is so vulnerable to the impact of exchange rates, interest rates and commodity prices.

New Zealand has seen quite substantial growth in recent years, but our low productivity means that the growth has resulted in greater labour force participation, rather than increasing individual incomes. Any prosperity that has been achieved has come off the back of buoyant agricultural prices over the last decade. This is largely due to the benefits of the Uruguay trade talks of 10 years ago and New Zealand's advantage as a successful trader in temperate agricultural products which has been built up over the last 100 years. Key agricultural companies such as Fonterra have continued to produce an ever-increasingly sophisticated range of consumer products.

Research by the New Zealand Institute shows that the overall composition of New Zealand exports has scarcely changed over the last decade. They were 53% of total merchandise exports in 1995, and were 56% in 2005. We remain primarily an efficient, low cost producer of temperate agricultural products.

The reforms of the 1980s have certainly made the economy more efficient, and improved the profitability of our principal agricultural producers. They do not seem to have led to a more diverse range of exports, at least in goods. In 2005, only 50 firms had annual exports greater than $75 million. Of course, trade in commodities and physical goods gives only a partial picture of our economy. Trade in services, tourism and now creative industry, particularly film production and educational services, has grown at a much faster pace than our traditional commodity based business. Tourism has grown from $9.1 billion in 1995, to $17.2 billion in 2004. Nevertheless, New Zealand's export performance compared with other similar developed economies is poor. In Ireland, exports are 86% of GDP; in Finland it is 43%, but in New Zealand the comparable figure is 29%. As the New Zealand Institute notes, there is no developed country with a similar population to ours, that exports less than New Zealand.

All this begs the question "What can be done about it?"

This is where the Workplace Productivity Group should have something to say. The intent of the Workplace Productivity Group is to create some sort of national consensus, although there is no input from political parties across the spectrum. It remains subject to the control of the Labour Government, presumably a reaction to the Knowledge Wave conference, the conclusions of which were largely rejected by the government.

The work done to date largely consists of platitudes. There is no sense of urgency on what has to be done to improve New Zealand's economic performance. The government has been seduced by the recent increases in GDP, but these have come from increasing the size of the labour force rather than making existing workers and firms more productive. Much of what the government does is counter-productive. The government has been steadily increasing the cost of business through greater compliance costs. It has stubbornly refused to reduce taxes, either for individuals or the corporate sector, even though there is an annual surplus of $8 billion. However, the question that has to be asked is whether the productive potential of the economy can be unlocked if the principal prescription is to reduce taxes and compliance costs.

This has not been the only path taken by other smaller developed nations. This year's Newsweek 2006 special edition on Innovation has significant contributions from prime ministers, CEOs of the world's largest companies and leading creative thinkers. They provide a compelling message about the role of government in achieving growth and innovation.

In successful economies, governments do more than get out of the way. They are the primary funders of education, and actively work to attract international business. The common theme of the most successful countries is a highly skilled workforce. The added value in a modern economy comes from high quality tertiary education. It is marketable tertiary skills that set the highly skilled workers apart, and allows them both the choice and challenge in their work, and higher incomes.

In 2002, New Zealand's expenditure in tertiary education is 1.5% of GDP, falling well short of Australia's 1.7%, particularly given so much of New Zealand's tertiary education expenditure is on low quality and low level courses such as those offered by Te Wananga o Aotearoa. In New Zealand there is comparatively little sense of strategic direction for tertiary education, certainly not with any significant consultation with the business and private sectors. There have been some notable efforts to change this, with the University of Auckland's new business school and business incubators, such as Auckland University's ICEHOUSE and Massey University at Albany. Labour's response has been to strengthen bureaucratic control of universities through the Tertiary Education Commission. It has encouraged a nationwide employment agreement for teaching staff across all universities. These activities have stifled initiative instead of building a skilled workforce.

The Workplace Productivity Reference Group needs to take a much more focussed approach to key tasks that will improve the quality of New Zealand's workforce and build quality management. New Zealand needs to do more to work out what are the key drivers of success in other small highly developed economies. The alternative will be a continuation of the brain drain across the Tasman, and less choice and opportunity for those New Zealanders who remain here.

20 January 2005
13 February 2006

SuperBlues Monday Morning Tea Group with speaker Dr Jackie Blue

24 February 2006

Business luncheon at Takapuna Boating Club with guest speaker Hon Bill English

Dr Wayne Mapp

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