Productivity Commission, OECD blame tyranny of distance from big markets and suppliers, plus low investment in innovation for lagging NZ productivity

Productivity Commission, OECD blame tyranny of distance from big markets and suppliers, plus low investment in innovation for lagging NZ productivity

The following is taken from the New Zealand Productivity Commission working paper entitled An International Perspective on the New Zealand Productivity Paradox. The paper is authored by Alain de Serres, Naomitsu Yashiro and Hervé Boulhol of the Organisation for Economic Cooperation and Development. The full paper can be viewed here.

Abstract

New Zealand lags behind advanced OECD countries in productivity and per capita income levels, in spite of what can be characterised as growth-friendly structural policy settings. Using an augmented-Solow growth framework, this paper explores the “productivity paradox”, and identifies the main determinants of New Zealand’s economic under-performance. We find a sizeable contribution from New Zealand’s gap in knowledge-based capital (also referred to as intangible assets) and from its disadvantage in economic geography captured by an indicator of access to markets and suppliers.

For instance, New Zealand’s low R&D intensity vis-à-vis advanced OECD countries can explain up to one-third of the productivity gap. The room for catch-up also extends to other types of intangible assets such as information and communication technology (ICT) and managerial practices. Furthermore, unfavourable access to large markets and suppliers of intermediate goods limits New Zealand’s trade intensity, especially its integration with global value chains where intensive transfer of advanced technologies often occurs.

Overall, the empirical estimates provided in the paper suggest that remote access to markets and suppliers and low investment in innovation (as measured by R&D intensity) could together account for between 17 to 22 percentage points of the 27 percent productivity gap vis-à-vis the average of 20 OECD countries.

Introduction 1.1

The nature and magnitude of the productivity paradox Over the past two decades, New Zealand has seen its income gap vis-à-vis the most advanced economies hovering around 30%, with no clear sign of narrowing (Figure 1). The absence of catching up in overall living standards can be viewed as disappointing considering that over the same period, the country has further improved its relative labour market performance, with rates of employment and hours worked (relative to working-age population) exceeding the average of leading economies by a margin of 10%. The flip side of the coin has been a slow but steady widening of the gap in labour productivity. And this has resulted not so much from strong growth elsewhere, but from relatively weak productivity growth in New Zealand.

In fact, looking at the decade of the 2000s, New Zealand has had one of the lowest growth rates in GDP per hour worked among OECD countries, despite trailing the OECD average at the start of the decade by around 15%, and the United States by nearly 40% (Figure 2). Closing 10% of the latter gap over the span of a decade would require annual productivity growth to exceed the US rate by at least half a percentage point on average. Instead, productivity growth has been on average almost one percentage point weaker. Considering that lagging countries have in principle greater scope for growing faster than most advanced economies, this performance is indeed puzzling.

Evidently, convergence is highly conditional on a host of factors, not least of which are policies and institutions, which have a strong influence on investment in different and complementary types of capital. Assessing the contribution of these factors to productivity can help to shed some light on the significance of the puzzle. At first glance though, past reforms of product and labour markets in New Zealand would suggest that the country is in a rather favourable position in terms of broad policy settings that are supportive to private investment, job creation, employment and productivity growth.


Indeed, putting together the results from various empirical analyses that assessed the impact of policies in different areas (taxation, product and labour market regulation, innovation and education) on employment, investment, productivity and hence GDP per capita, one OECD study has provided rough estimates of the extent to which differences in living standards across countries can be attributed to differences in broad policy settings (Barnes et al., 2011). The highly stylised nature of the exercise notwithstanding, the results do provide a good illustration of the puzzle. Given its generally favourable policy settings, GDP per capita in New Zealand should be 20% above OECD average rather than 20% or so below, making the country a clear outlier in this respect (Figure 3).

1.2 Roadmap

Following a top-down strategy, the rest of the paper explores possible explanations for the apparent productivity paradox. Using a simple augmented-Solow framework, the next section first provides an assessment of the extent to which both the level and time evolution of the gap in GDP per capita and productivity vis-à-vis advanced OECD countries can be accounted for by investment in physical and human capital.

