Productivity Commission – No, Growth – YES

Last week Fran O’Sullivan wrote on the possible establishment of a Productivity Commission to look at ways in which the economy might be improved such as to reduce the gap with Australia. The initiative grows out of the National -ACT post election agreement.

Rodney Hide is thought to want to see Don Brash heading up this new body.

Adam is far from enamoured of that propsect. Dr Brash may be an eminent former Governor of the RBNZ and former National Party leader, but to the best of Adam’s knowledge he is not a business leader. Further he would bring with him to the role an imense amount of baggage.

Furthermore Adam is far from convinced that NZ needs yet another quango, unlike David Farrar who enthuses about it here, although according to Ms O’Sullivan:-

A decision to set-up a Productivity Commission in New Zealand will be warmly welcomed by the business sector.

Just over two-thirds (69 per cent) of respondents to the Herald’s Mood of the Boardroom survey said they believed a body along the lines of the Australian Productivity Commission should examine business sectors and key government changes. Just 30 per cent were opposed.

Why is this the case?

What can a Productivity Commission do that companies, industry associations and other lobby groups cannot?

Is it not the responsibility of Company Boards to set direction such that their organizations are efficient, effective and thus productive?

What is it about NZ Business that continually makes it look to government or quasi-government bodies for direction and /or instruction?

To Adam’s way of thinking the establishment of such a body allows business to shirk it’s responsibilities in this area.

Adam notes that at least one NZ economic commentator, Paul Walker at Anti-Dismal, would appear to share Adam’s concern at this development.

Paul Walker writes, amongst other sound comments the following:-

So I have to ask, Where is the evidence that a productivity commission will do anything to our long-term growth rate? What I fear we will get is just a another group of bureaucrats wasting taxpayers money for no good purpose. Perhaps, therefore, we shouldn’t look to national governments to promote long-run growth.

Adam would agree with that sentiment entirely as it applies to a Productivity Commission as it appears to be presently contemplated.

Adam would suggest that some, if not all of the answer, may well lie in the economic and related policy settings adopted by governments.

In this regard he would take his readers back to a post he wrote on August 20, 2008 – Aspects of fast economic growth-potential lessons! – which looked at the question of fast economic growth as discussed in an FT article in June 2008 by Martin Wolf, the paper’s Chief Economics Commentator. The article looked at a report on the levels of growth experienced by a group of some 13 countries over a 25 year period. The source for much of Wolf’s article was The Growth Report – Strategies for Sustained Growth and Inclusive Development.

Instead of a Productivity Commission Adam suggests we have regard to the following, as set out in the earlier post:-

Ingredients of Success

investment of at least 25 per cent of gross domestic product, predominantly financed by domestic savings, including investment of some 5-7 per cent of GDP in infrastructure;

and spending by private and public sectors of another 7-8 per cent of GDP on education, training and health.

They also include: inward technology transfer, facilitated by exploitation of opportunities for trade and inward foreign direct investment;

acceptance of competition, structural change and urbanisation;

competitive labour markets, at least at the margin;

the need to bring environmental protection into development from the beginning;

and equality of opportunity, particularly for women.

Things Not to Do

subsidising energy (particularly relevant today);

using the civil service as employer of last resort;

reducing fiscal deficits by cutting spending on infrastructure;

providing open-ended protection to specific sectors;

using price controls as a way to curb inflation;

banning exports, to keep domestic prices low;

underinvesting in urban infrastructure;

underpaying public servants, such as teachers;

and allowing the exchange rate to appreciate too far, too quickly.

The Five Points of Resemblance

The group of countries to which the Wolf article referred were disparate but shared five points of resemblance:-

they fully exploited the opportunities afforded by the world economy;

they maintained macroeconomic stability;

they sustained high rates of saving and investment;

they let markets allocate resources; and

they had committed, credible and capable governments.

From the above it seems to Adam that there are pointers to success which our government would do well to look at and think about emulating.

Based upon the experience of the countries concerned it would seem that adopting the policies outlined might well do more to improve our lot, than another quango writing reports and providing excuses for government not to govern and business not to succeed. The fact that these policies were applied by developing countries should not preclude NZ from learning from them.

The group of countries looked at were:-

Botswana, Brazil, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand with India and Vietnam seen likely to join this group.

Apparently this group have managed to grow at some 7% per year over the last 25 years. Food for thought Adam would suggest.