P is for Productivity in New Zealand

It costs 40c to produce every dollar in New Zealand which, is pretty astounding figure. A report released this week by the New Zealand Productivity Commission tries to determine why New Zealand’s GDP per capita is generating over 20% below the OECD average when (based on it’s broad policy settings) it should be generating 20% above the OECD average.

It identifies a number of causes:

The country has good resources – investment in physical capital and average years of schooling are broadly consistent with other countries. Employment of low-skilled workers also plays only a minor role in New Zealand’s poor (measured) productivity performance.

Instead, over half of New Zealand’s productivity gap relative to the OECD average can be explained by weaknesses in our international connections. New Zealand firms face reduced access to large markets and limited participation in global value chains, where the transfer of advanced technologies now often occurs.

Most of the rest of the gap reflects underinvestment in “knowledge-based capital”. In particular, R&D undertaken by the business sector is among the lowest in the OECD, reducing the capacity for “frontier innovation” and the ability of firms to absorb new ideas developed elsewhere (“technological catch-up”). The quality of management in New Zealand is also low, which lowers the productivity gains from new technology.

The paper also outlines ideas for addressing these problems. It’s a good read. The 4 page summary PDF can be found here and the full paper (An International Perspective on the New Zealand Productivity Paradox) can be found here [PDF].