Reply to Chris Trotter

This is a reply to Chris Trotter’s comment on a previous Friday Graph blog of mine that required a separate entry so another graph could be included.

Chris writes:

An interesting graph, Roger.

As you quite rightly state, MFP measures the influence of innovation and technological improvements on the productivity of our business enterprises.

Have you given any thought to the fact that the period of rapid MFP growth depicted in the graph coincides with the widespread adoption of the personal computer in New Zealand workplaces; the opening up of the Internet from 1992 onwards; and the rapid take-up of the mobile phone as an essential tool of business?

All of these technological changes were responsible for substantial productivity gains, but none of them are attributable to the neoliberal economic reforms introduced by Roger Douglas and Ruth Richardson.

The extent of gains from these technological changes has been debated by economic researchers.  Some have found evidence hard to find.

But assuming – as I do – that they exist, they would have contributed to productivity growth in other countries besides New Zealand.  And they would likely show up especially in the industry group communication services.

The graph below shows that MFP growth in communication services in New Zealand over the period 1986-2008 far outstripped that in Australia (despite both countries adopting the new technologies).

Click to enlarge

Why is this?  A plausible explanation is that New Zealand moved further and faster than Australia with respect to deregulation and privatisation of its communications industry.

This would be consistent with other evidence in the chart that New Zealand outperformed Australia in industries that were reformed most, notably also agriculture and transport.

New Zealand’s outperformance stands out even more clearly if the comparison is made over the reform period (rather than includes the past 10 years when productivity slumped).

Incidentally, no serious economist would label the reforms as ‘neoliberal’.  For an explanation, see this speech of mine.

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4 thoughts on “Reply to Chris Trotter

  1. Roger. I make a simple point about the timing of technological innovation and productivity growth here. There are long delays between innovation and productivity growth and thus they can not coincide as Chris argues.

  2. I note that both MED and Treasury point to MFP in NZ and Australia preforming very similarly especially since 1988 across the “easy to measure” sectors (which is still very much in the “reform” period).

    But, as MED also points out: “While Australia, the UK, the US and Denmark have all had positive five-year average annual growth rates since 1970, New Zealand has had several five-year periods where growth in labour productivity has been negative; that is, the level of labour productivity has declined.” (http://www.med.govt.nz/templates/MultipageDocumentPage____38446.aspx)

    The point is that out MFP is nothing special, in comparative terms, but our labour productivity, coupled to our labour utilisation, is lamentable. And that poor labour productivity, is, as Paul Dalziel suggests, primarily an effect of the low-road model of the economy promoted in the reform period.

  3. Comment on Robert Winter’s posting.

    Different datasets measure different things and a conversation can get awfully confusing quickly if care is not taken to distinguish apples from bananas.

    The OECD dataset cited by the MED includes troubling estimates of outputs and inputs for what Statistics New Zealand calls the ‘non-measured’ sector. New Zealand tends to show up poorly in international productivity comparisons of both labour and multifactor productivity when this sector is included.

    SNZ has greatest confidence in its productivity estimates for the measured sector, for good reasons. Its Figure 20.6 in Roger Kerr’s blog posting is for the MFP of the measured sector, as is Roderick Deane’s chart. For an apples-with-apples comparison of New Zealand’s MFP and labour productivity performance, also look at SNZ’s Figure 20.4 at: http://www.stats.govt.nz/browse_for_stats/economic_indicators/productivity/industry-level-productivity-1978-2008.aspx

    Contrary to the impression Robert has formed, New Zealand’s labour productivity growth, where it can be most reliably measured, also compares favourably with that of Australia from 1986-2008 with notable outperformance in reform-significant subsectors.

    These charts do not show changes in New Zealand’s absolute and relative performance within the 1986-2008 time period. New Zealand’s measured sector labour and multifactor productivity performance during the 1986-1995 period was more impressive against Australia, but it has deteriorated since, both absolutely and relatively. Interested readers might check out Table 2.1 and Figures 2.2, 2.3 and 2.4 in the 2025 Taskforce’s 2010 Report at http://www.2025taskforce.govt.nz/secondreport/

    SNZ and Treasury experts presented papers at the 2010 New Zealand Association of Economists’ Conference that threw some light on the vexing question of the degree to which measurement problems might explain much of the apparently abysmal performance of New Zealand’s non-measured sector. Some progress has been made, but much is still ill-understood, particularly on the capital input side.

    Finally, how can Paul Dalziel’s “low-road model of the economy promoted in the reform period” assertion explain the measured sector’s impressive productivity performance during the reform period, as documented in the SNZ and 2025 Taskforce reports?

    Bryce Wilkinson

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