Increasing Productivity
Everyone (well except the Greens) talk about the need to lift our economic growth and increase productivity. Bevan Graham, CEO of the Economic Development Association of New Zealand had a column last week on this goal, and some myths about it.
Bevan firstly points out the debate about economic growth is not abstract. We have slipped to 21st in the OECD for per capita earnings. Hence we struggle to afford the latest cancer drugs while 20 other countries are more easily able to do so.
Bevan deals with three myths:
* New Zealand is a highly entrepreneurial economy
* New Zealand is a country of SMEs
* New Zealand is better placed than many comparable countries because our workforce isn’t aging as rapidly
Looking to the future he says:
In fiscal and economic terms, that means the tax base of the future (which will fund health, education and retirement incomes) will become increasingly dependent on the wealth generating abilities of a group that might not have many of the core skills needed to participate in a high-wage economy.
Also a useful definition of what higher productivity means:
It doesn’t mean getting paid more for doing the same job, it means upskilling and getting rewarded for doing work of higher value. It requires a real transformation.
This is why wages increases for people just doing the same job, don’t help the country much. They in fact make us less competitive.
January 9th, 2007 at 12:52 pm
I heard him making the same points on Radio Live on Friday..
While I largely agree with what he had to say, he dismissed the ‘brain drain’ as being hyped up – but from my own experiences here and overseas I think that loosing our up-skilled workers is the #1 cause of our slippage to 21.
Of the people I went to university with, perhaps half currently live overseas and the rest are seriously considering it. My wife and I will be leaving at the end of 08 once she has finished her masters program because, for the same job, skilled or otherwise, we’ll both earn a hell of a lot more.
The right people will always look to further themselves if the opportunities are available – and in this country they simply don’t exist.
Finally: it doesn’t matter if we’re ‘less competitive’ in the burger flipping department if we gain more hi-tech jobs: in fact it’s an obvious consequence as we shift our competitive advantage.
January 9th, 2007 at 12:53 pm
“This is why wages increases for people just doing the same job, don’t help the country much. They in fact make us less competitive.”
Amen.
In the next 50 years we will have pervasive broadband Internet, useful robots capable of replacing human workers outside factories, and who knows what in the fields of medical science, food technology, transportation and space commercialisation. What good will the training and experience of many New Zealanders be in such a world? Next to useless.
But some people still want McDonalds employees and toilet cleaners to receive more money for the same dreary work. In 10-20 years time I’ll be very surprised if McDonalds hasn’t figured out how to roboticise many of its burger-making processes. There is no future in such low-skilled jobs and we shouldn’t be artificially making them more desirable for young people in 2007.
We need high-paid engineers and programmers and entrepeneurs who can pull them all together, not middling-paid fast-foot employees.
January 9th, 2007 at 1:25 pm
In another world John Key announced that as part of the move of making National more attractive to left voters, that he will support an increase in the minimum wage to $20 an hour: “When I’m PM, everyone will earn at least $20 an hour. Labour, take that.”
And perhaps he has some plans on how the government should and can transform the NZ economy as well. Yeah right.
January 9th, 2007 at 1:31 pm
AL, as you understand, governments can’t pick winners. If they could, the world would look quite different. Who knows what’s best for the NZ economy? Maybe not what we think, what our brighest think, or what the world thinks.
A thousand flowers will bloom when the nanny state is transformed. It is at the bottom that people know best.
January 9th, 2007 at 1:34 pm
Yes, but what percentage of the population actually does something useful? Take out 95% of government employees, 50% of people in the private sector who’s jobs revolve around satisfying the bureacracy, then take out the ones on the private sector who don’t actually produce anything. There isn’t a lot left after that. So, to achive a nationwide 1% productivity increase, the producers probably have to increase their productivity by an order of magnitude.
January 9th, 2007 at 1:59 pm
The problem with this, David, is your final bit on spinning wage cuts.
To the extent that rising wages price low productivity businesses out of existence, they help make capital move to more productive uses. So it is no accident that the most dynamic and wealthy countries with fair societies, also have high floors to their wage distribution.
If general wages don’t rise, there is less incentive to substitute capital for labour, and so less incentive for productivity to increase.
January 9th, 2007 at 2:49 pm
Do I understand you corectly Jordan?
