Key on productivity

March 18th, 2009 at 5:00 pm by David Farrar

has given a speech to a CTU conference on productivity. Some extracts:

Getting the representatives of employers, workers, and Government around the table and constructively working together is something I want to encourage and continue.

Yes, there’s plenty we disagree on.   That will probably always be the case.

I fully expect unions to continue to oppose some Government policy and for business and employers to do the same.  Employers and employees will naturally come to loggerheads on occasion.  And, I reserve the right to criticise the approach and ideas of business, or unions, from time-to-time.

But the sum of our disagreements is no match for the weight of what we can achieve together.

I’m trying to imagine Michael Cullen delivering this speech to the Business Roundtable “rich pricks” :-)

The question is: how do we go about lifting those wages?

One argument says that the Government should simply raise the level of the minimum wage.

And yes, that’s a small part of the answer.

That’s why, even in the midst of extremely challenging economic conditions, the National-led Government lifted the level of the minimum wage this year.

But, in reality, lifting the minimum wage rate will only take workers so far.

If we are to see New Zealanders paid better across the board, to assure them of enduring  employment opportunities, and if we’re to ensure workers can aspire to wages that keep pace with their increasing  efforts and abilities, then simply raising the minimum wage is not the answer.

In the end, it is that drives wages.

So the answer is to ensure that businesses are more productive, and more profitable, and that employers are therefore able to pay their workers better and improving wages.

Productivity and profit are not bad. You need to grow the cake to share it.

New Zealand is a small open economy and this downturn has serious implications for us.

The effects can already be seen. Falling export volumes. Lower growth rates. Struggling businesses. Climbing unemployment.

Faced with these facts, and the dire predictions in the media, it’s tempting for all of us to throw up our hands in despair.

But it’s my sense that New Zealand is in fact in a much better position to weather the global economic storm than many other countries.

Yes, we are in for a rough period ahead.  I don’t doubt that.  To argue otherwise would be to ignore the obvious links between our fortunes and those of the wider world.

Basically the whole world is going to have reduced standards of living.

Let me finish by saying that in recent times the CTU has shown leadership in New Zealand’s fight for economic growth.

You’ve been prepared to work with the Government, and with employers, to find solutions.

I want to keep building on that relationship.

There is a lot to gain from each of us understanding each other better, from working out what we have in common, and deciding where we can deliver more together.

I absolutely share your vision for a more-productive, higher-wage, higher-skilled economy, producing goods and services valued throughout the world.

And I look forward to working with you to make that vision reality.

Such nice words after the CTU spent $100,000 attacking him in the election!

Tags: ,

33 Responses to “Key on productivity”

  1. jacob van hartog (309 comments) says:

    Good to see the invention of quotes goes on-… Business Roundtable “rich pricks”

    This was never said by Cullen. He only said it to the self styled Earl of Auckland AFTER some verbiage about Helens lack of children

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. Danyl Mclauchlan (1,049 comments) says:

    Cullen did address business groups on a very regular basis. He didn’t address radical groups on the lunatic fringe, like the BRT or CIS, but then again Key is talking to the CTU, not the Workers Party or some anarchist collective.

    [DPF; Danyl as a member fo CIS they are far from fringe and you paint yourself as fringe in saying so. As an example Kevin Rudd has twice attended their major residential conference - once as PM. And yes PM addresses business groups but the tone of the speeches were somewhat different. Also remember the CTU spent $100K campaignign against Key - BRT and CIS have never spent a cent]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. Doug (405 comments) says:

    Just loved this quote from the speech.

    To give an example of how much other countries were hurting, Mr Key referred to the United States, where only 10 new BMW 7-series vehicles were sold last month.

    After getting applause for offering the statistic, he suggested he had former prime minister Helen Clark to thank for the large fleet of 7-series BMW’s inherited by the National Government after the election.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Monty (949 comments) says:

    Oh Dear – John Key continues to step into the zones Labour has always considered exclusively theirs – No wonder the Nats are at 60% and Labour are – well who cares?