Section 3 considers the contribution of an important factor missing from the Solow framework, namely investment in knowledge-based capital. After exposing how the defining characteristics of knowledge-based assets create both opportunities and challenges for growth, the section assesses the role of R&D and information and communication technology (ICT) investment as well as resource reallocation both within and across firms as potential explanations for the paradox.

Using different measures of international trade intensity, section 4 examines the impact of geographic distance and global interconnectedness on the productivity gap. Conclusions follow.

5 Concluding remarks

Following a steep decline in productivity and living standards throughout the 1970s and early 1980s relative to other advanced countries, New Zealand engaged in a broad-ranging and ambitious programme of structural reforms. The set of reforms were successful in stemming the relative economic decline, but has failed to put the country on a clear convergence path. In fact, the gap in labour productivity has continued to widen somewhat relative to most advanced OECD countries throughout the 1990s and, to a lesser extent, during the 2000s.

Policy settings in New Zealand remain, for the most part, considered as broadly conducive to good economic performance, at least relative to the policy environment observed in other advanced OECD countries, even if the slowdown in the pace of reforms has led to some convergence in areas such as product and labour market regulation. Taking a top-down approach, the paper has explored potential explanations for this apparent puzzle between the perceived quality of the policy settings, on the one hand and the absence of catching up in productivity and living standards, on the other.

While there is little evidence that the productivity gap and absence of catching up could be explained by weak investment in physical and human capital, the same cannot be said regarding knowledge-based capital where New Zealand appears to be lagging as indicated by the large gap in R&D intensity. Indeed, the empirical analysis conducted in the paper suggests that between 3 to 11 percentage points of the 27 percentage points productivity gap vis-à-vis the average of 20 OECD countries could be accounted for by weak R&D investment.

However, although New Zealand can do better in R&D intensity, it is not clear that innovation-specific policies can do much to narrow the gap, especially given the sectoral composition of the economy. While R&D tends to be concentrated in manufacturing, the bigger payoff might be from boosting innovation in the much larger services sector.

In this regard, there are indications that New Zealand could improve its performance in ICT investment, which is one of the key drivers of innovation in services. In order to maximise the return on ICT investment, it is important that firms adapt business practices to better exploit the new technology. While direct and comparable data on organisational capital are unavailable, recent survey-based information points to a sizeable margin for improvement on average in managerial practices.

It shows that somehow poorly-managed firms are able to survive to a greater extent than in higher-productivity countries such as the United States. Insufficient competition in the domestic market could be an explanation. While product market regulation is considered overall as conducive to firm entry and competition, there is room for improvement in specific sectors. Also, pressures from the financial system on managers may not be very strong compared to those being exerted in a market-based system such as in the United States.

In addition, incentives to invest in KBC are influenced by the perceived ability of firms to ramp up production sufficiently rapidly to fully reap the potential of increasing returns to scale of the production of ideas. This in turns depends on the ease with which capital and labour resources can be reallocated across firms. The ability to draw capital following innovation has been shown to be influenced by access to early-stage venture capital as well as by regulation of professional services, two areas where New Zealand’s standing lags that of other countries.

Access to a large market is also crucial in realising returns on specialisation and investment in new ideas. In this regard, New Zealand is twice penalised by physical distance to vast external markets as well as by limited scope for internal agglomeration. Estimates provided in the paper suggest that more limited access to market and suppliers could explain as much as 15 percentage points of New Zealand’s productivity gap (Figure 18 below).

Furthermore, the results also suggest that the returns on human capital may be hampered by the small and dispersed population, which limit the scope to benefit from agglomeration externalities. The remote access to major external markets is reflected in the low trade intensity of New Zealand considering its small size. Insofar as one of the benefits from international trade is to heighten pressures from competition, it is important for the authorities to ensure that other barriers to competition be lowered as much as possible, starting with those arising from product market regulation.

Overall, the empirical estimates provided in the paper suggest that remote access to market and suppliers and low investment in innovation (as measured by R&D intensity) could together account for between 17 to 22 percentage points of the productivity gap vis-à-vis the average of 20 OECD countries. If one adds to this 3 percentage points that can be attributed to the labour market integration of low-skilled workers, this would put New Zealand 2 to 7 percentage points below the average of those advanced OECD countries in terms of productivity instead of nearly 30 percentage points.

