The resulting impact on relative incomes is a recipe for a large Kiwi diaspora, whose ranks are liable to swell as border restrictions are relaxed.
Economic output in the March 2021 quarter was 2.2 per cent lower than a year earlier, at least in the 80 per cent of the economy where it can be readily measured (essentially the private sector).
But weekly paid hours fell 3.3 per cent (the first decline since the GFC recession) and capital input also fell, by 3.2 per cent, the first decline in the last three growth cycles, that is, since at least 1996.
So multifactor productivity (MFP) — the change in output not explained by changes in inputs of labour and capital — rose 0.7 per cent. That is actually higher than its average since 2008 (0.5 per cent).
But it hardly needs to be said that a national lockdown, a closed border and a recession are not a sustainable way of lifting productivity.
What is, then? The Productivity Commission in a report last year offered this high-level observation: "The long-run drivers of MFP stem from using technology and new skills in innovative ways. Innovation is an inherently risky, long-run game but being entrepreneurial and making continual investments to maintain, improve and adapt skills, equipment and technology are key to improving performance and national productivity."
What makes firms successful in the long term is learned in many ways, it said — from business schools as well as the school of hard knocks, from previous experiences of success and failure, by observation and trial and error.
For many years New Zealand has relied more on labour supply than labour productivity growth to lift gross domestic product.
We have relied on growing the working age population, largely through immigration, having an exceptionally high proportion of the population employed (currently the fourth largest share in the OECD) and by working longer hours per week.
Lifting real incomes, however, requires lifting labour productivity, or output per hour worked.
In the cycle since 2008 that has averaged 0.9 per cent a year; last year it was 0.5 per cent. That is down from 1.3 per cent in the 2000-08 cycle and 2.8 per cent in the cycle before that.
There are only two ways of lifting labour productivity. One is capital deepening, or increasing the amount of capital invested per worker, like plant and equipment, vehicles, buildings and software.
In the March 2021 year the capital-to-labour ratio fell, by 0.6 per cent, and over the whole cycle since 2008 it has increased by 0.9 per cent a year, down from 1.8 per cent in the previous cycle and 2.4 per cent in the one before that.
The other way of increasing labour productivity is to raise multifactor productivity, essentially how efficiently firms add value to the inputs of labour and capital at their disposal.
But the trend for MFP growth is not impressive either: an average 0.5 per cent a year since 2008 and 0.6 per cent in the cycle before that.
This week's annual productivity numbers only cover the first year of the Covid-19 shock. Delta and Omicron had yet to come, and who knows what further tricks the virus may yet have in store.
Reflecting last year on what the pandemic might mean for New Zealand's productivity, the Productivity Commission could only scratch its collective head.
"On one hand the loss of business confidence resulting from a downturn may lead to a fall of innovation and MFP growth. On the other hand recession may cause the weakest firms to fail, creating a 'cleansing' effect which raises overall productivity," it said.
"The pandemic has forced many firms to reassess their production processes and invest in technology. The most obvious manifestation of this has been the dramatic rise of video conferencing as an essential work tool, but there are many other examples (e.g. the expansion of many bricks-and-mortar retailers into online sales)." The disruption caused by the pandemic might have brought forward changes needed to make the most of technology, and accelerate productivity growth, the commission said, hopefully.
If so, it would be a departure from chronic weaknesses hobbling productivity growth.
One is the country's size, which makes for small, cartel-prone markets.
Another is distance from larger markets, resulting in a level of international connectivity that is low for a small developed country. The commission notes that labour productivity in the tradables sector tends to be half as high again as in the non-tradables one.
Another weakness perhaps lies in the financial sector's ability to identify and back potential high-productivity businesses, especially in their early days. The banks make fat profits largely from lending absurd sums to people buying houses, while our puny sharemarket intercepts relatively little of the economic life of the country.
Underinvestment in infrastructure does not help, and the PISA scores suggest schools need to lift their game on numeracy.
All that said, it is hard to escape the conclusion that New Zealand's dismal productivity record is also a reflection of the average — and averages are always unfair to many — quality of corporate management and governance.