    No doubt John Key is bringing many on the left over to his side of the fence – Labour will panic and cry and whinge “Not fair” –

    Soon Cullen and clark will be gone and all the Labour Party will be left with will be Phil-in – my bet is that Goff will sink Labour to below 20.9% at the next election.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. PaulL (5,776 comments) says:

    Dim, I don’t see the BRT as being on the radical fringe. But then, I guess you don’t see the Green party as being on the radical fringe either :-). Cullen did regularly make some particularly rude comments about various segments of the population, including one about ripping off the farmers of Canterbury with his scholarship. In short, he has a bit of a mean streak, and that was part of the Labour government’s downfall.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. ben (2,386 comments) says:

    The question is: how do we go about lifting those wages? One argument says that the Government should simply raise the level of the minimum wage. And yes, that’s a small part of the answer.

    Does Key really think this is true, or this part of his political capital building? Because he is simply wrong.

    Minimum wage lowers earnings, even if it increases wages for those caught by it and who are lucky enough not to lose their jobs. And that’s apart from a range of other negative effects minimum wage causes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. Politic (9 comments) says:

    Even Australian media commentators are lauding John Key

    http://blogs.theaustralian.news.com.au/janetalbrechtsen/index.php/theaustralian/comments/strangers_to_business/

    I remember a saying that popped up during our elections…..”the world is voting left”, well hopefully the world will stagnate for a while allowing New Zealand to reclaim its former economic glory!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. PhilBest (5,112 comments) says:

    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”

    Yes, but how?

    Everybody wants to go to heaven, but nobody wants to die.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. PhilBest (5,112 comments) says:

    “Cut corporate taxes”
    “Abolish tax on interest”
    “Tax write offs of capital expenditure”

    “RIGHT WING FAT CAT…..! Pissing in the pockets of the super rich……..! Hidden agendas…….! Downtrodden workers……..! Yada, yada, yada…….”

    FFS.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. PhilBest (5,112 comments) says:

    Lesson one in productivity rocket science:

    Increasing productivity requires increased capital investment.

    Lesson two:

    Increased capital investment requires increased accumulation of investment savings

    Lesson three:

    Both One and Two requires the right incentives, like the expectation on the part of the savers/investors that they will be ahead in years to come after tax and after inflation. It requires expectations that they will not be buying lengthy, loss-making fights under environmental and employment regulations. It also requires that there are not distortions that incentivise investment in get rich quick speculative bubbles. These speculative bubbles do multiple whammy harm in firstly diverting money away from capital investment, and when they blow up.

    Our whole current mess is very much made by politicians having introduced all the wrong incentives into our economies. Until we recognise this, on an electorally-wide scale, and shove our old tall poppy politics of envy stuff where the sun don’t shine, we will continue on to third-world irrelevance.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. NX (597 comments) says:

    jacob van hartog wrote:

    This was never said by Cullen. He only said it to the self styled Earl of Auckland AFTER some verbiage about Helens lack of children

    The only thing worse than a political junkie is a political junkie who gets things wrong.

    Cullen shouted his angry ‘rich prick’ remark in response to John Key highlighting an apparent difference in opinion between Cullen & his wife over the candidate for the Hawkes Bay (so I believe).

    Either way – it was conduct unbecoming of a deputy Prime Minister. Just imagine if English said something like that…..

    Thx for reminding us Jacob of why we should be grateful to have Bill English as deputy.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Ratbiter (1,265 comments) says:

    John! John! John’s our man!

    if he can’t fix it, no-one can!

    Booooooooooooooooooooooo Labour!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. LUCY (359 comments) says:

    Politic -Great article thanks.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. PaulL (5,776 comments) says:

    Minimum wage lowers earnings, even if it increases wages for those caught by it and who are lucky enough not to lose their jobs. And that’s apart from a range of other negative effects minimum wage causes.