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Can't deliver milk and logs and scenery by UFB!! 

All three predominantly use low skilled and paid labour. Hardly something to push for except to employ ppl in the rural areas.  Does diddly for the overall productivity as a nation.
Will UFB deliver an increase in productivity? now thats one huge Q Ive seen no one answer yes, with adequate proof. 
High speed and even more importantly very cheap broadband makes it economic to do things here in NZ in a distributed manner that it isnt practical to do right now.
regards
 

UFB increases the cost to supply connections, and does nothing to lower the cost of international bandwidth.  In allot of our cities it's a niche product for business that aren't in the city centres and so aren't already on fibre, and for personal users who are a long way from an exchange and so suffer from slow DSL connections.  For most users ADSL is plenty fast enough to stream high def video, and it's the monthly data caps that a the limiting factor.  Fibre will be good for the future.

Does the Productivity Ommission understand the paradoxes.
They have been working on this paper how long, how many were involved?.
It has been apparent to me for so many years, I decided to retire early and wait for New Zealand to catch on.
It never has.
Labour in this country is not working.
But, then neither is National.
But then MMP has drained all semblance of sanity and incentive. We have more MP's per capita than any sane nation should suffer.
The place has come to a grinding halt.
So few people, over charging each other for the priviledge of standing still.
Those at the top, want exponential pay increases and even when they do a crap job, they want a big pay out..
Those at the bottom want exponential benefit increases.
The Public Servants don't serve. They take.
The Landlords want more rent to  pay the bills the country cannot afford in the first place, because they are over leveraged and could not sustain a 1% growth, so they want even cheaper interest rates, than the Banks can borrow offshore from the failing banks, therein.
Did I miss something.
Oh yes, MCmansions that leak and Mcdonalds supported by Welfare.
We even have to import trash to survive.
It started with secondhand vehicles and went down hill ever since at premium prices.
 
 
 
 
 

The number of hours the Public Servants work and get paid by those in Private Enterprise vs the number of hours Private Enterprise has to work for the Public Service and not get paid.........it all adds up and production is lowered.
 
Private Enterprise needs to have all their hours involved in production not compliance. If one person can produce 8 widgets in an 8 hour day but can only work 6 hours producing 6 widgets and it takes the further 2 hours for compliance then you understand that pruductivity is going to be lower.
 
It astounds me when people refer to other historic periods when productivity was higher and never make the correlation.
NZ Private Enterprise is probably some of the most productive enterprises around the world as they are supporting a whole lot of other people who produce nothing.

I presume when you talk about productivity being higher in the past, you mean relative to other countries.  i.e. though productivity today is higher, other countries have become more productive than us.
 
Do you feel the other countries in the 'advanced OECD' grouping have in that time, lowered their levels of regulation, and reduced the proportion of the economy run by the state, or has regulation in those countries that have done better than us actually increased?

Or are the figures fiddled?  When you produce a real physical good that takes real effort, time and energy.  When you produce a financial instrument of mass destruction that "earns" a lot of revenue it takes not much real effort.
Hence I query just how robust these figures are especially from the OECD who I consider a bunch of rabid right wingers.
regards

I wasn't aware the the Public Service grew by so much during the Ruth Richardson years, because that is when the productivity diverged from the OECD pattern.
I also notice all the far more socialist than us Scandinavian countries are mostly on the "more productive in reality than expected by economic theory" side of the graph.
So, I would tend to say no to the "govermment fault" theory. Now if you want to break it down by industry sector, our extremely productive tech sector which has seen strong productivity growth is a sector that sees massive leveraging of people's skill through technology. OTOH the agricultural sector has pretty low productivity (depending on how it is measured) and has been getting worse compared to other OECD country agricultural sectors. It is also a much bigger part of our economy than many of the OECD countries agricultural sectors.

