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The New Zealand Initiative is a business group and think tank committed to developing policies that work for all New Zealanders. At their annual retreat, Murray Sherwin, Chair of the Productivity Commission, spoke about New Zealand's productivity performance in relation to the recent trans-Tasman study and the recently launched inquiry into the services sector.
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What is 30 years between Cobbers?
21 March 2013
Presentation to the NZ Initiative ConferenceMurray Sherwin, ChairNew Zealand Productivity Commission
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CER marked a fundamental shift
• 30 years since CER signed, in the midst of Muldoon’s freeze phase
• NZ’s relative economic performance had been sliding since the 1950s
• Terms of trade part of the story, but a sclerosis in policy settings impinged on adjustment
• 1984 (and beyond) reforms built on CER thinking
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Adjusting to change is critical
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Impacts from a profound policy shift
• Increased adaptability and resilience to a rapidly changing global environment
• Primary industries re-asserted, manufacturing declined, services expanded
• NZ is a services-based economy – 70% of GDP• Comparable experience to other OECD
countries, but NZ adjustments delayed initially
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Adaptability increased post-reform
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We have stopped falling
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Impacts from a profound policy shift
• The OECD/IMF poster child has been a disappointing youth
•Macro-policy reforms have yielded real but under-appreciated benefits:
–greater resilience (GFC etc.)
–the relative decline in GDP per capita since the 1950s stabilised from the early 1990s at about 15-20% below OECD average
• But no sign of convergence back to levels of more advanced OECD economies (contrast the trajectory of South Korea!)
• Gap vs Australia has continued to widen
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Employment grows, productivity slows
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Impacts from a profound policy shift (cont…)
• Better GDP per capita performance driven by improved employment growth after labour shedding of the late 1980s-early 1990s
• But GDP per hour worked continues to edge down• If labour productivity had matched major OECD
economies since 1980s, incomes would now be 18% higher ($8000 per capita), GDP $37 billion larger.
• A little productivity goes a long way
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Same labour increase, much lower risein output
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Our productivity falls behind
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Falling behind the neighbours
• New Zealand’s productivity under-performance relative to Australia is stark
• Total hours worked roughly matched in NZ and Australia – x 2.5 since 1956
• Output in NZ from those hours, x 4• Output in Australia, x 7.5• NZ GDP/hour worked from 110% of Australia in
1960 to less than 70% today• This makes a difference!
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Low productivity bites
Trans-Tasman migration
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Turning it around
• NZ is far more resilient and dynamic but productivity continues to underperform
• Openness to international trade and domestic competition is key in driving productivity
• Improving productivity in services is critical– Large and diverse sector– Often sheltered from trade and competition
• Cross-country productivity differences are large in services
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New Zealand’s service industries
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The services sector – our next inquiry
• High level overview of the services sector, characteristics and productivity performance
• In-depth explorations of key parts of the sector, or topics that span it, to pull out lessons to assist in improving productivity
• Issues document out shortly, asking for expressions of interest and seeking input
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More information
www.productivity.govt.nz Follow us on Twitter: @nzprocom
