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Guy Trafford notes that while farmers have achieved substantial productivity gains, the country as a whole hasn't as some Government policies and core SOEs undermine private sector improvements

Guy Trafford notes that while farmers have achieved substantial productivity gains, the country as a whole hasn't as some Government policies and core SOEs undermine private sector improvements

I was listening to a radio interview with Ganesh Nana who has been appointed by the Government to head the Productivity Commission. Among other things he was discussing the difference between productivity increases and GDP. Unfortunately, New Zealand languishes on both measures against our OECD partners.

For productivity the New Zealand worker averages about 40% less and GDP as discussed a week or two back is quite a bit back from other developed nations.

Nana was at pains to say that productivity is not necessarily about making more dollars but could be getting more leisure time for the same inputs, or other such measures. Or more succinctly about getting more out while putting less in.

In the last 10 years New Zealand has averaged around +1% per year.

Since the dim dark years of “skinny farming” in the late 70’s and early 80’s sheep productivity has increased dramatically from a national average of 98% in 1984 up to 126% by 2006 and around 128% at the present time. Lamb weights has gone up similarly with lamb meat export values going up +22% between 1993 to 2003 while ewe numbers decreased by -24% at the same time. Beef and dairying also had healthy increases although not quite in the same league.

However, along with the rest of the country things have flattened off as the low hanging fruit has been picked.

There is a belief than New Zealand needs more frontier firms to lead the world in technologies or what not. I imagine Rocket Lab is the highest profile one we have at the moment which is competing well against all comers - although even they are talking about heading offshore to bigger pastures which does seem to be a feature that ‘afflicts’ successful New Zealand firms.

One of the things normally necessary to compete in the world and reap some productivity gains is having a competitive advantage, so that we can produce food cheaper or better or both, or produce aluminium because we should have cheap power.

The government set up the Productivity Commission back in 2010 with the aims of; providing advice to government on topics referred to them by government, carry out productivity-related research that assists improvement in productivity over time, and promote understanding of productivity issues. The Commission has a vision of “Productivity growth for maximum wellbeing.”

Given it has been operating for 10 years now and New Zealand has averaged only +1% improvement per year over that period and has one of the worst productivity gains in the OECD it obviously has some serious challenges.

Another interview I happened to hear was with chair of the Major Electricity Users' Group, John Harbord. He brought home how major parts of New Zealand appear to be at odds with itself. In this case the wholesale electricity suppliers versus the productive sector of New Zealand.

Some interesting figures came out, one being that the spot price at the moment is seven times higher than it was a year ago at $314 per megawatt hour and have reached $500 in the last couple of weeks. It is worth adding that Rio Tinto apparently are paying in the vicinity of $35 per megawatt hour.

New Zealand electricity is four times times the price of that produced in Australia and we have some of the most expensive in the developed world.

High electricity prices are quoted as being one of the reasons that the Whakatane Board mill closed down and there were temporary closures of other paper mills and New Zealand steel at a time of unprecedented demand. Some increases are no doubt due to the low lake levels but there is a large degree of shadow in trying to find out what really is going on.

If as Ganesh Nana says productivity gains are achieved by “unlocking potential” then going back to the drawing board around our electricity systems would seem to be a good place to start.

New Zealand has one of the highest renewable energy systems in the world and yet consumers are paying astronomical prices.

Farming is not immune from this with intensive agriculture and horticulture both being heavy users of electricity. The Ashburton region near me has the distinction of having higher power demand in summer due to irrigation than it does in winter.

All processing plants in all sectors generally use high levels of power and this mostly to improve productivity. Under the current system power companies operating under their version of rational behaviour will only add additional generating capacity if they can maintain their profit margins at similar levels to what they are now. (And the largest power companies are 51% Government-owned/controlled.)

Reviews are being carried out by the Electricity Authority but changes are unlikely to occur soon.

In the meantime the current policy of topping up superannuitants' power bills is the best we can expect from the government, but that does nothing for the country's productivity.

Wholesale electricity

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55 Comments

13
up

I would say that any productivity gains are swallowed up in massive additional government compliance costs.
The system is becoming very broken.

Exactly right! Every year there are more forms to fill, more procedures to follow and boxes to tick, for no advantage. Then you have to pay for all the people flying around the country making sure you have followed all the procedures and ticked all the boxes etc. and they don't produce anything either, more dead weight! I adopt technology to save time and labor but then that time I've saved has to spent keeping the bureaucracy happy.