Yep.
Considering all the changes done were supposed to make us all way better off and more efficient there seems to be no evidence that this actually occured.
So the hard rights view that the public service grew so fast that is swamped the gains we should have seen from their own ideas put in place is frankly un-supportable.   I mean we actually had some quite large departments such as "works?" and that no longer exists. The Post Office one of the largest organisations was slow and in-efficient and was privatised into Telecom, gains? nope.
regards
 

The idea that private business is always more productive then public service is an absolute myth.  I've worked in prrivate companies  that are incredibly disorganised and disfunctional. As for blaming compliance costs,  NZ  is onen of the easiest countries in the world to set up a business and to do business.  Try dealing with the mish-mash of  federal, state, county and city rules and regulations like the US. 
One thing that has defintely been missed is the contribution inept managment makes to low productivity.  The failure of management to motoivate staff and deal with bullies, self-promotion and other destrucutive behaviour is endemic. 
But of course it is always someone elses fault.  If NZ busiensses were as good at running business as whinging, they would all perform a whole lot better.

I agree NZ is one of the easiest Countries in the world to set up business. You can log on to the Companies office website and set up a company and apply for your IRD registration without hardly any effort and it's cheap to do.
 
However after your structure is set up the yard yards begin.  The number of legal compliance issues each and every type of busines activity must go through is rediculous. Fine if your business model is sitting on your proverbial rear end in an office as in IT, accountancy, legal etc, but if your in most other business types you will have numerous industry specific compliance issues that have escalated in the last decade or two.
 
Heres a little case study for you.
 
Dunedin business set up $500k. the business secured forward bookings for nearly two years and was operating successfully.
 
Then along came an issue at the DCC which the business owner had to take the issue to the Environment Court. The Environment Court ruled in favour of the Business owner. The business owner spent $100k to take the DCC to the Environment Court.
$100k in expenses for a fledging business is very damaging and doesn't allow the business to expand to it's full potential as it has less earnings to be pumpes back in to development to further enhance activity.
 
Have you ever set up a business in NZ? Or have you always relied on your employment from someone elses work?. If all those businesses you worked for were so incompetent why did you not start your own up in competition to them?
 
 
 
 
 

Well it's impossible to comment on that case without knowing any details.   But in general, it seems you would be infavour of removing all regulations, such that a business could never be procecuted for failing to follow the regulations if there are none.  So a business should be able to do whatever it pleases?  Where does the line sit between nany state and lawless anarchy?

Who monitors the Bureaucrats?
Look what has just happened in the Court with ACC and their heavy handed approach of denying claimants weekly payments when it was ACC in breach of their own legislation.  Keeping on ACC how many people have unwittingly been led into filling out Declarations under the Oaths and Declaration Act? How many of these Declarations are legal?
A recent documentary on the Police stated 30% of Police Officers though the force was corrupt?
And look at the kids who are getting sexually abused in our schools?
This type of BS is rampant in NZ. In fact I could write a series of books on people who have been subjected to abuse at the hands of bureaucratic organisations.
 
You obviously don't believe in the Unversal Declaration of Human Rights or the NZ Bill of Rights Act either.
 
The public service is an absolute disgrace and embarrassment in NZ. 
 

"The public service is an absolute disgrace and embarrassment in NZ."
 
Have you ever travelled abroad?

Yes I have travelled abroad dtcarter and I have lived overseas and more........what is your point? Comparisons?
I wouldn't justify the Public Service on the grounds that they may operate better in one of their measurable capacities in comparison to some overseas counterpart..........public service is mostly a system that creates more problems than it solves.
 
If the foundations of the Universal Declaration of Rights and Bill Of Rights Act etc were applied then you would be making people responsible for their actions........Instead we have entities like Ministry of Womens Affairs, Childrens Commissioners, Retirement Commissioners and I could go on the list is extensive.
 
One entity that ensures the Rights of all is more than sufficient.
 
If people find it acceptable to have small levels of corruption, bad practices etc in the public system then they would do well to remember that the whole reason the enormous public system was set up and marketed at the populace was to so-calledly protect the general populace from a small minority of corrupt or bad individuals in the first place.
 