I take your post to mean that you are in favour of cranking up the minimum wage until low wage menial tasks are replaced by capital intensive machines thus throwing unskilled, junior, temporary workers out of the workforce and making them dependant on the State?
This would remove entry level jobs, jobs for students, jobs for those with insufficient skills or ability to take on skilled or more demanding work.
Is that really what you are proposing?
It much reminds me of a statement by the then president of the Canterbury Rubber Workers Union who said ” I don’t care if there remains only one rubber worker in the district. He will be paid what we think he is worth” The outcome was then a self fulfilling prophesy.
January 9th, 2007 at 3:03 pm
> Hence we struggle to afford the latest cancer drugs while 20 other countries are more easily able to do so.
Wrong. We can afford Herceptin and other cancer drugs. It’s a matter of priorities. The Health Ministry has spent more than $200 million on the MeNZB vaccine, even though there is no evidence that it has prevented any deaths (many kids have caught the disease despite being vaccinated). If the ministry can spend this sum on an unproven vaccine, using healthy kids in the process, it sure can afford to spend a much smaller sum of money on sick people.
January 9th, 2007 at 3:25 pm
“If general wages don’t rise, there is less incentive to substitute capital for labour, and so less incentive for productivity to increase.”
Productivity gains are not made when the increasing price of one thing causes a switch to another. Think of if like this. If X and Y can be used to make Z, but X costs a lot more than Y, then the Y will be used instead of X. But if the price of Y increases above the price of X, then X will be used instead. But what has happened? The production of Z costs more and we are now using X instead of Y. That is all.
An increase in capital utilisation may increase productivity if labour stays the same. But if it is simply replacing labour because labour is more expensive (artificially so, by way of governmental interference) then there is no reason to expect an increase in productivity.
Productivity IS going to get a greater boost if capital is directed toward more efficient/productive uses, but replacing labour is not always going to be a more productive use. It may be a less unproductive use, but that is not a good thing.
It is probably this sort of thinking that has got us into these problems to begin with.
January 9th, 2007 at 3:57 pm
Herceptin. Women’s movement deliberately misleading the media as to its potential benefits. The benefit versus conventional treatment is much smaller than the propagated benefit versus NO treatment.
The QALY (Quality adjusted life years) per $
of Herceptin is much lower than many medical interventions NOT done eg screening for aortic aneurysms in 65 yo males, most vaccination programmes and proabaly colorectal cancer screening.
The meningitis vaccine programme has ALREADY resulted in a striking reduction in clinical cases and deaths this will be published in peer-reviewed journals in the next few years.
As a highly paid government employee I am quite happy if you can sack me and all the doctors I work with. Then the market will decide how much I am worth. In the USA I am worth around 8 times my current salary. In Australia double. In the NHS about 25% more.
Bring it on. OR pay me enough to keep me happy and in this country, saving lives.
January 9th, 2007 at 3:58 pm
The only industry that can hold it`s head high on the productivity stakes is agriculture.With per anum productivity growth of about 4% for the last 20 years.
Ironic isn`t it that ”dirty dairying” is what allows the urbanites to drive there Jap imports!
January 9th, 2007 at 4:23 pm
Jordan is right. Those who can no longer get menial jobs would then have an incentive to gain skills to do more useful work. This has been going on for decades, for example in the move from a manufacturing to service based economy, so it wouldn’t exactly be a change in policy, just an acceleration. And it’s not as if we have an unemployment problem – great time to adjust. Increase the minimum wage!
Although personally, I’ll be joining the brain drain, getting better working conditions and a 50% salary increase. And enjoying power prices that are half the level of New Zealand.
Where did all those increased energy bills wind up anyway – oh, that’s right, AS DIVIDENDS TO THE GOVERNMENT. Yet another middle class tax increase.
January 9th, 2007 at 5:04 pm
“enjoying power prices that are half the level of NZ”
With comments like that leaving will actually increase the average IQ of those left
January 9th, 2007 at 5:12 pm
Just who belongs to the EDANZ?
Well we look it up and it consists ENTIRELY of local councils and their economic development trusts.
http://www.edanz.org.nz/files/edanz-members.pdf
In other words EDANZ is a talk shop of those who are failures in the commercial world ( nothing wrong with that) which is entrely funded by councils which are expanding due to rapacious council rate increases.
Go figure !!
