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An enduring productivity policy and research agenda: key opportunities

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The importance of long-term thinking and commitment to addressing Aotearoa New Zealand’s productivity challenges was the strongest message received through the stakeholder workshops – mirroring the domestic and international evidence. It is essential that government continues to place a strong focus on productivity across its work.

In this context, we signal the importance of setting and maintaining an enduring productivity policy and research agenda. 

Below, we set out a starting point for such an agenda, bringing together what we heard from stakeholders with our other analysis. 

We have identified five key opportunities:

  • Opportunity 1: Focus on the role of innovation – and diffusion of innovation
  • Opportunity 2: Invest in the basics – a skilled, healthy population
  • Opportunity 3: Think long-term about Aotearoa New Zealand’s approach to land use and infrastructure
  • Opportunity 4: Look to the potential inherent in te ao Māori and across the Māori economy
  • Opportunity 5: Continue work to address Aotearoa New Zealand’s specific productivity challenges.

Each opportunity is set out in more detail below and, where relevant, linked to “inquiry topic”[6] ideas identified through engagement. These topics provide more concrete potential issues that could be investigated to target productivity improvement in specific contexts across the opportunity areas – although noting that the scope of the opportunities identified are much broader than any single inquiry topic. Fuller explanations of each topic are provided in Appendix B.

[6] As part of the Productivity Commission’s original mandate for this work, staff had begun to work up some potential future “inquiry topics”. These were intended as topics for the Commission itself to take forward, and as such were focused on areas where the organisation would have had capacity and capability to undertake the work. 

Opportunity 1: Focus on the role of innovation – and diffusion of innovation

Technological innovation, and the diffusion of innovation, has the potential to significantly drive Aotearoa New Zealand’s future levels of productivity and make its economy more resilient in the face of change.

This is also an area of significant uncertainty, with the speed of change and innovation limiting the ability to plan for the future – especially in areas as rapidly evolving as artificial intelligence and where the limitations (or opportunities) of technological innovation are not yet fully understood. This level of uncertainty and rapid change brings into prominence the importance of systems, structures and settings that:

  • encourage innovation (either in general or in areas where Aotearoa New Zealand has identified the greatest benefit may be achieved)
  • (perhaps more importantly) encourage the innovation that does occur to be used and fed into improved business practices, increased efficiency and investment in products and services that deliver more value for less cost.

Some key challenges will be to understand how Aotearoa New Zealand can harness the potential of machine learning and artificial intelligence, including the government’s role in directing the responsible adoption of new technologies.

Similar recommendations have been made elsewhere, with a focus on innovation and diffusion being consistent with the advice of most pro-productivity institutions globally. One of the five themes of the Australian Productivity Commission’s reform agenda is “harnessing data, digital technology and diffusion to capture the dividend of new ideas” (Australian Productivity Commission, 2023). The Productivity Institute in the United Kingdom highlighted “inadequate diffusion of productivity-enhancing practices between firms and places” as one of the three key challenges faced by the United Kingdom (The Productivity Institute, 2023). 

Getting started on this opportunity

This opportunity area particularly links to the potential inquiry topic idea raised by stakeholders in relation to Innovation diffusion. The focus question identified for this topic was:

  • How can Aotearoa New Zealand increase the rate of diffusion of innovation and good business practices across businesses that are not operating at the frontier? In particular, what management, governance and leadership capabilities are needed to increase the rate at which new technologies are adopted by businesses?

Opportunity 2: Invest in the basics – a skilled, healthy population

A strong focus on skills and education, and public health, is essential to drive current and future productivity, particularly in the face of approaching social, environmental and economic changes and in light of Aotearoa New Zealand’s changing demographics. 

The focus also reflects the significant contribution that a socially cohesive, engaged population plays in maintaining and growing productivity.

