New Zealand doesn't have a problem with productivity - it just lacks investment. The economic "experts" have got it wrong for 40 years.

The Productivity Commission told us that NZ has a productivity problem; how Kiwis are so dim & lacking in skills we don't know how to add value to products. It never made sense. Kiwi workers are greatly valued all over the world. Fly a Kiwi to Australia or the US and hand them capital to work with (machines, equipment, super computers, infrastructure) and they will be as productive, more so, than others. We split the atom. NZ runs a space program - the largest private one in the world - after Space X. The UK can't - Richard Branson's Virgin Galactic is a bankrupt joke. Dr Shane Legg from Rotorua founded the world's first, most influential Artificial General Intelligence company. Elon Musk and Kiwi citizen Peter Thiel were desperate to buy it ahead of Google, since it changed the future. When it comes to education, we're told NZ is bad at Maths, but international scores like PISA rank our average above the US. Our literacy rates are in the top part of the world's distribution.

So what's wrong in NZ and how do we fix it? To answer, we must first define Total Factor Productivity (TFP). As this is a Blog, let's take liberties with Maths, and not discuss influential American economist Robert Solow, who invented the ideas behind it. Here's a definition of TFP: Output = TFP * Labour * Capital. In words, Output (measured by GDP) is produced by Labour and Capital (multiplied together here). Say 1 person uses 1 unit of capital to produce 3 units of output. TFP measures the technology behind the production. In this case, it equals 3 (i.e., 3 = Output = 3 * 1 * 1) and GDP per capita is 3 (=3/1). Below is a graph of Total Factor Productivity in NZ & Australia over the past 50 years:

How has NZ done? Before the early 1980s our Total Factor Productivity was higher than Australia's. It began turning down due to an external factor - our declining Terms of Trade during the oil shocks. After1988, NZ's TFP has grown at the same rate as Australia's. Technology is rising here just like the best of them. But our GDP per worker is languishing:

Whereas we had similar per capita incomes as Australians 50 years ago, now they're nearly 40% better off than us. How can you reconcile the above two graphs? Whereas Australians (Americans also) invested and have built up capital, Kiwis did not. We have less capital to work with compared to them. Our roads are harder to drive, our transport & technical equipment suffers under-investment & buildings have become run-down, by comparison. Here's proof:

Although in 1974 Kiwis had more capital per worker than Aussies, now they have 50% more. Using our example above, assume capital rose from 1 to 2 units in NZ over the past 50 years, but rose from 1 to 3 units in Australia (with Total Factor Productivity remaining the same & labour staying at 1 unit). Then GDP per capita in NZ would've risen from 3 to 6 (= TFP * Labour * Capital = 3 * 1 * 2) but in Australia from 3 to 9 to (= 3 * 1 * 3). So their incomes would now be 50% higher than ours. Its an example, but (roughly) what's happened.

The implications of these graphs are astonishing. The PM said in his Parliamentary Maiden Speech how NZ suffers a 'productivity disease'. It does not. Our Total Factor Productivity, which measures technology & innovations, has been rising for 40 years at the same pace as Australia's. But NZ has suffered weak levels of investment, leading to a low capital base. The PM says National's "plan is to focus on the 5 levers of prosperity & productivity: education & skills, infrastructure, technology, business environment & connections with the world". He should sell his shot gun and buy a silver bullet. NZ must fund more investment using overseas & domestic savings. We must tear down walls stopping foreign savers investing money here (& curtailing returns even if they do). We must cut red-tape that hampers all investors, domestic & foreign. We must ramp up domestic savings with mandatory accounts (that's why folks like me promote Singaporean or Australian-style systems). America doesn't need them - the US dollar is the world's Reserve Currency - everyone wants to invest there.

The PM has one job to do to return NZ to being a rich nation - up investment and the savings that support it.

The Finance Minister's Solution to Big Bank Oligopoly: Make You Pay for Dirty Deals that Sell Out 3 Million KiwiSaver holders. Labour did the same.