I don't get swallowed up in bureaucracy, the problem I have is you can only get so much out of a paddock of grass. Unless people are prepared to pay more for food to cover the cost of production I can't see a solution. Unfortunately people expect cheap food hence the classic "catch 22".

This correct and australia is no better. Approximately 10% of workers dont contribute to GDP as their primary roles are Compliance and Governance. We are overreulated especially in the areas of Health and Safety, Tax collection, Governance requirements etc. The compliance costs significantly outweigh the benefits. W

Interested in the data you have to back that claim up.Cheers.

Most productivity gain will be rooted from the new areas emerging out the 4th industrial revolution.

None of them can be found in New Zealand.

This is underway in New Zealand. I know, because I'm doing it.

The problem is we're not doing it enough.

Curious to hear what are you working on?

Productivity is nothing more than energy efficiencies.

How many time has it got to be said?

And they plateau. The writer makes it even more obtuse by agreeing to talk in percentages as if they were linear. Percentages are 'of the last one'', not 'the last one plus one plus one'. Yet the expectation is of a linear continuum of percentage increases? Spare me.

“The greatest shortcoming of the human race is our inability to understand the exponential function.”
https://www.youtube.com/watch?v=kZA9Hnp3aV4

No reason to plateau yet. World changing innovation is underway elsewhere, we need to embrace it. For that we need to invest capital in productive endeavors, rather than bidding up houses.

AI will change just about everything.

Listen to the rhetoric:

"invest capital in productive endeavors".

Capital is debt, OK? It's issued as a forward bet on energy and resources being available in the future. All else is a bet-in-waiting on same. Productive means resources and energy were used. Endeavors is a fancy word for 'effort', aka 'work'. Which requires energy.

AI may help avoid inefficiencies, but it still takes x kilojules to lift y tons up z metres, and the closer you get to optimum efficiency, the more effort you have to put in to get ever-less back. There is no magic get-out-of-jail-free card.

In general I agree. You can plot the efficiency of the first steam engines (about 0.5%) and see them grow until the Mallard set the record for a stream train speed about a century ago - the engine was maybe 20% efficient. Replace it with an electric train and the efficiency may reach 50% but it gets ever harder as you approach 100%.
But take your x kilojoules to lift y tons up z metres - well if that is an aeroplane well it can be replaced with a zoom video conference and leave that plane grounded.

powerdownkiwi's pessimism and ignorance can be plotted. There's a clear relationship.

If ever there was an ignorant statement you just made it.

If those x kilojoules are sourced from solar panels, built by factories (running on solar) organized and "manned" by robots and AI, delivered and warehoused by unmanned facilities - you're getting towards a "get out of jail free card".

Is your pessimism built around the idea that energy and resources are limited? Eventually, when the sun dies out you might be right - assuming we're not elsewhere by then. Until then, you're wrong. You haven't learned from history and you underestimate mankind.

We took our first flight in 1903. We've just launched a robot to mars containing a flying robot. That's 118 years. I cannot imagine where we'll be in 2121.

You haven't learned from history and you over-estimate mankind.

https://www.booktopia.com.au/guns-germs-and-steel-jared-diamond
https://www.routledge.com/An-Analysis-of-Jared-M-Diamonds-Collapse-How-S...
https://www.amazon.com/Collapse-Complex-Societies-Studies-Archaeology/dp...
https://dothemath.ucsd.edu/ (the most recent 4 posts. say)
https://www.sciencedirect.com/science/article/pii/S0921800919310067
https://dash.harvard.edu/handle/1/37364868
https://royalsoc.org.au/images/pdf/journal/152-1-Turner.pdf

I don't really 'do' opinions, whether they be optimistic or the reverse. I just 'do' learning. Then I apply to history and prediction. Your little analogy misses the mothballed Challengers and Concordes ..... And your little robots-to-Mars; compare with the 18,000 containers said to be on the Ever-Given? The Avatar movie was all about that - missed the EROEI angle a little but otherwise......

Oh, and have you bothered to work out the surface area needed for real-time solar energy to do what we do now?
https://www.withouthotair.com/

Come back and chat when you've done the homework. :)

There will be failures along the way, that's part of the progress. What you're doing with your "learning" is seeking out reinforcement for your opinions.

Your little example about the Ever Given and Perseverance - in 1903 we had the Wright Flyer, today the skies are full of sophisticated airplanes. Long may the progress continue. Perseverance and those machines before it are our first ambitious steps.

Buckle up and enjoy the ride or wallow in pessimism and misery. We're going to Mars, then we're going beyond.