Traditionally, a focus on education and skills tends to consider the role of early learning and school system performance – both of which are essential for driving strong skills outcomes, and should be a continuing area of policy effort to support improved productivity. However, the broader ecosystem for skills also matters – including how employers access skills not developed locally (for example, through immigration), and which skills are in short supply; and how skills continue to develop over a person’s lifetime and working career. 

The role of the public health system in supporting access to skilled labour across the economy is likely to become increasingly important as the population ages and changes, and climate change and environmental degradation reinforce future global health challenges.[7] New health challenges, and the increased demand on aged care and services that meet the needs of older New Zealanders, will require ongoing investment and will shift the skills needs of the health system.

Investment in human capability is a strong focus across many economies’ productivity-related policies (Pilat, 2023). For example, “building an adaptable workforce to supply skilled workers for Australia’s future economy” is one of the five key themes of the Australian Productivity Commission’s reform agenda (Australian Productivity Commission, 2023). As noted by van Ark et al, “countries will increasingly be forced to use their available human resources as productively as possible, including through further improvements in the quality of that human capital” (Ark et al., 2023). 

Getting started on this opportunity

This opportunity area particularly links to the potential inquiry topic ideas raised by stakeholders in relation to The care economy and Skilled employees and lifelong learning. The focus questions identified for these topics were:

  • The “care economy” (encompassing paid jobs in the care sectors and unpaid care jobs in homes and communities) underpins labour productivity yet is unrecognised as such and is increasingly fragile. How can Aotearoa New Zealand’s care economy be strengthened to support a more productive workforce in the face of changing demographics and an ageing population?
  • Acquiring job-relevant skills is important for productivity. How can the benefits/rewards and costs/risks of investing in gaining these skills be shared appropriately between workers, employers and the government? For example, this could include investigation of how government investment affects employer incentives to fund training for employees who they may not retain, and the extent to which the ability to demonstrate and transport skills (for example, through gaining credentials) affects a person’s incentive to participate in training.

[7] An example is rising temperatures affecting the health outcomes of workers in outdoor roles (for example, primary production) and/or increasing the likelihood of new diseases.

Opportunity 3: Think long-term about Aotearoa New Zealand’s approach to land use and infrastructure

Aotearoa New Zealand is facing significant challenges in its long-term planning that affects current and long-run productivity outcomes. How New Zealanders use land – the nation’s most precious and fundamental resource – will significantly shape Aotearoa New Zealand’s productivity outcomes now, and in the future. This issue will become even more urgent as the impacts of climate change and resource constraints continue to play out.

This brings to the fore some urgent questions about how to balance the rights of current and future generations, including how Aotearoa New Zealand can respect existing property rights while acknowledging that some compromise may be needed to ensure sustainability in the future. Directly confronting these questions, and ensuring that decision making now is grounded in what will be needed for the future, will be essential to growing productivity for Aotearoa New Zealand and maintaining that growth. 

This opportunity area fundamentally connects to Aotearoa New Zealand’s long-term thinking about how its economic systems are set up and its aim for the future economy. This is because a foundational challenge for future economic models will be the extent to which Aotearoa New Zealand bravely confronts the challenges of existing resource uses (for example, over-representation of non-productive sectors like housing within the economy) and their implications for future generations.

A focus on land use and infrastructure recognises the outsize role that these issues play, and are likely to continue to play, in relation to Aotearoa New Zealand’s productivity challenges. This could be seen alternatively as a sub-question to a broader one about the future economy that Aotearoa New Zealand is seeking to transition towards. For example, in the Australian Productivity Commission’s reform agenda, policies such as land use regulation are seen as levers through which to create a more dynamic economy (Australian Productivity Commission, 2023). 