What's the object of Kiwi Saver? To build up retirement savings of New Zealanders by giving us the opportunity to earn high returns during our working careers. Yesterday Finance Minister Willis sabotaged that aim by announcing she would ask Kiwi Saver Fund Providers to invest up to $500 million in Kiwibank to try making it more competitive. The Finance Minister doesn't want to use government funds. The PM doesn't want headlines saying he's "privatizing" Kiwi Bank by floating it and selling shares in it on the open market. So, in a cunning plan of which comedian Rowan Atkinson's Black Adder character would be proud, the Finance Minister wants to use your money, in the form of Kiwi Saver funds, to better capitalize Kiwi Bank. Yes, its a dirty deal. Since when did the object of Kiwi Saver become to address market-failure problems that are giving the government bad headlines, rather than earn three million Kiwi Savers the best returns on their own funds? Former Finance Minister Robertson did the same. He imposed sustainability objectives on Kiwi Saver Default funds in 2020, preventing them from investing in fossil fuels.

Willis is pretending everything about the deal is voluntary. But its not. She has a personal vested interest: to garner favorable front page news that she's taking on the Big Banks, as she did yesterday. Kiwi Saver Providers also have a vested interest: fee income from you. The Finance Minister is using her power over the industry to get what she wants - the government approves Kiwi Saver Providers and subsidizes the scheme. Kiwibank Executives are on for the plan - since they get to tap into private Kiwi Saver funds for capital, which pushes up their pay and status. So the dirty deal is complete. The providers will happily oblige to provide a mechanism to dump Kiwi Saver funds under their management into better capitalizing Kiwibank, which will end up costing you, but not the government.

Of course, the Finance Minister would argue it doesn't cost Kiwi Saver account holders. But it does. For example, I hold some Westpac shares. They are up 50% over the past year. NZ is where Westpac makes its highest profit margins. Why buy Westpac shares when they have oligopoly powers? Exactly for that reason. I'd like to see the industry more competitive, but at the same time don't want to be poor, and can recoup some money that the Big Banks rip us off with their high fees and mortgage rates by getting some back through owning their shares. Why would I invest via Kiwi Saver in better capitalizing Kiwibank, to sink my Westpac investment? Willis herself said yesterday she was de-banking her own bank, ANZ, aware of such conflicts. Does she own ANZ shares via Kiwi Saver? Stuffing Kiwi Saver money into Kiwibank to help the government make banking more competitive is a policy objective that shouldn't be implemented using the nation's private Kiwi Saver funds. Its risky investing in tiny Kiwibank to try making it bigger. Why put that risk onto 3 million Kiwi Saver investors? ANZ's market capitalization is $100 billion. How does increasing Kiwibank's capitalization by 0.5% of that number - $500 million - make a difference?

My view is that its wrong to do a back-room deal between the government & Kiwi Saver Providers with money not owned by either of them to get them both out of a fix. One party wants to look like its addressing competition problems. The other's dependent on its regulator / subsidizer & wants more fee income from Kiwi Saver accounts. As for the people whose money will be used to do the deal, you will either lose money on bank shares you already own - to the extent there is more bank competition - or alternatively, lose money on Kiwibank that fails to take on the Big Banks. Air NZ's shares, which are majority State owned, are down 70% these past 5 years. Do you want the Finance Minister pumping your Kiwi Saver money into government outfits to save them and her? Competition issues should be addressed on their own - for example, by criminalizing cartel behavior - and not having former PMs becoming Chairman's of ANZ to protect it. Don't mix politics with Kiwi Saver. Don't politicize it. Don't force government-of-the-day needs onto a/c holders, who should be maximizing portfolio returns. Ever since National PM Muldoon ended Sir Roger Douglas' Super Savings Scheme in the 1970s - which would've meant NZ had no savings problem today - politicians, National & Labour, can't keep their noses out of our savings - meaning today most folks don't have any.