    A little simplistic.

    Firstly, minimum wages increase earnings for those on minimum wage, obviously decrease earnings for those who no longer have a job. Those who no longer have a job are usually those looking to enter the workforce – it isn’t like employers go out and fire their existing workers, they just don’t hire a new one. Unions are associations of those already in the workforce, so in a sense what they are doing is logical for their members, just not logical for their potential members, who will now not have a job. I recall something like this when I was a part timer in a supermarket whilst at school. The union regularly shafted the part timers in favour of the full timers – cutting deals to reduce the pay of those who weren’t long-term union members in favour of those who probably were.

    Next, minimum wages arguably lower wages for those people out of work only in the short term. The work that they would have done still gets done – it’s just it gets done by capital instead. Employers only employ those who are productive at the new minimum wage, and some people who were marginal employees no longer get hired. They therefore get another job, by definition a more productive job. To some extent forcing up wages forces up productivity.

    But this isn’t all the effect. You can’t get all the productivity growth we want just by driving up wages and hoping that somehow, magically, the workers will improve their productivity to the point their are employable at the new productivity minimum. You need to work out what is holding back their productivity, and find a way to remove that barrier. The kinds of things that hold back productivity are:
    – lack of education/training. Addressed by education system – perhaps by vouchers or some level of privatisation, perhaps by better public schools, perhaps by better on the job training
    – lack of will/motivation. Addressed by better rewards for working, lower marginal tax rates, more ability for someone to influence their life outcomes or happiness by working harder. With WFF, and for many people, working that extra hour, or working that bit harder so as to get paid more per hour, isn’t worth it. The government takes the lions share off you, easier to just not work harder.
    – lack of investment. Sometimes better productivity requires either the employee or employer to invest something. New equipment, new training, new processes, new technology. Neither employers nor employees will invest unless they can see they will get a return. At the moment our economy doesn’t incent people to invest – it wins them no friends, the profits are more uncertain than they should naturally be (due to govt intervention), and there is no certainty that you can keep the profits due to taxation and other means of taking them off you.

    If we’re serious about productivity, we have to get serious about understanding the parts of the puzzle.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. reid (15,608 comments) says:

    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”
    “We must raise productivity”

    Yes, but how?

    Guess how many scientists were at the Employment Summit?

    Zero.

    That’s right.

    Guess no-one thought that these professionals whose business is developments that improve productivity had anything to offer.

    Hard to believe, isn’t it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. PaulD (97 comments) says:

    Doug @5:26
    “To give an example of how much other countries were hurting, Mr Key referred to the United States, where only 10 new BMW 7-series vehicles were sold last month.”

    The latest 7 Series was due in the US in March. Hurting or just getting rid of the last of the old stock?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. stephen (4,063 comments) says:

    Hell of a good point reid. Perhaps they thought they’d just take the opportunity to beg for more funding.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. racer (258 comments) says:

    [DPF; Danyl as a member fo CIS they are far from fringe and you paint yourself as fringe in saying so... ]

    DPF are you sure you don’t paint yourself as fringe in saying he paints himself as fringe in painting them as fringe?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. Redbaiter (13,197 comments) says:

    “Politic -Great article thanks.”

    Janet Albrechtsen. Compared to the dross that abounds in NZ, a truly wonderful journalist. A breath of fresh air in the stinking stagnating sewer that is professional journalism today.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. dog_eat_dog (683 comments) says:

    That may be true, Reid, but if Rodney was there, he counts as a scientist :P

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. Redbaiter (13,197 comments) says:

    “Booooooooooooooooooooooo Labour!”

    Really. That you thought such crap was worth posting here is evidence that John Key’s political successes are just sending you commies right off the deep end.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. OECD rank 22 kiwi (2,787 comments) says:

    Basically the whole world is going to have reduced standards of living.