Nobody is suggesting we use just earth based solar panels. We have fission, maybe fusion, spaced based solar - these things hadn't even been contemplated a couple of hundred years ago.

The Wright Flyer and your 'sophisticated aeroplanes' both burn fossil energy.

Which is a finite resource, and there was a s---load more of it then, than remains now.

Try measuring the right thing. That's a depletion; seeing it as an advance has to be faulty logic. And at this late (planet-altering) stage in the overshoot of one species, 'to infinity and beyond' remains a cartoon-level comment.

Battery powered planes are already in development. Early test flights have been completed. Traditional jet propulsion is getting more efficient. ICE passengers vehicles are being phased out. Distributed manufacturing to reduce air freight is coming along through 3d printing. The movement towards reparability and upgradeability is gaining pace (see Europe).. I could go on and on..

As another poster touched on, the need for flight is being diminished through communication technologies (zoom, teams etc.) . VR is creeping into the mainstream. In future, neuralink type technology will have a role to play in allowing people to meet without travel.

Battery-powered flight is a misnomer. The batteries had to be charged somehow, from a real energy-source and the global grid is 63.3% (2019) fossil-fueled. Someone is fooling themselves. Jet propulsion isn't getting more efficient - tiplets were merely to stop tip-vortices (high pressure rolling into low pressure (we were playing with that 40 years ago http://www.all-aero.com/index.php/contactus/63-hang-glider-paraglider/17... - the rudders were effectively fences).

3D printing is swallowed unthinkingly by more than you - the Nine-to-Noon host on RNZ is a classic failure in that regard - the need is for? Wait fort it.
Feedstock. No, really? So to print a car would require a car's worth of feedstock? You mean it's not just, like, magic? How can that be? You mean we REALLY need to keep mining stuff?

Good luck - you'll need it.

You're stuck in the past with in your thinking. We're shifting to renewables.

3D printing is in it's infancy, but even now it's being used for printing anything from houses to spare parts for trains. This has the potential to simplify supply chains enormously. It's not about a "car's worth of feedstock", it's about fragments of that car not having to be shipped back and forth across suppliers. It's about being able to produce parts on demand, rather than having them waste energy in storage.

Jet propulsion is getting more efficient at moving passengers. Check the fuel economy per seat of modern passengers jets like the A319Neo compared to even relatively modern jets like the 737-600.

I'm not sure whether you're being deliberately obtuse.

I don't need luck. I'm gainfully working on the 4th industrial revolution. I understand the implications.

So the raw materials for all these technological advancements are endless?

Name a single resource we’ve ever run out of.

That's silly. Just plain silly (and not surprising given your choice of pen-name - who do you represent?)

I have a favourite photograph of the well-head F7 Masjid-i-Suleiman. It 'produced' nearly 7 million tons of oil. It was capped in 1926.

If you tap into finite resources, they will run out. If you tap into them at exponentially-increasing rates, no substitute will suffice indefinitely, indeed for very long.

You are (presumably) alive. Does that mean you always will be? 100% chance you won't. Entropy (I bet you look older than you once did) never sleeps.

Why the need to obfuscate?

That’s all Malthusian nonsense. Clearly you haven’t learned from history and you underestimate the progress that open societies can make.

Read this instead: https://www.amazon.com/Beginning-Infinity-Explanations-Transform-World/d...

And even worse, we waste that diminishing energy (and resources) to produce useless crap (and activities) that all too quickly end up as waste yet we claim thats 'productive'....productive my arse.

We appear to have a collective death wish.

14
up

Once again, it's the housing market! Yay! It sucks up all our capital leaving us with nothing left to invest in our companies.

Xero is listed on the NYSE
Rocket Labs is too and as they say they want to head offshore.
TradeMe is owned by a British private equity firm.

Why?

Because Kiwis only invest in houses. ~70% of NZ wealth is in housing 13% in productive property (farms, mines, commercial buildings etc...), and 17% in other productive capital (infrastructure, companies). In other developed nations the share to housing is around 30 - 50% with 45 - 60% in other productive capital and the remainder in productive property.

We don't fund them so our best and brightest companies seek funding elsewhere because they have to and then over time it makes sense to move there too.

The result is abysmally low productive capital per worker -> low innovation and low output vs our peers. And of course as the rate of increase in investment in productive capital remains low because it all gets sucked up by housing we continue to make abysmal productivity gains.

