Perhaps satisficing under conditions of low competition can take some of the blame for New Zealand’s low productivity rates.
Donal Curtin at EconomicsNZ wonders about productivity in our service sector:
If business innovation is important for growth, then we need to be alert to the need for continuous innovation, and we need to be as diligent at it as other places if we want to match their living standards.
But the Productivity Commission came across this rather suggestive piece of evidence that says New Zealand businesspeople’s heads aren’t in the right innovation space at all. They ran a survey which among other useful things asked businesses that hadn’t invested recently in ICT, why not.
What would you think the lead answer was? Cost? Complexity?
Not a bit of it.
The top answer was, “I couldn’t be arsed”, which is my rough translation of the complacent result shown below.
“It would be cause for concern”, the Commission said (pp177-8), “if this response reflects a large number of firms with no aspirations to expand or that face little competitive pressure”. Indeed, and with knobs on when it comes to that point about “little competitive pressure”, though as the Commission says, in what’s either judicious analysis or one of the longer kicks for touch you’ve ever seen, “The response is, however, challenging to interpret. It could also cover cases where respondents are simply unaware of the possibilities of using ICT to improve their business. Equally, it could cover businesses that invested significantly in ICT more than two years ago or where there are small benefits from investing in ICT. Without further information it is hard to read more into this result”.
My feeling is that the Commission was onto something important, and I think it could have been very productive if the government had chosen, as the Commission’s next line of enquiry, some deeper analysis of what’s going on here.
Roger Proctor at MBIE last year presented evidence on New Zealand’s long tail of relatively low-productivity firms (see Aaron Schiff and me). For some of these, “couldn’t be arsed” would be a perfectly fine reason: small owner-operator firms run by folks moving into retirement. Rather than looking at expansion and selling it off, some of them would be looking at slowly winding things down while pottering away at it. In other sectors, it might point instead to relatively low competition.
One graph in Proctor’s presentation suggested that low IT adoption might not be the reason for lower productivity: