RBNZ Chief Economist Paul Conway on why he's optimistic NZ can improve its productivity performance

Business / news

Digital technology can help NZ's 'last bus stop on the planet' economy improve productivity, RBNZ's Paul Conway says

7th Sep 22, 12:02pm by Gareth Vaughan

Illustration by Ross Payne

By Gareth Vaughan

Paul Conway, the Reserve Bank's Chief Economist and former Economics and Research Director at the Productivity Commission, is optimistic that better times may be ahead for New Zealand's lagging productivity performance.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Conway says New Zealanders work about 10% more hours per person, but produce about 20% less output than workers in the average OECD economy, which is why average incomes and wealth in NZ are both significantly below the OECD average.

While NZ's productivity performance hasn't been great for several decades, in part at least because we're "a small economy that's the last bus stop on the planet," Conway sees optimism for improvement ahead.

"The reason I'm optimistic about productivity is because technology is changing everything. In the digital realm geography becomes less of an issue. It becomes less of a handbrake. So it's like technology is eroding those economic forces that have kept productivity growth low in New Zealand for so long," Conway says.

He does acknowledge, however, that there's a long way to go.

In the podcast Conway also talks about what productivity is, why it matters, what the transition to a zero carbon economy may mean for productivity, the concept of degrowth, how NZ can improve productivity and more.

Figure 3 below comes from the Productivity Commission. Also see Conway's 2020 article on a pro-productivity policy agenda for New Zealand here.

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28 Comments

by xingmowang | 7th Sep 22, 12:29pm 1662510589

If NZ can do what Ireland has done by attracting all the big tech firms to have their head office setup here, there would be a chance.

Otherwise, dreaming to have a productivity increase by exporting milk and importing tourists and students.

by Roger Witherspoon | 8th Sep 22, 12:52pm 1662598375

Big US tech firms went to Ireland because it had a very low corporate tax rate and lots of EU subsidies, plus English speaking.

We too could attract overseas businesses if we had a better tax offering, the employees wages get taxed anyway, so the corporate tax is just extra. 10% would do the trick. I would also favour a tax rate of 0% on retained profits of 100% Kiwi owned businesses that are below a certain size. Taxing retained earnings destroys future jobs directly.

The greedy buggers in the gubbermnent would never do it, cos it might work. Think I might have mispelled that, should read buggerment, I think.

by fortunr | 7th Sep 22, 12:36pm 1662510979

If we had a decent capital market, and a tax and regulatory regime focused on productive enterprising rather than on 19-th century style parasitic housing speculation, then we might have a chance.

by Advisor | 7th Sep 22, 1:23pm 1662513818

Norway aside, you could simplify the chart by splitting OECD nations by the proportion of their economy dependent on extractive industries.

The knowledge inputs going into extracting and exporting raw commodities are less when compared to manufactured exports and services, especially in high-cost countries.

by Grattaway | 7th Sep 22, 3:24pm 1662521040

Maybe - but in NZ the productivity gains made by primary producers over the long haul have been impressive

other sectors not so much

And having lots of monopolies doesnt help -especially when they are public service entities - and which the Govt is keen to have more of

by keithwoodford | 8th Sep 22, 8:57am 1662584233

Grattaway,

You have summed it up nicely

The productivity gains made by primary producers have been remarkable.

During my career, spanning some 50 years, output per person in the sheep industry has increased from about 1000 ewes per labour unit, each producing one lamb of about 12 kg carcass weight, to each labour unit now responsible for bout 2000 ewes, each producing 1.3 lambs, each weighing about 19 kg carcass weight. Multiply those together and the productivity improvement is more than 400%.

The dairy improvement in terms of milksolids per labour unit is similar possibly even a little higher.

I cannot see anything even vaguely similar having occurred in the monopoly industries.

KeithW

by redcows1 | 8th Sep 22, 9:32am 1662586325

Guy Trafford just wrote an article using the figures of 50,000 employed directly in Dairy and 225,000 in tourism. That gives export earnings of $350,000 per person vs $77,000. Quite rediculous.

by Advisor | 8th Sep 22, 9:57am 1662587835

The entire reply chain is taking my original point out of context. Dairy exports has been extremely profitable for farmers in NZ partly due to high productivity levels, as has been mineral exports for Canadian and Australian miners, and therein lies the whole argument around "Dutch Disease".

The economic success of resource-based sectors overshadow that of the remaining economy. It isn't a coincidence that economies that tend to have more export complexity also tend to be more productive than those with higher resource-dependency. Country Rankings (ECI) | OEC - The Observatory of Economic Complexity

Have a read and let me know if any of these disease symptoms sounds familiar in the local context: Dutch Disease Definition (investopedia.com)

by Stephen06 | 8th Sep 22, 2:23pm 1662603782

Alternatively, learn from Norway who have a country strategy to use all their natural resources in the best possible way to benefit their citizens and the environment for future generations. How good would New Zealand be then?

by common cents | 7th Sep 22, 1:21pm 1662513709

Easiest way to fix NZ productivity...

Vote Out labour and thier " pay the losers to do nothing" while giving them free motel ACCOMODATION and HOUSE'S for life policies!

Productivity is a dumb measure!!!

Start measuring - income received v hour worked per, person.

The french are/were the best! Why ?... They are a value added economy. That works the least but earns the most.

by blobbles | 7th Sep 22, 4:41pm 1662525673

Productivity wasn't actually booming under National... red or blue team have both the same results regarding productivity, so whichever is in power, has no effect. They are both doing the same things that stop real productivity because neither of them knows what it means or what it's drivers are. Massive changes to our tax system to encourage productive behaviour is the start. Neither team would ever go near such changes as it would alienate someone which would then get blown out of all proportions and they would need to do something stupid like never promise to change the tax system for as long as they are in power.

Also I am pretty sure you describe what productivity actually measures (income received vs house worked), or at least how it is measured is a proxy of this.

by Roger the dodger | 7th Sep 22, 7:53pm 1662537230

Labour were very critical of productivity under National.

Now Labour have absolute power what has changed?

by Advisor | 8th Sep 22, 8:57am 1662584277

What has changed is their ideology - going from arguing about economic productivity and per capita output to hiding behind headline figures like GDP growth and unemployment, which are artificially dressed up with fiscal and monetary stimuli.

The whole frenzy around wellbeing and child poverty reduction has also gone flat with focus on quick-fixes and mindless Crown spending.

by RickStrauss | 7th Sep 22, 5:39pm 1662529168

I already voted for John Key when he campaigned on lifting productivity, but he turned his back on it and only incentivised land speculation.

Meanwhile, we're still taking younger folks wages to pay over 50% of our welfare benefit budget pit to old folk regardless of need, plus $4 billion per annum in landlord subsidies.

Can't get improving productivity while the politicians only incentivise land speculation, and penalise productive work.

by J.C. | 7th Sep 22, 1:29pm 1662514173

Paul is a nice guy, but when he starts talking about technology to improve productivity, it is frustrating. Yes, technology does improve productivity, but when you think pumping out SaaS solutions like widgets, you've lost the plot. Many industries and sectors are awash with SaaS solutions, most of which do not get used. There are only a few winners generally speaking. The ROI and ROE (effort) in SaaS development is coming to a head.

Futhermore, technology is 'deflationary'. It drives costs down. How does that help the NZ economy when all the inflation is in energy, food, and houses (well for how much longer remains to be seen)?

by bw | 7th Sep 22, 1:49pm 1662515358

A comment well worth repeating. Thx.

How does that help the NZ economy when all the inflation is in energy, food, and houses (well for how much longer remains to be seen)?

by J.C. | 7th Sep 22, 2:49pm 1662518992

I recommend Jeff Booth's 'Price of Tomorrow' to understand productivity, technology, and money. No disrespect to Paul, but this is where the enlightened thinking is. Anyone who reads it will start to understand quickly. Paul works for the RBNZ and previously BNZ and the Productivity Commission. Hate to say it but his thinking will be molded accordingly.

by Jonny_Utah | 8th Sep 22, 9:12am 1662585151

Not to mention most SaaS solutions aren't profitable. Many companies make no sense at all at a respectable hurdle rate, other than "this might be the one".

I'm personally predicting a major shake out in the SaaS industry with intangible assets being picked up for cents on the development costs. What happens to all those widgets when they're discontinued.

by Brock Landers | 7th Sep 22, 3:43pm 1662522226

The problem is that you need smart, highly skilled and experienced people to implement digital technology properly.

New Zealand has done its very best to drive these people abroad.

They are not the kind of people that need to stick around for low pay, lousy overpriced housing and 'decolonization'.

✈️ ✅

by Advisor | 7th Sep 22, 4:09pm 1662523749

Many large retailers and banks in NZ run their back-end systems on outdated technologies.

