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  • rmacculloch

Back to the Future

The oldest, unanswered question in NZ economics has to be, "Why is our productivity growth so low?". The Productivity Commission was set up in 2011 to investigate. Its latest report says we need more large, 'frontier firms' to underpin export-oriented, innovating clusters. How we get more of those types of firms is left unclear.

My four chief explanations for our weak productivity growth are:

1. Many Kiwis don't see it as a concern that needs fixing. Why? Since we almost top the world in terms of (reported) life satisfaction, leading to little desire for change. Most Kiwis believe NZ is already one of the best places to live. Don't-rock-the-boat policies are popular.

2. The brain drain. Frontier firms need risk-taking, ingenious individuals to spear-head them. But those types often leave NZ. The world is their oyster and they can often find more stimulation elsewhere (and make more money!).

3. Our welfare state, particularly the health-care system, was largely designed 80 years ago and needs reform. It has created poor incentives. Moreover it hasn't solved the problems of poverty and inequality that it was meant to solve. Covid-19 has deepened this crisis.

4. NZ is small and geographically isolated. It isn't close to big markets, like Ireland, which is also a green island nation of 5 million people to which we sometimes compare ourselves.

The Productivity Commission report is here:


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