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New Zealand’s 68% productivity lag won’t improve by disestablishing the Productivity Commission

a photo of a factory worker with a clipboard and a upgoing graph superimposed

The at times blasé response, whenever New Zealand’s new productivity numbers are released, should be a concern for all of us. It’s as if we are in the fourth stage of denial: It’s bad and there is nothing we can do about it. We’re nationally disempowered and sometimes cynical. We often hear: “Improving Productivity? A bunch of ineffective officials producing more reports that lead to nothing.”

I’ll try and make the case that this view is wrong, self-fulfilling, and fatalistic. Because there is so much we can and should do to improve our efficiency.

A low productivity of 68%

First the number: 68% productive. That is, New Zealanders produce only 68% of the output per hour worked compared to the average of the OECD countries, as per the report released by the now-defunct New Zealand Productivity Commission / Te Kōmihana Whai Hua o Aotearoa earlier this year. If you grasp statistics, these numbers paint a bleak picture. Try and overcome a deficit of a third to compete successfully in a competitive international market, that’s nigh impossible.

Disestablishing the Productivity Commission

Let’s explore the political perspective first. In the recent 2023 elections, I believed neither side of the political aisle had a compelling plan to improve our productivity. In fact, attending sessions where party leaders addressed this topic, I found it hard to find major differences. Post-election, now the NZ Productivity Commission has been disestablished by the new government, I did some more thorough research. Back in early September, ACT leader David Seymour said on Radio New Zealand: “[The NZ Productivity Commission] produced some very useful papers and tools that we would lean on, for example, their work around the regulatory environment, I think would be very valuable to an incoming government. However, the way that the Productivity Commission has been staffed and directed in the last five years means I think it’s an open question about whether you would actually continue it.”

A bit of history

The commission was created in December 2010 as an independent Crown entity as a condition of the ACT Party supporting the then National Party government of John Key on a confidence and supply agreement. The commission began operating on 1 April 2011. Ironically, it is a National-ACT coalition (with NZ First) to end it in 2023. With no announcement of what the new government will do instead to support productivity, there is some uncertainty which is never good for business.

Turning the tide of our low productivity

Over the years, the commission did not manage to turn the tide on NZ’s productivity slide in the OECD rankings, however, it has produced some outstanding work. The Frontier Firms enquiry and various follow-up reports on this topic are the first to come to mind. Additionally, the annual release of the NZ productivity numbers has provided a treasure trove of data and analysis to help New Zealand enterprise understand and close the gaps.

When you follow these recent developments, you would think that by axing the Productivity Commission, we should see the tides change. This is incorrect. The Commission may not have been able to turn the tide, but they have certainly not been the cause of our low productivity.

How to change our low productivity

Instead, the tides will change because of what you do as business leaders. Waiting for the top-down political solutions for our productivity lag only is a narrow and lazy view that takes away the agency business owners and managers have. Yes, let the politicians fix the policy settings on tariffs and trade. The current settings favour our trading partners by ensuring they can secure the rawest form of our primary produce and commodities, which no government has been able or willing to fix. But again, don’t wait for the officials to take action.

Additionally, our productivity resurgence needs to be built from the ground up, by workers, team leaders, managers, owners, and boards. By denying we have agency to improve our efficiency, we are self-fulfillingly fatalistic. So, what can we do? Productivity is measured as output over input, and organisations have many avenues to improve this equation.

Customer value

Output can be defined as customer value; let’s explore output improvements with some examples:

  • A service provider can increase value for their clients by bundling services, adding products such as apps or online services, and making it easier for the clients to engage with them.
  • A manufacturing organisation can move up the value chain by further processing its raw products to higher value products for clients that want this.
  • A logistics or distribution company can pick, pack, and deliver goods in a way that makes it faster and easier for their B2B clients to receive and process their goods, and charge more for this.

Reducing input losses

Inputs are defined as the labour, material, and energy resources used to make the product or service (direct costs), but also some overhead costs. Being more efficient with your resources is what we call Lean waste elimination. Let’s look at examples for this:

  • All workplaces have inefficient use of labour resources, for example, people waiting for instructions, working on the wrong priorities, not having tools or equipment available, or underutilising workers’ skills.
  • Rework, corrections, and scrap (defects) are common problems across all workplaces, and often result in all resources (labour, material, energy) being wasted. Additionally, this could result in an environmental impact and additional costs to dump the waste.
  • For energy-intensive processes, the unproductive running of equipment (idling of transportation vehicles, equipment running without product, etc.) is wasteful and has detrimental environmental effects.

Sustained improvement

Thus, if you are serious about improving your efficiency, you need to ‘study’ your work processes and identify where you can add more value to your customer and increase margin, and where you can relentlessly eliminate waste. You need to put solutions in place to embed these practices so that improvements are sustained and part of the fabric of the organisation, not just some smart tips and tricks of key individuals in the company. A structured approach for assessing and improving your efficiency and productivity is our Productivity Programme.

Who cares about low productivity?

Finally, why should we care? Productivity is the source of national wealth, which is required to invest in the things we care about in New Zealand: healthcare, education, conservation, infrastructure, and other important efforts that are funded by the public purse. With declining productivity, we are squandering the heritage of our future generations, and if we’re not careful, our own generation. The hard truth is that we need productivity improvement to safeguard the standard of living that we enjoy and promise to our tamariki.

If you would like to see the data for yourself, the Productivity Commission has provided access for everyone here: 2023 Productivity Data. Listen to Productivity People Director Geerten Lengkeek’s interview on Radio New Zealand commenting on the release of the data here: RNZ The Detail interview.

A disclaimer

‘Productivity’ is measured here as GDP per FTE (or hour worked). It’s a crude and single-focus measure that does not even go near the discussion of staying within our planetary boundaries, or whether New Zealand is a good place to do business, work and live. But crude as it is, I hope I have made the case that to be sustainable and have high levels of well-being for us and the following generations, productivity is an enhancing factor, not a diminishing one.

New Zealand needs you. Join the dialogue for a New Zealand productivity resurgence and share your stories of productivity success.

About the author: Geerten Lengkeek is the Managing Director of Productivity People