Getting started on this opportunity

This opportunity area particularly links to the potential inquiry topic ideas raised by stakeholders in relation to Land use, Insurance retreat, and Energy system transformation. The focus questions identified for these topics were:

  • How can the regulatory and planning systems of Aotearoa New Zealand best enable land use decisions that balance the costs/risks and benefits/rewards of alternative land uses and deliver long-term productivity? For example, this area could investigate any barriers that may prevent land from being made available for its “best use”, limit easy transfer between uses, or inhibit adoption of more sustainable practices within an existing land use.
  • How will “insurance retreat[8]” impact insurance affordability and access – particularly for businesses and property owners – as well as the resilience of the economy and society? What are the implications for productivity and wellbeing?
  • What are the barriers to transitioning to a resilient and sustainable energy system? How, and at what pace, can Aotearoa New Zealand best transition its energy system in a way that supports productivity and wellbeing?

[8] “Insurance retreat” is the withdrawal of insurance over time, usually by the private market, due to increases in the underlying risks covered.

Opportunity 4: Look to the potential inherent in te ao Māori and across the Māori economy

By looking to Māori perspectives and a te ao Māori worldview, there may be potential to take new and innovative approaches to managing productivity challenges.

A focus on the Māori economy and the potential of te ao Māori to contribute meaningfully to the economic performance of Aotearoa New Zealand is not new – He Kai Kei Aku Ringa: the Māori-Crown Economic Growth Partnership updated in 2023 was initially published in 2013. This strategy recognises that there is an important opportunity to consolidate and extend the growth of the Māori economy. That economy grew 37% from 2013 to 2018, compared to the national GDP growth of 20% for the same period. This growth benefited both Māori and Aotearoa New Zealand (Ministry of Business, Innovation and Employment, 2023).

A continued, and increased, focus on the role of the Māori economy and te ao Māori contributions to the broader Aotearoa New Zealand economy would deliver significant opportunities for Aotearoa New Zealand’s economic performance and overall productivity. Through supporting more effective integration of te ao Māori into Aotearoa New Zealand’s way of operating, these benefits could accrue more broadly to benefit Māori, Māori businesses and firms, and all parts of the broader Aotearoa New Zealand economy. 

This opportunity area is unique to Aotearoa New Zealand and has not been explicitly identified in the pro-productivity policy agendas of other nations. Yet its importance has been widely recognised within Aotearoa New Zealand, and is an area of active work consistent with He Kai Kei Aku Ringa: the Māori-Crown Economic Growth Partnership. 

Getting started on this opportunity

This opportunity area has relevance across all potential inquiry topic ideas raised by stakeholders. However, it would have particularly strong connections to Land use, Skilled employees and lifelong learning, and Readiness of regional economies and labour markets for transition. The focus questions identified for these topics were:

  • How can the regulatory and planning systems of Aotearoa New Zealand best enable land use decisions that balance the costs/risks and benefits/rewards of alternative land uses and deliver long-term productivity? For example, this area could investigate any barriers that may prevent land from being made available for its “best use”, limit easy transfer between uses, or inhibit adoption of more sustainable practices within an existing land use.
  • Acquiring job-relevant skills is important for productivity. How can the benefits/rewards and costs/risks of investing in gaining these skills be shared appropriately between workers, employers and the government? For example, this could include investigation of how government investment affects employer incentives to fund training for employees who they may not retain, and the extent to which the ability to demonstrate and transport skills (for example, through gaining credentials) affects a person’s incentive to participate in training.
  • How ready are Aotearoa New Zealand’s regional economies and labour markets for transition in response to future challenges, including the regional impacts of climate and infrastructure challenges as well as demographic change? 

Opportunity 5: Continue work to address Aotearoa New Zealand’s specific productivity challenges

During its time in operation, the Productivity Commission has focused on building a better understanding of Aotearoa New Zealand’s productivity performance, and how this could be improved to contribute to better outcomes across the economy and better living standards for all.

This work, and the work of others – both organisations and individuals – must be acted on as current and future governments look to develop policies and actions to improve the lives of New Zealanders.

Many of Aotearoa New Zealand’s productivity challenges are shared by other nations, and this nation can and should continue to learn from their experiences. Yet Aotearoa New Zealand also has its own distinct productivity context and opportunities to address this nation’s challenges in ways that build from its unique strengths. 