Their monopolistic market position allows them to run inefficient systems and pass on these avoidable costs to their customers.

by Roger the dodger | 7th Sep 22, 8:01pm 1662537697

As opposed to burning cash implementing the latest tech? Which itself is soon outdated.... Burn more cash to buzzwordize again... You get the picture.

We call that a loop in the software world.

Not sure the term outdated makes that much sense when discussing transactional systems.

by J.C. | 7th Sep 22, 4:22pm 1662524562

The problem is that you need smart, highly skilled and experienced people to implement digital technology properly.

New Zealand has done its very best to drive these people abroad.

I think I know a few of these people. Met many Kiwis who are adept with digital technology and implementing those technologies. In fact, just starting a business partnership with one at the moment. OTOH, I spent a year locked out of the country and coaching ASB on a simple tech fix. It took them almost 12 months to get a solution. One of their CSRs is more tech capable than some of their 'digital transformation' leaers.

by OldSkoolEconomics | 7th Sep 22, 8:22pm 1662538955

Great to hear that our economists are now experts on predicting our forthcoming productivity improvements via tech.

Given their track record of predicting things that they are 'experts' at... like 'inflation' i am obviously certain they will correct in areas where they have absolutely zero experience or knowledge.

Having worked in tech and process improvement in both Europe and Nz for too lonh i can confidently say we have zero chance of catching up.. in fact most likely to fall further and further behind.

Main reasons

- we invest in houses not business or business productivity. Rbnz and government encourage that

- we have no experienced resources to know 'what to do'.. let alone 'how to' implement changes or systems

- tech changes requires HR changes too to help employees adapt.. our HR is also not experienced at that.

- we have a very small and relatively unskilled tech sector trying to sell tech to businesses and help businesses understand the productivity gains from different systems. The businesses buying are also not expetienced buyers.

In summary. The experience we need is expensive highly sought after and countries with money big business and strategies are fighting over it. We arent even aware we are missing it.. so dont even have a plan to have a strategy.

Lol.

by Advisor | 8th Sep 22, 9:23am 1662585831

I work in the data space and witness "counterproductivity" on a regular basis.

Many of the thousands of data analyst in the industry are just glorified button pushers on the cheap who can run basic formulae on basic Excel data because the data users cannot be bothered learning any of that.

by Dale Smith | 8th Sep 22, 8:18am 1662581933

There is research that links the type of housing to our productivity.

In that, in jurisdictions where there is no financial disadvantage for renting vs owning, then people can be more mobile and can take advantage at short notice of career opportunities that require them to move.

IE the young don't feel they have to lock themselves down in one location with a big mortgage to get ahead financially, but ironically are doing that on a productivity basis, by limiting their ability to move.

While more money may be earnt by housing capital growth vs what you make with your income, the housing capital growth is mainly non-value added gains due to monopoly restrictions, ie non productive earnt, rather than the productivity that comes from value-added productivity due to the ability to progress your career to its fullest.

If you want to be fully productive, the best option for many Kiwis is to move overseas to these more flexible jurisdictions, and I'm sure the Kiwis in those environments are just as productive, if not more so than the locals.

by nktokyo | 8th Sep 22, 8:21am 1662582086

I'm doing everything I can to figure out how to get more done with less staff input. So over it.

by Roger Witherspoon | 8th Sep 22, 1:11pm 1662599466

But, but, but, I thought the RBNZ were one of the architects of the low wage, low productivity economy??? You know, subsidising mortgages by keeping interest rates low, thereby funnelling investment into low productivity activities.

Second major problem, computer enabled government regulation of everything that moves or farts. There are just so many bloody words these days.

Third major problem, bringing in people we don't have enuff roads, schools, HOUSES for, so we are always chasing our tail, desperately trying to catch up.

How many staff and at what cost did the RBNZ have in 1992 and how many do they have now? Should give an insight into "productivity" in the computerised government sector. Let me see, now, in 1992 they had 321 staff and in 2021 they had 411. For 1997, the earliest annual report on their website has 29 pages, for 2021 it has 144 pages. That's the impact of computer enabled mission creep, presumably, or am I being too harsh?

by J.C. | 8th Sep 22, 1:30pm 1662600634

Yes. You point out some of the contradictions. Apparently the relaunch of the RBNZ's website was billed around $2 million. If you spend some time on the site, it's hard to understand how that can be justified. This example is another illustration of productivity.