    New Zealand is ahead of the curve on that score. The country is a world leader in heading the charge for a reduced standard of living for its own citizens.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. Ryan Sproull (6,661 comments) says:

    Everybody wants to go to heaven, but nobody wants to die.

    I like that, PhilBest. Where’s it from?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. Paul Williams (868 comments) says:

    @PhilBest

    Yes, but how?

    Everybody wants to go to heaven, but nobody wants to die

    Fair question Phil, fair question. I really look forward to the answer since talking up production works as well as talking down emmigration…

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. Paul Williams (868 comments) says:

    Lucy and Red like Albrechtsen, Newscorp’s very own Coulter, now there’s a surprise. .

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. OECD rank 22 kiwi (2,787 comments) says:

    Labour was the recognised specialist in destroying productivity as evidenced by the last nine years of the failed Clark regime.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. goodgod (1,363 comments) says:

    Fair question Phil, fair question. I really look forward to the answer since talking up production works as well as talking down emmigration…

    The fastest and cheapest way is for working relationships to be fostered between advanced industries in euro/american companies and fledgling companies in NZ. The brief must be a pragmatic audit of operations and method in production and in the product or service itself.

    In short, we ask for help.

    This is what western countries have been doing in India for some time, bascially lifting fishing villages from an industral technological level matching 1000AD into the tech level of the 1980′s within a few months. It did not require “scientists” as such, more a case of applied engineering and developed skill.

    Now, while NZ tech level is unlikely to jump that far, there are improvements to be made in many industries where the development/research costs can give a return far above the funding. This is not however the same thing as the government throwing $700,000,000 at lab based scientists to find advances within miniscule adjustments – or attending a large conference in Florida where you drink beer and talk fishing. (Sorry, chaps ;) ) There’s always been a huge gap of pragmatism between what government thought was good R+D and what industries invented themselves that increased the profitability of their specialist areas. And since the process is malleable, the ideas presented within the relationship may not be the final idea that is applied. Our cultural interpretation of the end use for a product will change the application of foriegn technology. Both the “teacher” and the “student” walk away with an equally developed process – perhaps even a future trade partner. The catch is that this method requires an attitude of learning that is not shared in all industries, since NZ generally believes itself to be the best at everything all the time simply because we say so. But for those that can swallow their cultural conceit for a while there are profitable advances to be made.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. georgebolwing (496 comments) says:

    PhilBest.

    I agree that increasing productivity requires getting the incentives right.

    I don’t agree, however, that the problem we have with productivity in New Zealand is that we have too little capital, because we have too little savings.

    We have one of the most open capital accounts in the world, serviced by one of the more efficient (and it would seem prudently managed) banking sectors in the world. We have imported large amounts of the world’s savings over the past decades to finance our investments.

    I have never seen any evidence that New Zealand firms with sound investment prospects can’t get finance. Sure, in some cases that finance is expensive, but that it usually because the proposal is high risk.

    Put another way, I fail to see why say a Kiwisaver fund would start lending money to New Zealand firms that banks in New Zealand would not lend to.

    The US experience, where they have had very high productivity growth for a long time (which is why they are so rich), is that higher productivity comes from:

    a) managers of firms having the incentive to make hard business decisions; and

    b) a political and market system that supports managers to make those hard decisions.

    The classic example are closing uneconomic plant and shifting production to where it is the most profitable (even if that is offshore). Mangers get rewarded when they do this, and politicians and the laws they pass and the media they read don’t do too much to get in the way.

    Compare this to low productivity NZ, where closing uneconomic plant is seen as an act of economic treachery and politicians and they media fall over themselves put pressure on firms to continue growth-inhibiting practices.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. Paul Williams (868 comments) says:

    I have never seen any evidence that New Zealand firms with sound investment prospects can’t get finance. Sure, in some cases that finance is expensive, but that it usually because the proposal is high risk.

