Here's how NZ could be better off without working harder

Monday, 19 April 2021

Our output per hour worked is about 40 per cent below the average of the top half of OECD countries. But what actually lies behind all these metrics and statistics?

New Zealand is grappling with how to work “smarter” not “harder” to improve our lives, and the Productivity Commission says part of the solution is focussing on exporting unique products at scale – something other countries our size do better.

For the past 25 years, our income per person has remained about 70 per cent of the average of countries in the top half of the OECD. This is despite efforts of successive governments.

This is holding back our standard of living and wellbeing, according to a report released by the commission on Tuesday.

“New Zealand’s main approach to maintaining and growing our living standards has relied on adding more people into the workforce, having employees working longer hours, and expanding production in industries with damaging environmental impacts,” said commission chairman Ganesh Nana. “This approach is not sustainable.”

The late Sir Paul Callaghan observed that New Zealand’s business strength was in weird and wonderful niche products, like Fisher & Paykel Healthcare’s breathing respirators, which have been in hot demand globally during the Covid-19 pandemic.

In its 250-page report on how to lift the performance of our most productive “frontier” firms, the commission agreed.

* The Detail: New Zealand is not as productive as we should be, what does that mean?

* Five things businesses in construction need to know

“Exporting specialised, distinctive products at scale is the best way to lift the productivity of New Zealand’s frontier firms, and improve their contribution to national living standards and wellbeing,” the report concluded.

While it was possible to develop world-class businesses from a New Zealand base, the country had very few such companies, and the productivity of frontier firms was, on average, less than half of that found in international peers, it said.

Fisher & Paykel Healthcare has benefited from a surge in demand for its breathing aids during the coronavirus pandemic.

To develop large, globally significant firms, the commission recommended the Government narrow its focus to areas of the economy with potential for innovation.

”A small economy has only a limited number of areas that can get to critical mass and support sustained world-class competitive performance,” it said.

“As a complement to broad-based innovation policies (which benefit all firms), finite government resources also need to be deliberately focused on a small number of high-potential areas rather than being thinly spread.”

The report recommends the focus reflect existing and emerging strengths and capabilities and that the Government collaborate with industry and other stakeholders.

Links between firms and public research institutions are mostly poor and research is too focused on science excellence rather than responding to industry needs, it said.

The Government should commission a review of migration policy to consider the optimal level of permanent and temporary migrants to support innovation and productivity, it said.

Despite large inflows of migrants to New Zealand over the last 10 years, skilled labour shortages continue, suggesting an ongoing mismatch between the supply of labour and the needs of firms, it said.

The review should also assess the education and training system, in meeting firms’ demand for labour, it said.

The Government should also review the regulatory framework around genetic modification, last reviewed in 2001, to ensure it is fit for purpose and supports domestic innovation, the report said.

“Modern genetic modification technologies such as gene-editing offer potential new opportunities for boosting productivity, improving health outcomes, reducing biosecurity risks, and responding to climate-change risks and other environmental problems,” the report said.

The commission wants the Government to set up a high-level strategy body like an Innovation Council, which could include the prime minister, to help define focus areas, and innovation bodies for each focus area.

It warned the Government will need to commit “significant sums of money” over a period of about 10 years to the focus areas.