Saturday, December 15, 2012

Productivity - at what cost?

I attended the Government Economics Network Annual Conference yesterday.  Top marks to all the speakers who presented some facinating talks on recent changes to the UK welfare system (Trevor Huddleston), new approaches to modelling household behaviour (Martin Weale), and a rolicking-good discussion of the persistent costs for individuals of unemployment spells (Tim Maloney).  I strongly encourage other economists to get involved in these events, I myself have taken away new thinking about how I'm going to approach some of the modelling work I do thanks to Prof Weale.

But the thing which really got me thinking on the day was the panel discussion on "The Productivity Paradox".  The cut and thrust is (and I'll go back and pull some OECD stats if they're not posted), New Zealand has been in the bottom third of the OECD countries for productivity for the last approximate 40 years.  Prior to the late 1970's we were actually up in the top 25%, then within the space of a decade, we plunged to bottom third, and we've been there ever since.

Pretty horrible performance and the panel came up with some reasons why our comparative preformances compared to other OECD countries may be so bad.  Lack of competition was touted, significant investment in low growth sectors another reason, wrong investment (ie not in high margin industries) a third.  All very good reasons.

But for me, the relevant questions now - 40 years after the horse has bolted the pen - is what would it cost to improve productivity?  Starting out from a low productivity base, being so far behind the eight-ball vis-a-vis other countries, what costs are imposed, and who pays, for even trying to get back into the top 25%?  Lots of great ideas about shifting investment to high tech industries and etc, but within that picture, is that shift "costless"?  And who "pays"?

I suspect rural areas, and workers pay.  And that move is not costless.

more later as I build some evidence...

Statistics New Zealand publish "Innovation in New Zealand" an interesting little read...  Lots of interesting content, including this summary: which included that in 2012, there was no link between innovators and non-innovators for performance measure perceptions such as productivity.  While innovators aggregate profitability was twice that of non-innovators, however, innovations tended to occur in industries with small GDP contributions...  Thats pretty much what Roger Procter was saying...

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