Delivering more for less – achieving New Zealand’s productivity potential
-Paul Conway, Productivity Commission The New Zealand economy is currently doing well in some important ways – our public finances are relatively healthy, the labour market has been one of the most successful in the OECD at creating jobs, and incomes have improved over recent years. But despite this optimistic view, New Zealand’s productivity performance continues to be weak. Achieving New Zealand’s productivity potential is the Productivity Commission’s commentary on New Zealand’s productivity performance. The paper draws on a large body of research and the Commission’s previous 10 inquiries. This shows that leading NZ firms do not achieve the same productivity growth as leading international firms in the same industry – our top firms are slow to adopt new technologies that enhance productivity. The pace at which new technology and ideas diffuse across firms in the domestic economy is also an important key to lifting productivity. But too few New Zealand firms implement and benefit from advances in technology and knowledge. Despite having relatively open borders, we are not well connected internationally. New Zealand firms have not been strong investors offshore, they don’t tend to be well connected to global value chains, and our stock of foreign direct investment as a share of GDP is growing more slowly than the OECD average. This lack of international connection means that competition is weak and that NZ firms have limited opportunities to learn from leading international firms at the top of their game. We also have onshore challenges – our small and insular domestic markets mean that small firms struggle to achieve economies of scale and specialisation. Our productive firms have limited scope to grow and expand within these markets and, with limited competition, our unproductive firms survive for longer than they ideally would. This results in valuable resources being locked up […]