Quite frankly I would rather deal with the small minority of corrupt and bad individuals in the private sector than have to deal with a public servant administering on my behalf and the costs associated with that administration on an annualised basis.

and of course businesses are a paragon of virtue in the way they treat customers and staff. Most of the 100 or so people that die at work every year work don't work for the government, and light handed regualtion has really worked there. 
Are the beauracrats sexually abusing children in schools?  How is it their fault?
Why don.t  I obviously believe in the bill of rights?  That is a bizzare conclusion. 
Obviously you run the perfect business.
 

Actually I run my own business and have operated in several countries and if you think NZ is a hard place to do business compared to other countries you are out of your mind.  NZ is very lightly regulated, but even that is too much for peopel liek yourself who think they should be able to do what they like and let others carry the cost of their decisions.    BTW your so called case study is meaningless without any details.  For all I know the environment court got it wrong, and your problem may have been your own fault.  In any event one incident is an anecdote not evidence. 

It wasn't my business......it was one I have been freely helping.
I don't know what industry you are in but if you think NZ is lightly regulated in business then you are well misinformed.
 
 
 
 

Depaends whether you are comparing NZ to other advanced economies, in which case it is certainly lightly regulated, or with some undoubtedly desirable but practically unachievable  ideal state in which all citizens equally are alert, capable and willing to pursue their own interests and protect their own rights such that poor value for money, cheating and incompetence are simply not worthwhile approaches for business.
 
"Lightly" vs "heavily" regulated isn't really the right dichotomy though; the issue is whether businesses are well regulated or not, and that depends on the individual circumstances.  In some cases, for example in a dangerous industry where a business has shown itself to be careless and incompetent in the past, heavy regulatory focus on that particular business is likely to be appropriate.  In other cases, it's not necessary or cost-effective.   
 
Of course all businesses will represent themselves as being a low-risk case where there's no need for the regulator to take any interest.  Some of them are truthful in that and some are not.   Telling the difference and judging where to focus what kind of regulatory effort, is not at all straightforward and yes, regulators, being human, sometimes get the call wrong.

If you have never operated ovcreseas how would you know that businesses are less regulated overseas?  Your have just assumed they are, an assumption that is based on wishful thinking not reality. 
The World Bank recently ranked NZ third in all countries for the ease of doing business. http://www.doingbusiness.org/rankings.  But I'm sure your opinion having never doen business in most if any other countries is more valid.  
I agree ACC is  a mess, but that came about because of pressure from whining businesses to cut its cost, despite the fact the costs of ACC are incredibly low compared with the costs of insurance against personal injury of customers and staff, or massive lawsuits that destroy businesses. 

gtthomas.......you are making the assumptions.
And did you actually read and understand the 10 Topics in the business rankings.  The topics covered miss a large proportion of other regulatory requirements.
There are frequently many extra days/weeks added to Construction and the RMA process.
 
http://www.doingbusiness.org/data/exploreeconomies/new-zealand
 
 

well obviously anything you disagree with must be incorrect.
So what do you suggest we have instead of the RMA.  Businesses polluting at will?   Toxic waste next to kindergartens?  Thats what you get with no control.  As for building consents, it is so complex now and Councils  so risk averse becasue private enterprise built crappy buildings  and used company law to avoid their liabilties.  A process that your lassez-faire approach to regulation will always result in.  Business owners need to realise that they can't always get what they want, and dumping the long-term  costs on others is not acceptable.  If you think RMA is convoluted and expensive, try getting planning permission to alter a historic building in europe.
Where's your answer to private business's that kill their staff?
 

For godness sake read the Crimes Act.........you are not allowed to poison people. So having toxic waste next to a kindergarten should already be a criminal offence.
Your statements in regard to the RMA and building consents show you have poor knowledge of both. 
The RMA allows NIMBY's to be creative in what they think might be an affect. We are not talking harming of air, water, soil quality etc, we are talking visual intrusion on the landscape, colour of buildings, increased noise from a proposed housing subdividision and NIMBY's wanting to keep their rural outlook, planting forestry, dairy farming, a small function centre on the farm or other deemed commercial activity that is not in the rural zone of your particular area. Many of the activities that require a Resource Consents have no affect on air, water, soil etc so the whole system is about milking money off someone who is having a go in life and trying to get ahead.
Who the heck inspected the buildings and gave them a CCC? How many of the leaky buildings is down to product failure? Do you think a small builder has the money to take issues through the Courts? I know of one area where the local health inspector was the building inspector?
 
