Studies Refute Claims Of Poor Productivity Performance

"Recent studies undertaken in the Treasury and the Department of Labour indicate significant gains in New Zealand's productivity following earlier structural reforms, and a convergence on Australia's productivity growth rate", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

A Treasury study by Melleny Black, Melody Guy and Nathan McLellan finds a noticeable improvement in average multifactor productivity growth from 0.09 percent per annum in the period 1988 to 1993 to 1.32 percent per annum in the period 1993 to 2002. It also finds that multifactor productivity growth post-1993 has been similar in aggregate and across industries for Australia and New Zealand. Labour productivity growth rates differ between the two countries because of the different evolution of capital-labour ratios.

Similarly, a Department of Labour study by Weshah Razzak finds that productivity growth based on the trend growth rate of real gross domestic product (GDP) per working-age population was 1.99 percent in the 1993-2001 period, well over double the rate of 0.74 percent per annum in the period 1970-1992.

These findings are consistent with the 1999 study for the Treasury by Erwin Diewert and Denis Lawrence which found that "After 1993 there was a productivity surge. This is likely to have been aided by the effects of the labour market reforms of the early 1990s, among other things."

"Razzak makes the point that it is often claimed that New Zealand's productivity performance is poor compared to Australia's, and that the reform process did not result in real gains", Mr Kerr said. "His study finds that this account is inaccurate and concludes:

A general policy recommendation that we draw from the finding of this paper is that New Zealand needs more capitalism, not less. It means that increasing private sector investments is important. Fiscal policy should not scare capital and labour away from New Zealand by over-taxing them.

"These papers constitute the best up-to-date research on recent productivity trends in New Zealand and should be a reference point in debates on the subject. The authors are careful to point out the need for caution in interpreting measures of productivity given the inherent statistical problems. However, it is clear that talk of New Zealand's economic reforms as 'failed policies' is nonsense and has no basis in expert analysis.

"We should also remember that comparisons of 'before' and 'after' growth rates understate the benefits of necessary reforms by treating the earlier growth as sustainable. The 1984 debt crisis highlighted the unsustainability of the pre-1984 situation", Mr Kerr concluded.

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