I could not agree more. The NZ economy needs to invest capitals and resources in the real economy, not waste them in the parasitic residential housing speculative investment, which is nothing but a gigantic Ponzi.
The only way to create wealth is by investment in the real economy; too many kiwi investors are stuck in a obsolete 19-th century mentality only focused on residential housing. Wealth is not created by selling houses to each other - this is a fool's paradise that is structurally damaging the long-term prospects and health of the real economy. The Government and the RBNZ must grow some balls and finally show the courage to take bold action in order to re-balance the economy away for parasitic residential housing speculation.
We need much deeper and more diversified capital markets and investment opportunities - the current situation is nothing short of abysmal.

See my rhetoric comment above.

The 'real economy' is actually nothing more than people living in houses, filling them with crap and discarding the crap when it decays.

That's all it is. The intermediate steps are not an end in themselves.

From your comment I deduce that you do nothing in your leisure time. Wear no boots when tramping, wear no clothes so they won't wear out, read no books because they decay, catch no fish because you don't want to invest in 'wasteful' resources required to catch them. You must use the legendary 'circular economy' with regard to your vegetable patch (entropy occurs in agricultural systems too - don't buy the fantasy of organic growers that you can just keep recycling nutrients that aren't produced elsewhere).

My point? Life = consumption = entropy = economy

There is a reason we invest in houses that is not related to tax benefits and interest rates. Alternative investment opportunities all suffer from the inequality of knowledge - probably the owner of Xero and Rocket lab know whether they are likely to boom or bust next year but us regular punters don't. But we trust our judgement about houses - we know when one is better than another (size, attributes, location, state of repair, potential rental income, etc).

Yes this is a really good point - a practical point. This is further complicated by traditional measures "fundamentals" now being a nonsense in this market. Price to earnings ratios are stuffed for example - Tesla is 1179.66!! No wonder people are choosing to follow the crowd and take their advice from peers on Redit - safety in numbers...

Resource misallocation may well play a part in low productivity.

Xero is another one of those 100% pure marketing hype. I usually advise small businesses to go MYOB or Sage and larger enterprises to go SAP. Heck even MS dynamics is a good option with its integration with other MS products.

Xero is just another accounting software company who came up with an idea of subscription and browser based access. The rest of the long established players are in it too. The achilles heel of Xero compared to its competitors is that they can go offline and Xero can't- the ability in business continuity is crucial to many.

The math behind rocket labs don't add up just like Space X. Space traveling stuff is never cheap and based on cost alone, it'll never make any money in its lifetime but keep burning through investors' funds till it goes bust.

Why would any smart Kiwi invest in mediocrity. It's easier to get funding from hyped up investors in the US like We Work.

the irony to that is that if we invested companies and they then started producing more wealth, what do you think will happen to house prices?? They will go up because people will be more prosperous, either way house prices will go up, however if we did invest more in companies than housing, then perhaps we would have more companies able to "produce" more housing etc

They are very different outcomes so I wouldn't call it ironic. The current situation is high house prices with low incomes whereas if we had more innovative wealth producing companies we'd have high house prices with higher incomes which is definitely a better outcome.

Allocation of new credit to existing housing doesn't make a productive country. But I'm sure the guys getting paid the big bucks have already been told to not mention that, or call for window guidance.

Neither does throwing massive resources into trying to keep up with infrastructure to cater for a rapidly growing population. But you'll never hear that from Nana, he's a "big NZ" advocate.

Yes - it's important to note that this is not about Left or Right, black or white, this is about overshoot and depletion.

So you can say it's about disenfranchisement, within the species. But you can't fix the problem by fixing that.

Maybe we should just cancel vaccinations and let evolution roll its dice.

That's usually how ecosystems rebalance themselves. It's just that humans have become very good at cheating mother nature, albeit temporarily.

We’d be a much more productive country if we doubled the population

Stirring?....that would be an almost sure fire way to reduce productivity.

Nope. We’re too small and isolated to attract capital or talent.

This is dinosaur territory - where have you been?

The simple question of such stupidity is: What then? and What then? and What then?

Shoulder to shoulder, coast-to coast, infinitely rich but unable to lie down, no biodiversity and somewhat altered weather systems. Sounds ideal.

I've never done a deep dive on productivity but given our national industry for the last 30 years has been revaluing real estate I doubt productivity is all that relevant at this point.

A Land Value Tax would help productivity and reduce house prices. Let’s be brave!
https://www.bloomberg.com/opinion/articles/2017-11-28/why-economists-lov...

Service industries and retail make up a large portion of our jobs, not exactly sure how you improve productivity in those sorts of jobs, unless you tie a broom to the barman's rear end, so he can sweep the floor as he goes about his job.