No doubt there are some buildings where poor workmanship is the issue? But any proper investigation should have shown those builders up.
 
Using legislation and regulation against an entire industry instead of dealing with the few that screw-up in the industry is stupid. Would you put everyone in jail because 5 to 10% of the population commit crimes?

You are allowed to poison people, if there is no specific law against it - or like the case of Flouride products that you can create enough mess to claim its your call to make for everyone else.

Very true Cowboy.........and who is adding the Flouride?..........lots of public servants advocating this nasty cr@p !!! 

It seems your biggest problem with the RMA is that it meant you did not get your own way.  Thats a very mature attitude.  If you opened your eyes you would see things like toxins poisoning people are precisely what happens in countries with limited regulation.  Almost all resource consents are non-notifed and are processed very quickly, despite the misinformation from people  like yoursefl.  As for leaky buildings it is a problem that will cost tens of billions of dollars, and it is not a few building, it was most houses built during that time.  They were built by builders not councils, yet ratepaters are carrying the can not the builders and developers.    But of course it is always someone else's fault.  I bet if you crashed your car when speeding it would be the polcie's fault for not making you slow down. 

The toxicification happens in many other countries (fracking for a start).  The only difference is who and how much you have to pay for law and media rights
 

Maybe have your rant at another Government Agency they are called the EPA.
 
And don't be telling me to open up my eyes........I nearly lost my husband to chemical and heavy metal poisoning so know more than most on the environmental, health effects, synergistic effects etc.
 
If the RMA process is so easy maybe you could advise Jing Song.......
 
I am not providing misinformation............and as for your last statement.......take a breath......some of us like being responsible for ourselves and all our actions......I don't need Nanny State to be responsible for me when I'm more than capable of being responsible for myself.

Alter Ego you are so correct. Here are my thoughts
 
Example One
At the time that Ruth ("vote for me and I will make SME bookwork simpler") Richardson introduced Fringe Benefit Tax, a neighbour was in charge of the finances of a District Health Board. Most District Health Boards have large vehicle fleets that are garaged at the workers homes. My neighbour added five staff to handle the FBT relating to the vehicle fleet. This resulted in him getting a salary increase.
 
Example Two
As a 1960's ski instructor I was exposed to the participants of the High School weeks and the University weeks. All budding world beaters. I witnessed the progress of drongos who mainly ended up in government - local and central. The practical ones I never saw again. All headed overseas. We expanded the Universities to train drongos - and then had to provide them with the sort of salaried employment that THEY considered worthwhile. They are always in 'meetings' - creating new hurdles - for those they are supposed to serve.
 
Example Three
Most SME's that trade well, end the year with a nest-egg of cash. Plans are spinning in shareholders heads on how that nest-egg may be used to automate or mechanise processes to gain productivity. Then the accountant calculates the Provisional Tax payments for the periods ahead. Hard earned nest-egg - all gone. Back to the same old grind. Thanks to Robert ("the country is bankrupt - so just this once - we will call in the business Income Tax - in advance") Muldoon. 
 
The combined effect is what the OECD people witness. Thankfully I am retired! Sort of.

Why were the terms of inquiry of the PC set so as to relatively uncontroversial. What did the PC leave out?

Where would the drive for productivity come from when so many people are getting 'rich' by bidding up each other's property values with hot money?

hahaha, dont spoil the delusion....
btw, kiwi's work some of the longest hours, yet our productivity is apparantly low.  I smell a rat....a big honking one.
regards

Productivity is a myth. I avoid conversations around productivity as much as possible.

It's no myth if you take the time to understand that it is all the relationship between inputs and outputs. Our poor productivity is at the heart of why we can't pay first world salaries and is way below other developed nations. There are huge gains to be made if we can get some of the big economic infrastructure issues sorted.
 
It's not about 'worker effort' or hours worked daily. It's much more about getting our underperforming capital investments working better.
 
It's certainly not about 'production' as some people think.