    Put another way, I fail to see why say a Kiwisaver fund would start lending money to New Zealand firms that banks in New Zealand would not lend to.

    I tend to agree which is why I’m concerned by the changes Key’s making to the Cullen Fund which may have little or no impact on capital deepening and lead to less than optimal returns on mum-n-dad investments.

    George, I’d be interested in your views about my understanding that our productivity, particularly in tradeables, is low as much because the products we’re best suited to exporting, agricultural commodities, as it is anything else?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. PhilBest (5,112 comments) says:

    George Bolwing, I always appreciate your contributions.

    “…..I have never seen any evidence that New Zealand firms with sound investment prospects can’t get finance. Sure, in some cases that finance is expensive, but that it usually because the proposal is high risk…..”

    I did not mean that. I mean that there are not enough people SEEKING finance for productive investment schemes in the first place, because they have been put off by the low returns respective to inflation, after tax; and because of environmental and employment regulations and project delays.

    Many of the attempted productive investment schemes are abandoned, much more so at the current time, due to regulatory delays.

    Owen McShane in a recent NBR column, listed tens of billions of dollars worth of private projects off the top of his head without doing any research, that have recently been abandoned after lengthy delays. Had they not been delayed, they could well have been completed by now. The cost of such projects prior to abandonment, is straight out dead weight loss to the economy.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. PhilBest (5,112 comments) says:

    Reid:

    “…….Guess how many scientists were at the Employment Summit?

    Zero.

    That’s right…..”

    One of my “hot button” subjects that I have not aired here before, is the way Professor Paul Callaghan from Vic Uni gets treated by our media and our politicians. Oh yes, Hulun will enjoy the photo op with him having been awarded an NZ Companion of Order of Merit or something; well, you could hardly not give him some sort of official recognition after all the international science awards he has won.

    But the moment he opens his mouth to proffer his opinion on the direction of the country, it’s “not listening…….”.

    If you want to know more, watch:

    http://www.hotscience.co.nz/video_detail.php?videoid=169

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. PhilBest (5,112 comments) says:

    Ryan Sproull, I first read that term being used by Gary North, but it is actually the title of a book on bluegrass music. I don’t know who first made it up, though. Gary North is one incredibly knowledgeable guy, he will have known about the book; he is always throwing musical and theatre and film and popular culture references into his columns.

    Do you know much about him?

    His columns on the US economy and the housing bubble going back 6 and 7 years are just incredible. I have got a better handle on “what happened” from reading those, than I have from anyone writing AFTER it happened. Peter Schiff and one or two others are all over US TV as a result of having “predicted the crisis”, but Gary North leaves all of them for dead.

    He has a deeply antagonistic relationship with the media, being an uber fundamentalist christian, otherwise I reckon he’d be a celebrity now.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. georgebolwing (496 comments) says:

    Paul

    The structure of your economy is VERY important to your productivity, as you point out.

    Look at the high growth Asian economies: they became rich by moving resources away from subsistence agriculture into high value-added manufacturing and, increasingly, services. The US has also moved large portions of its workforce from rural to urban areas over the last 100 years.

    Of course, over much of the same period, New Zealand has had “regional development” policies that have tried to keep populations in rural and provincial areas, and we all know how successful that has been.

    The future for NZ, as I see it, is to focus on:

    continuing to get more productive in agriculture, which is something that we are good at, but realise that there are limits;

    capture more of the value chain in our exports, but that will involve owning more facilities offshore. Indeed, one could see that there might come a day when NZ diary interests source most of their raw milk from foreign farmers, and make money from high value-add aspects like marketing and logistics. This will require a major mind-shift by farmers.

    continue to move into “weightless’ services and top-end tourism. Backpackers and those wanting to go tramping and stay in tents are all very well, but we want the uber rich to come here, stay in posh hotels and drink the local wine by the bucket-full.

    But above all, we need a political and cultural systems that see being rich and successful as good things, not bad.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.