Post on 12-Jul-2015
Forces affecting business competitiveness: Productivity, competition and regulation
Paul Conway
Director – Economics & Research
AIG Meeting, October 30, 2014
The Productivity Commission
Our organisation
• independent Crown entity
• three Commissioners
• ~15 staff, plus contractors
Our work • 2 inquiries per year chosen by Govt.
• in-depth analysis taking ~12 months
• public engagement/consultation
• real-world, practical policy advice that is evidence-based
• Non-inquiry research agenda
Just what is productivity?
“…nothing contributes more to the reduction of poverty, to increases in leisure, and to the country’s ability to finance education, public health, environment and the arts.”
Alan Blinder and William Baumol (1993)
Productivity isn’t everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
Krugman (1994)
Labour productivity, MFP and capital intensity
The sources of economy-wide GDP per capita differences
“New Zealand has had one of the lowest growth rates in GDP per hour worked among OECD countries.” – OECD
The productivity puzzle
Why international connections matter
• Market expansion via international trade enhances productivity by:– Specialisation and scale– Increased competitive pressure– The diffusion of new and improved technologies– Investment
• Global value chains are becoming increasingly important in international trade
• The negative impact of distance on goods trade may have increased
• The challenge of remoteness to major foreign markets is compounded by a small and sparsely populated domestic market
New Zealand has low trade intensity for a small economy
AUS
AUT
BEL
CAN
CZE
DNK
EST
FIN
FRAGRC
DEU
HUN
ISL
IRL
ISR
ITA
JPN
KOR
MEX
NLD
NZLNOR
POL
PRT
SVK
SVN
ESP
SWE CHE
TUR
GBR
USA
0
50
100
150
200
250
2 3 4 5 6 7 8 9 10Exp
ort
s an
d im
po
rts
of
go
od
s a
nd
se
rvic
es
as a
sh
are
of
GD
P (%
)
Log GDP (current PPPs, billion USD)
Knowledge based capital (KBC)
• KBC encompasses a wide range of assets:
– Computerised information, innovative property, economic competencies
• Production has become increasingly more intensive in KBC
• KBC tends to be:
– non-rival, partial-only excludability
Investment in KBC looks low in NZ, particularly R&D
0
0.5
1
1.5
2
2.5
3
3.5
4
FIN JPN SWE DNK DEU AUT USA FRA BEL AUS NLD CAN GBR IRL NOR PRT ESP NZL ITA
Business sector Government Higher education Other
NZL
There is more to innovation than R&D
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Dif
fere
nce
in
IC
T in
ve
stm
ent
as
share
of
GD
P b
etw
ee
n N
ZL a
nd
oth
er
co
un
trie
s (p
erc
enta
ge
po
int)
AUS CAN DNK SWE USA
ICT investment (%GDP) New Zealand minus
Benefiting from ICT requires organisational change
2.6 2.8 3.0 3.2 3.4
India
Brazil
China
Greece
Chile
Portugal
Ireland
Poland
Mexico
New Zealand
Australia
France
Italy
United Kingdom
Canada
Sweden
Germany
Japan
United States
Overall management score
0 5 10 15 20
India
Brazil
China
Greece
Chile
Portugal
Ireland
Poland
Mexico
New Zealand
Australia
France
Italy
United Kingdom
Canada
Sweden
Germany
Japan
United States
Estimated boost to productivity from closing
Benefiting from KBC requires smooth resource reallocation
• Why innovate if growth potential is limited?
• Fulfilling the strong growth potential of KBC hinges on the ability to reallocate resources across firms to their most efficient use
• Framework policies are key. New Zealand does alright but could do better.
• The cost of poor policy may be rising with the growing importance of intangible assets
• The market for ideas also needs to work
Policy implications?
Productivity Commission inquiry No. of policy recs.
Housing affordability 33
International freight transport services 26
Strengthening trans-Tasman economic relations
32
Local govt. regulatory performance 29
Boosting productivity in services 31
Regulatory institutions and practices 44
www.productivity.govt.nz
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More information
Labour productivity growth
“The gap in labour productivity has continued to widen … relative to most advanced OECD countries.” - OECD
Minimal participation in GVCs
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Rati
o t
o t
ota
l e
xp
ort
s
forward participation (intermediate goods used as inputs for other countries' exports)
backward participation (imported intermediate inputs)