Finance Theory
http://businesscasestudies.co.uk/business-theory/finance/capital-investm...
Capital Investment involves ploughing financial resources into physical resources that will generate wealth for business over time.
 
Some of those resources get sucked out from the business which lowers the wealth building of that business over time. The business ends up with less resources as it's going into the public purse which does not utilise it efficiently and it doesn't expand the business wealth over time but rather sets a limitation to what can be achieved.
 
 
 

David,
Under preforming assets is too broad an explanation to hit home. I would like to take a stab at it this way:

Duopoly is a huge factor, whether in Forrest Products, PVC plumbing pipes, or Grocery Industry as their is no competitor ready to drive the others out of business as is the case in the Big Economies.

Who is going to put Fletcher's or Carter's timber mills out of business? Who does Marley compete with? Who will mow down Progressives or Woolworths? Who are the massive home builders? Most of these overseas companies need to add huge productivity inputs just to stay alive-and that's a much different driver than NZ's duopolies face.

Many companies here operate safely behind their large legacy assets secure that the volume of products sold in this economy is not large enough for someone to invest what it will take to seriously wound them.

For instance- I stand and watch 1970's era Food Truck deliveries to local Countdown stores. Side curtain single pallet unloading and then dropping a pallet on a dock and then manually pushing the pallet into the rear of the store. Bottom line its 3 times slower and twice as labour intensive as a typical American supermarket delivery-plus their trucks run 24 hrs a day and most major restocking occurs after midnight. 16 M long Trucks with 40 pallets are rear unloaded off grocery store docks and the pallets delivered to the aisles in 30 minutes per truckload.On the way back to the Warehouse the Truck Driver collects incoming goods from Suppliers to restock the Distribution Centre. If any one of 20 major Grocery Wholesalers operated this way in the US Walmart would have buried them long ago.

The average restaurant (service economy) probably serves 1/4 of the people per day with a staff that is the same size as an large population based economy, but because of the vast price difference charged they can stay in business. So its small business too that under produces compared to overseas norms.

Two examples but multiply that across the number of workers in the economy and it really adds up. I'm sure High Tech is different, but whats that 2-4% of the economy?

Many NZ businesses are able to operate at a pace not seen in the US since the 1970's. And I'm basing that on my experiences as an Auckland manufacturer of some 35 years ago, followed by 30 years supplying industrial automation and material handling equipment to spectrum of manufacturing and warehousing exceeding 100 SIC codes.

The NZ culture was never set up to be driven for productivity. That "she'll be right culture" dies hard once you drop below the radar of the high flying Export Earners.

I challenge that, David.
 
Those who thought money could beget money, ignored the underwriting realities. As – I suggest politely – do you.
 
If there are no goods and no services on offer, can we agree that there is no possibility for a monetary return (or if there is, there must be an equivalent amount of inflation)?
 
Or don’t you even go with that? Can money magically increase without goods/services being traded? Maybe you can explain what, exactly it is meant to 'buy', post this magical multiplication?
 
If we take that (money-underwrite being based on trading goods/services) as given, then indeed ‘return’ is based wholly on efficiencies, and on energy efficiencies at that. Even a giver-of-advice has a computer, power bill, rented room, etc. All need energy and physical-resource inputs. (You can answer this after you drive home :).
 
We cherry-picked the easiest efficiencies first – from wood to oil was probably the biggest, valves to IC’s a smaller, updraught carbies to fuel injection another – but the returns diminish. The laws of thermodynamics are the culprit, not some paper-shuffling alteration.
 
Spare me – years of that debate here, clearly and linked, yet you come out with a comment like that? Away ahead of you, were the room-full of folk yesterday, keeping abreast of folk looking at the real problem:
http://www.otago.ac.nz/physics/news/otago068590.html
 
Clearly, those who were economics-trained just can't unlearn the witch-doctor stuff. I find that interesting. It explains religion, and the catalogue tha Jared Diamond examined.
 

Well said Hamish.
There is a stong link between savings and investment, & the latter is needed to increase productivity.
NZ'ers are too busy pushing up the price of land (buying houses) from each other with their savings (paying down mortgages) instead.  This has to be the most unproductive use of capital possible.  It's not like NZ is short of land to build houses on.