I stopped in a busy BP yesterday. Four self service kiosks have been installed. The station can now serve more customers. The roof has solar panels installed to assist with power for the station.

Some customers drive in, fill up and drive out, without even presenting a credit card. A combination of AI powered OCR, smart phones and clever integration enable this.

Stock likely arrives pre-sorted in appropriate quantities, ordered automatically by the stock control system.

"Some customers drive in, fill up and drive out, without even presenting a credit card".
Lots of places everywhere have that. Seems to really upset the attendant when I do it though ;)

Farmers have to work hard for foreign exchange. They compete with other suppliers globally. The rest of the economy is based around selling houses to each other for ever increasing prices, and buying imported stuff. No need for productivity in a lazy Ponzi scheme.

A: NZ is between a rock and a hard place:
a) We are miles from anywhere - tyranny of distance
b) SMEs (businesses with 0-49 employees) make up 99% of all businesses in New Zealand. SMEs employ 42.6% of the workforce. (https://www.oecd-ilibrary.org/sites/a819a8fe-en/index.html?itemId=/conte...). One simply cant have economies of scale with small businesses.
c) We cant sustain high immigration rates to provide a larger population to get better economies of scale - the RMA is inelastic and all our builders are small scale.
d) In the longer term farming is done for. Carbon/methane pricing & the need to deal with nitrogen & waterways wont allow any further growth. Down the track industrial scale synthetic agriculture will decimate NZ farming - https://www.rethinkx.com/food-and-agriculture
e) NZ needs to work hard to find areas of competitive advantage and rebalance the tax system so that R&D provides the opportunity for those areas to grow.

B: Productivity is everything but also its not everything.
a) Productivity is normally related to GDP or GDP per capita measures. Its only a measure of what we produce.
b) What is far more important is total welfare per capita taking into account the full wellbeing of New Zealanders as well as the externalities (carbon, pollution etc)
c) However we generally need GDP/capita growth or at least flat line GDP/capita to be able to afford to consider greater wellbeing.

C: Tax
a) We've wasted 40 years of potentially productive capital bidding up the real price of land where there are only artificial constraints, due to poor tax law and inelastic land use rules.
b) As the tax working party pointed out there are opportunities to impose environmental taxes. These could be used to reduce tax on capital and labour which are the the main inputs to producing GDP, & thus potentially allowing productivity gains.

D: But In The End We're Not Doing That Bad Really
GDP per Capita 1970 = USD20,000 (2010 USD)
GDP per Capita 2019 = USD39,000 (2010 USD)
On the assumption this GDP/capita flows through to incomes we are twice as well off on a real $ basis as when I was a kid.
NZ ranks 16th in the UN sustainable goals out of 166 countries reporting
https://dashboards.sdgindex.org/rankings

Re sheep productivity. Not only have lambing percentages improved but also carcase weights have increased. When I left school in 1964 I worked a summer in the local freezing works - the best paying lamb weights were 26 -27 pounds, about 12 kgs. Now ideal weights are 18-22 kgs. This is where Rod Carr is making a mistake - he is assuming that similar increases will be possible going forward, but what he doesn't seem to realise is that we are now seeing the upper limits of genetic possibility and market acceptance. Just for the hell of it I grew some lambs out to 32kgs - result, I couldn't sell them because they were too big, and the feed they consumed made the exercise uneconomic.

In 2002 there was the government put on the knowledge wave conference. They obviously had the foresight to see there were going to be opportunities to shift the NZ economy to be more innovative and tech focused. See this speech by Helen Clark: https://www.beehive.govt.nz/speech/address-innovation-conference

I love the sound of the future that is talked about and it's very inspiring, I'm sure some things were done as a result of this conference but we never heard about it again and NZ mostly kept plodding along and instead of lots of innovation happening at a very opportune moment, we got busy selling houses to each other, and that's what we still do nearly 20 years later.
Young potentially innovative people more than ever feel they need to leave to get a roof over their head. It's not exactly the future Helen was envisioning.

To make our "Main Business" more profitable we need to import more people with Drive.
Because I see most of em driving along in their great big Utes, 4wd vehicles and Huge Trucks and all carrying one person on their daily grind.
I do believe we need more roads, more parking, more red and white barrier cones, as I flash by at 15KM per Hour towards Awkland, from my Mega Mansion out in the Whapwhaps.
The need is endless.
Do you have Drive...come to Auckland, Wellington, Yes, even Hamiton or Cambridge.

Gridlocked...no parking, no Common Sense.