Editorial: Actions, not talk, boost productivity

Opinion

Productivity has long been the final frontier for this country's economic growth. For too long we have not been as smart or efficient at using labour and capital as the likes of Australia and Ireland, let alone the United States. The persistence of this shortcoming has been recognised but never tackled effectively. And because it is not the stuff of overnight cure, it has never been afforded a high profile - until now. The Prime Minister's Statement to Parliament rightly gives it prominence. Lifting labour productivity is, as Helen Clark says, essential for maintaining growth in living standards over the long term.

But recognising this and acting upon it are different things. Regrettably, the Prime Minister's speech contained few specifics about how productivity will be improved. Instead, the Government is waiting for a reference group to suggest "concrete actions". Another problem, another talkfest. This even though the Government has long promised action.

Three years ago the Finance Minister initiated "discussions between business, unions and relevant Government agencies to identify ways to lift the rate of productivity". The generalities that emerged were released in early December. They were merely the catalyst for more talk. Then last week the Governor of the Reserve Bank delivered his prescription - "strong investment, clever innovation, good decision-making and skilled labour". This is not a road barely travelled.

In one or two areas, the Prime Minister indicated she was ready to act. Education and training institutions that provide low-quality courses will not get more Government funding. And innovation will be supported by increasing the rate of depreciation on short-lived assets (notably computers). But there the specifics ended, and vague intention took over.

The Government has, in fact, yet to demonstrate that it is fully up with the play. There is little evidence that it fully appreciates the productivity gains that can be garnered from innovation, especially in IT and communications. Funding for research and development should reflect this potential.

In reality, however, improved productivity is largely a challenge for the private sector. The Government can help to improve the teaching of skills and infrastructure. But it is difficult to see how it can effectively execute the Prime Minister's wish to entice skilled New Zealanders home or, indeed, to establish a "savings habit".

Clearly, the Government has come to see the price of New Zealanders' dismal savings record. For companies wishing to invest in better equipment, it entails a high cost of debt because much of the capital must come from overseas, and carries a high risk premium. Thus, even though investment levels are improving, the amount of capital employed for each worker remains significantly lower than in Australia.

As Helen Clark points out, the solution lies in reducing this country's reliance on the savings of others. But establishing a savings habit is a daunting task. It will mean, for example, convincing people they should be investing in capital markets, not housing.

If New Zealanders are to save more, that also means they will spend less. This, again, is not a totally palatable prospect because economic buoyancy lately has been consumer-driven. That unsustainable state of affairs should not be the subject of boasting. Certainly not to the extent of the Prime Minister's smug proclamation that "the doom and gloom merchants can get little traction as job and economic growth roll on".

The Government has at least highlighted the fact that improved productivity holds the key to long-term prosperity. Now it must move beyond generalities. It can only do so much itself; its main thrust should be to remove impediments to the private sector. This does not require more working groups and discussion documents. It demands prompt action.