Photo: RNZ
We've heard a lot about productivity, recently.
Headlines have said the country's economic wellbeing hinges on it. That it's key to improving our economic performance. That certain technologies will "unleash" it.
We also know New Zealand for decades has struggled to improve its productivity levels, despite politicians of all stripes promising solutions.
What is productivity, and why does it matter?
Put simply, it's how much output can be produced given a set of inputs. According to Statistics New Zealand, it's a measure of how efficiently capital and labour inputs are used within the economy to produce outputs of goods and services.
Dr Eric Crampton, chief economist at the NZ Initiative, explained it like this: "Imagine the economy as being a bit like a commercial kitchen.
"If you take the same set of workers, equipment, and ingredients, and reconfigure the kitchen so that everything runs more smoothly and more patrons can be served, that's a productivity increase.
"Coming up with new and tastier recipes using the same amount of ingredients and effort - that's also a productivity increase.
"For economists, productivity isn't about making everyone work harder.
"It's instead about finding better ways of doing things, better processes, and discovering new products and services that provide more value for the same amount of time, effort, and materials."
Productivity is the biggest long-run determinant of wages and living standards, according to The Treasury's website.
How is it measured?
Measuring productivity involves dividing some measure of the volume of output by some measure of the volume of input.
There are different measures of productivity. Economists tend to talk about labour productivity (the ratio of output to hours worked) and multifactor productivity (the ratio of output to combined input of labour and capital).
We could spend the rest of this article talking about measurement, but we'll leave it there.
An ongoing challenge
Productivity growth has been slowing since the turn of the century in advanced economies, and since the Global Financial Crisis in developing economies.
Average labour productivity growth across the OECD was close to 2 percent per year in the 1990s, before falling sharply to around 0.8 percent from the 2000s.
Like other countries, New Zealand's productivity performance has been slowing. Productivity for the whole economy averaged 1.4 percent per year between 1993 and 2013, but averaged only 0.2 percent over the last 10 years, according to a Treasury paper published in May.
"While New Zealand's productivity growth has been weaker than expected over a long period of time, other factors contributing to GDP have been stronger than expected, which has broadly offset the impact of lower productivity on New Zealanders' incomes," the paper read.
Finance Minister Nicola Willis, at the release of the government's accounts for the year ended 30 June, said it was clear the books were "not in great shape".
"The accounts also show the corrosive impact of low growth and low productivity on the government's financial performance," she said.
"The coalition government is determined to drive economic growth which is why it is focusing on lifting education and skills development, boosting trade and investment, investing in science and innovation, improving regulation and competition, and building an enduring infrastructure pipeline."
Craig Renney, policy director and economist at the Council of Trade Unions, told RNZ the government's strategy of "cutting", in areas such as health and infrastructure, seemed to be at odds with the economic investment needed to deliver productivity growth.
What trajectory are we on?
The Treasury's view is productivity growth is likely to remain slow over the coming years.
"Unfortunately, this outlook suggests that New Zealand will continue to have a significant gap in our productivity levels compared to other OECD countries," according to the paper.
Increasing uncertainty from geopolitical and climate risks was likely to lead to reduced risk-taking and innovation. Declining school achievement trends were "concerning".
Yes, artificial intelligence and other technologies provide "productivity opportunities", but New Zealand right now isn't well-placed to make the most of them: "given falling educational attainment, our relatively low managerial capability and low, albeit growing, levels of research and development".
"Reaping the productivity benefits of such technologies will depend on how workers adapt to changing skill demands and sector shifts."
Despite recent increases in business research and development, levels were still "relatively low".
What's driving the productivity slowdown?
People tend to blame New Zealand's isolation and small size for its low productivity. But that doesn't check out. Australia is also relatively small and relatively far away, but its productivity growth is higher.
Ireland is also small, but it's at the top of the chart. (Admittedly, it benefits from being the base for many multinational firms.)
It wasn't always this way. For 100 years, until the 1960s, living standards in New Zealand and Australia were among the highest in the world, chief economist at investment service Simplicity, Shamubeel Eaqub, told RNZ.
Our economic growth was very sluggish between 1950 and the 1990s, and a lot of other countries overtook us. Experts have blamed ongoing policy mistakes. Periods of good policies were offset by longer periods of bad ones.
According to the Treasury and financial experts, drivers range from declining educational achievement, to dampening investment, underutilisation of existing technologies, plateauing international trade, and a potential mismeasurement of productivity itself.
Eaqub told RNZ it's easy to get hung up on measurement issues but it's best to leave those to the nerds.
"The measurement issue is a bit of a distraction. We have enough information telling us we earn less than our counterparts in Australia. Our businesses make less profit. And that's what matters."
How do we improve it?
This is where conversations tend to start going in circles, Eaqub said.
"If we're more productive, we'll be better off, people say. But productivity is, by definition, improvement. Being more productive is the same as being wealthier. It's the 'what', not the 'how'. Tell me what it is you'll do to get better. And therein lies the challenge."
Innovation and investment are key, according to the Productivity Commission, an independent Crown entity set up in 2011 to deliver research and advice to lift productivity. It was disestablished in February to help fund the new Ministry of Regulation.
The Commission's final annual report noted the nation has increased its production of goods and services "mainly by working more hours and putting more people into work", and "engaging in more harmful or depleting activities".
"While choices made by the private sector determine the economy's overall productivity performance, the government can encourage choices that raise productivity and wellbeing."
The report highlighted the Māori economy exhibited many of the characteristics for long-term investments that are needed for firms to innovate, grow, and support higher living standards.
Crampton said it's a lot easier for government policy to hinder productivity than improve it.
"I think the single biggest impediment to productivity improvement is our land use planning and regulation system. It hurts productivity directly, by making it far too costly to build anything, and indirectly, by completely messing up urban land markets.
"It would be one thing if those regulatory processes were the most cost-effective way of providing environmental benefits. But much of it instead seems to be pure waste that helps nobody other than planning lawyers."
There was also an indirect effect: "If you don't let people build more housing in places where people want to live, or more restaurants and offices and supermarkets in places where those businesses make sense, nothing in a city will really work right.
"And it has another indirect effect through the competitiveness of other markets. When planning systems make it impossible to build new supermarkets to compete with existing grocers, should you be surprised if the Commerce Commission concludes that the grocery industry is less competitive than it might want?"
Long-term thinking
Former chair of the Productivity Commission, Ganesh Nana, told RNZ New Zealand had a history of favouring short-term "sticking plaster solutions" over long-term investment.
He also advocated for a shift from the country's "commodity-based economy" towards a "knowledge economy". This has been a long-time coming, with knowledge-intensive industries leading the way in improving productivity in developed countries.
In 2001, then-prime minister Helen Clark talked up the prospects of this evolution. In his 2009 book, scientist Sir Paul Callaghan outlined a vision for the future built on shifting from agriculture and tourism to an economy based on science, technology, and intellectual property.
"I despair if in 25 years we're still in this story, asking how much more milk we can get out of a cow, and how much more aluminium we can send overseas," Nana said.
"Where are we heading over the next 20, 30 years? Are we serious about changing to boost productivity?"