Some immediate areas that would warrant further exploration – through research efforts and/or inclusion in government’s broader policy work programme may include:

  • how New Zealanders can understand and address challenges flowing from Aotearoa New Zealand’s low level of investment in capital
  • the potential for trade relationships to play a part in addressing Aotearoa New Zealand’s distance challenges
  • how Aotearoa New Zealand might capture the benefits of intangible capital, and continue to learn from international experience
  • how to build a broader understanding of what productivity is and how it is measured – reflecting some of the challenges to traditional economic models posed by issues such as climate change and biophysical limits, and the importance of capturing the social and flow-on benefits delivered by “non-economic” activities (for example, unpaid care work) (New Zealand Productivity Commission, 2023c). 

Taking work of this kind forward requires expertise and analytical capability, as well as the commitment and investment to tackle difficult and complex issues and identify the sometimes hard changes needed to drive future productivity improvement. Government will need to play a core role in ensuring these foundations, reflecting Aotearoa New Zealand’s relatively few academic and non-academic think tanks, which in other countries might play a stronger role in this space. 

Ongoing effort and investment in understanding and addressing the key drivers of productivity is the basis upon which countries around the world have created and maintained pro-productivity institutions. These institutions commonly identify similar policy challenges – framed in The Productivity Agenda as centring around managing trade-offs and how to achieve inclusive growth (The Productivity Institute, 2023).

Getting started on this opportunity

This opportunity area particularly links to the potential inquiry topic ideas raised by stakeholders in relation to Capital deepening, Readiness of regional economies and labour markets for transition, and The care economy. The focus questions identified for these topics were:

  • How can Aotearoa New Zealand’s low levels of investment in capital be better understood, and how could greater investment (and/or capital deepening) be encouraged to support increased productivity and wellbeing?
  • How ready are Aotearoa New Zealand’s regional economies and labour markets for transition in response to future challenges, including the regional impacts of climate and infrastructure challenges as well as demographic change?
  • The “care economy” (encompassing paid jobs in the care sectors and unpaid care jobs in homes and communities) underpins labour productivity yet is unrecognised as such and is increasingly fragile. How can Aotearoa New Zealand’s care economy be strengthened to support a more productive workforce in the face of changing demographics and an ageing population?

Conclusion: A productivity strategy?

Aotearoa New Zealand’s future ability to achieve productivity and deliver prosperity for citizens depends on the choices that New Zealanders make as a nation about what to aim for. In the face of the significant challenges, New Zealanders have the opportunity now to decide what they want the future economy to be, and how they want it to deliver for the country and its citizens.

Government may wish to take the advice contained in this report, and the proposed policy and research agenda, as a starting point to develop an all-of-government productivity strategy that sets a clear vision for Aotearoa New Zealand’s future economy, and pathways to achieve it. This would be consistent with the evidence emerging from other pro-productivity institutions around the world – for example, The Productivity Institute’s recommendation that the United Kingdom needs to develop “an integrated range of pro-productivity policies and commit to them for the long-term” (The Productivity Institute, 2023). 

To achieve this future – and deliver long-term productivity growth – such a strategy must address how to deliberately manage the costs of transition and change. The important role played by public sector productivity also needs acknowledging, and attention given to address institutional fragmentation and the lack of joined-up policies that result from bias towards short-term thinking and silos between government agencies. 

Such a strategy would need to be broad-based and reflect the collective mandate of citizens to ensure that traction is maintained over time and across a changing political landscape.

Having a clear goal and realistic pathways that are deliberately moving Aotearoa New Zealand towards achieving an understood and agreed economic future would drive this nation’s long-run productivity. It would ensure that individuals, communities, firms and industries have certainty about the context in which they are operating, and can make informed choices about their activities that are consistent with the country’s long-term economic plan. It would also provide a significant opportunity to build a future Aotearoa New Zealand that is fair and inclusive, and enables participation by all. 

Overall, this would support a stronger, more socially cohesive, and more productive Aotearoa New Zealand grounded by the social contract. 

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