January 9th, 2007 at 6:41 pm
On the other hand, we also have some of the most pumping tunes in the world coming out of our musical elite, and overseas visitors are always saying how friendly the people here are and how positive their experience is.
Funnily enough that never influences what some people regard as the most important indicator of the success of the country, the economic growth. Yet, other people consider experience and culture the most important product of our society.
January 9th, 2007 at 7:51 pm
Until this pack of tossers that have the cheek to call themselves a government start to treat people that produce the wealth of this country as valuable assets and not cash cows we will continue to slip further into the shit.
The scariest thing about this country is the unbridled growth of snouts sucking on the public tit. Is it any wonder people leave this country in droves, the socialists are slowly sucking the life out of it’s citizens.
January 9th, 2007 at 10:02 pm
From a related article: “labour productivity went up by 56 per cent between 1998 and 2005. But real wages hardly increased in that period. This is totally unacceptable. We need productivity to lift but we also need the benefits to be distributed.”
http://www.stuff.co.nz/3911735a1865.html
That’s why people are going overseas in a nutshell. Would you work harder for seven years for no extra money?
As for productivity, presumably the massive piles of logs on the waterfront would be worth more as glossy paper or processed timber, but the free market geniuses sold off most of these assets.
NZ has no chance of building a higher added value primary sector, because it would hurt the big aussie bank’s returns to build factories and train people. NZ is practically a wholly owned subsidiary of Australia at this point, and their interests are not in building higher productivity, just next quarter’s results.
And the economy isn’t everything as another poster pointed out. In London, people generate fantastic amounts of money by gambling financial instruments. Most pay no or very little tax, and make the average Briton’s life worse due to exploding property prices, easy credit death spirals, and the societal friction, crime and envy generated by such extremes of wealth.
January 9th, 2007 at 11:02 pm
Re: the herceptin fiasco. I dish out methadone to around 50 “addicts”. I can count the number of those in receipt of this “treatment” who have improved their lives (ie, become law abiding and productive) on one hand. They are mostly a pack of ungrateful, criminal parasites. It costs on average $3000 per person per year for the methadone. Then of course there is the cost of the A&D centres and the sickness and invalids benefits. Sick?, invalid?, christ when there is a new source of drugs on the street they are leading the charge. And sick woman can’t have herceptin cause pharmac says it doesn’t work. Well neither does methadone.
January 10th, 2007 at 8:49 am
Couldn’t agree more Dave. I say we give them a lethal dose of heroin and make sure sure they take the lot.
Oops.. there goes my caring professional image (again)
January 10th, 2007 at 10:07 am
> The meningitis vaccine programme has ALREADY resulted in a striking reduction in clinical cases and deaths this will be published in peer-reviewed journals in the next few years.
Try to get your fact right. There was a sharp decline in disease numbers BEFORE the vaccine had been introduced. About 50% fewer cases and 75% fewer deaths. Oh, but you’ll be aware that the death rate from the disease since the introduction of the MeNZB vaccine has increased by 50%.
January 10th, 2007 at 10:11 am
I tell a lie. The death rate has actually gone up by 150%.
http://www.scoop.co.nz/stories/GE0611/S00058.htm
January 10th, 2007 at 10:16 am
http://www.scoop.co.nz/stories/GE0612/S00039.htm
Maybe the National Party will hammer the government over this debacle when parliament resumes next month? I won’t hold my breath.
January 10th, 2007 at 11:16 am
uk_kiwi, what has happened to the cost of labour in that time? Has it stayed the same? If it has increased then where has that excess cost gone if not to the workers?
Also, were you drunk when you wrote all that? The slipping productivity is because state forests were sold? The Aussie banks control the NZ economy and they are so short sighted that they put the profit from next quarter above all the profit from the after the quarter? And you do know that the primary sector has little to do with skilled people and factories right? Those would be the secondary and tertiary sectors.
January 10th, 2007 at 11:23 am
Ross,
I agree that it was shamefull how 200 million was wasted on this little experiment, esp. how that money could have been spent in the health sector.
January 10th, 2007 at 12:04 pm
> Bring it on. OR pay me enough to keep me happy and in this country, saving lives.
Really, you’re saving lives? If your ability to save lives is right up there with your ability to provide facts, then I suggest you take up a new career as an undertaker.
June 12th, 2007 at 8:20 am
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