New Zealand, once known for its high productivity levels, has faced a significant decline in recent decades. The latest report by the New Zealand Productivity Commission, Productivity by the Numbers, highlights stagnating productivity growth, positioning the country among the least productive economies in the OECD. This decline impacts economic output and threatens overall well-being. The government and businesses must recognise this challenge and undertake concerted efforts to reverse the trend and secure a prosperous future.
The report reveals that New Zealand's productivity growth has been relatively stagnant for the past 50 years, lagging behind other developed countries in the OECD. While the country has increased its production of goods and services, this growth has been primarily driven by increased working hours and workforce participation. Relying solely on labour is not a sustainable path towards improving living standards, as it neglects important non-material aspects of well-being, such as time with whānau, friends, and community. By increasing productivity, New Zealand can allocate more energy toward improving collective well-being and pursuing social goals.
Low productivity has robust economic implications. In a globalised economy, countries with low productivity struggle to compete with more productive nations regarding price, quality, and innovation. This can lead to market share loss and reduced profitability. Workforce challenges also arise, as extended work hours negatively impact employee morale and engagement. This can make it difficult for businesses to attract and retain skilled workers; the implications of this are already seen as net migration loss from New Zealand to Australia increased by 42% in the past three months. Perhaps the most significant implication of low productivity is the long-term viability of businesses and the economy. Low productivity relative to other countries can impede economic growth and development. This poses risks for businesses, limiting their opportunities, market potential, and profitability. New Zealand must adapt, innovate, and improve efficiency to remain viable in a competitive global landscape.
Several factors have contributed to New Zealand's productivity challenges. Firstly, the country lags in research and development (R&D) investment compared to leading OECD nations. Inadequate funding for innovation and technological advancement limits productivity gains. Additionally, the report highlights issues such as mediocre management practices, weak competition rules, and limited machinery utilisation per worker.
The report acknowledges that New Zealand has a relatively favourable business environment, with low state regulation and a manageable administrative burden for start-ups, creating an environment conducive to entrepreneurship. However, New Zealand requires a long-term commitment to innovation, investment, and collaboration to address the productivity challenge. In conjunction with businesses, iwi, researchers, and workers, the government must align their efforts and focus on enhancing production factors, not just workforce participation. Investing in skills, knowledge, information and communication technologies (ICT), infrastructure, and the environment is essential for productivity growth.
New Zealand faces a pressing productivity challenge that demands immediate attention and concerted action. By acknowledging the factors hindering productivity growth, the country can reverse the decline and regain its position as a productive and prosperous nation.