New Zealand has a productivity problem. We produce less per hour than most of the rest of the OECD and we aren't catching up.

The Productivity Commission found that in the 2000s New Zealand had "one of the lowest growth rates in GDP per hour worked among OECD countries." This was despite trailing the OECD average at the start of the decade by about 15 percent.

Recent news is no better. In the year to March 2015 NZ's labour productivity grew just 0.3 percent.

Productivity matters. In the words of economist Paul Krugman "productivity isn't everything, but in the long run it is almost everything." It determines our wages and underpins the success of our investments.


GDP is still used as the primary measure of economic performance. GDP growth is often trumpeted with scant regard to how fleeting it may be, how many extra hours Kiwis have worked to achieve it, or its environmental cost. Policies often appear to be judged principally by their impact on GDP growth.

To address our productivity problem a shake-up is needed in how we think about the economy and how we evaluate policies.

Economists Joseph Stiglitz and Bruce Greenwald, in their recent book, Creating a Learning Society, propose just such a shake-up. They want to see learning by individuals, firms, and the economy as a primary objective of policy making.

Put simply, learning to produce 'new stuff' and learning to produce 'old stuff' in more efficient ways are the drivers of long term economic success. But left to their own devices, markets produce too little learning and innovation. One key reason for this is that businesses do not factor in the positive effects of their learning on the economy as a whole when deciding how much to invest in learning.

The economist Mariana Mazzucato shows that in fact government support lay behind a huge range of the technologies we use today. Apple's iPhone for example uses a multi-touch screen, GPS, and the internet itself - all of which were developed with government support and funding.

The big national economic success stories of our time, such as Singapore and South Korea, are characterized by governments taking proactive steps to support learning.

You don't have to agree with everything these economists say to be convinced that learning is fundamental to improving living standards in New Zealand. If we are serious about sustained productivity growth we must ask, across a whole slew of policy areas: do our policies help businesses, individuals, and the economy to get better at learning?

This means focusing not just on policies that improve productivity today (welcome as these would be) but also on policies that help businesses and individuals to get better at continually improving their productivity over time. In short, we need policies which help us learn how to learn.

This approach has wide implications.

Take tax policy for example. Returns on housing in New Zealand are taxed more lightly than returns on financial assets. This contributes to the fact that our savings go overwhelmingly into the overheated housing market. According to Treasury, as much as 90 percent of household wealth is held in the form of housing in New Zealand, compared to 50 to 75 percent in other OECD countries.

Yet real estate is a classic learning-free cul-de-sac. Taking learning seriously would mean asking how tax and financial policy can channel savings to productive sectors with higher learning potential.

Creating a learning society would also mean getting serious about research and development (R&D). Total R&D spending in New Zealand in 2013 was just 1.17 percent of GDP, lagging significantly behind the OECD average of 2.37 percent, with private sector R&D particularly low.

Internationally, R&D spending in agriculture and mining is typically no higher than 0.5 percent of value-added. Yet if these are sectors with low opportunities for learning, then maybe long-term policy should prioritize diversification.

Building a learning society would mean equipping our kids with the skills to keep learning throughout life. Less emphasis on memorizing facts and more focus on creative thinking and fostering a love of learning. It would also mean giving Kiwis the chance, and financial support, to learn new skills later in life.

In social policy, the learning perspective also changes things. Learning often means trying something new like launching a startup or taking a job to build an unproven product. This can be risky. But with a strong safety net the downside of failure is lower, and thus the incentive to take the plunge is higher.

We may differ in our views on how to create a learning society - and we should have that debate. But if we want sustained income increases, we must begin by asking with far greater regularity and urgency whether our policies help individuals, businesses, and the economy to get better at learning.

Failure to do so is likely to leave us stuck with our productivity problem. And before too long, that problem will hit the pay-checks of everyday New Zealanders.

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