Productivity: Better Ways to Measure NZ's Productivity; What's Measured Can Be Managed. but What If the Measures Are Wrong? Reg Birchfield Reviews the Metrics Used to Track New Zealand's Productive Performance and Economic Wellbeing

New Zealand Management, April 2012 | Go to article overview

Productivity: Better Ways to Measure NZ's Productivity; What's Measured Can Be Managed. but What If the Measures Are Wrong? Reg Birchfield Reviews the Metrics Used to Track New Zealand's Productive Performance and Economic Wellbeing


Byline: Reg Birchfield

Exclusive series

This is Reg Birchfield's third and final article in his series on productivity. To reread the first two articles go to

www.management.co.nz/TheBigIssues.asp

No lesser person than Reserve Bank governor Alan Bollard recently questioned the measure of New Zealand's economic performance. The nation's economy might, he said, be bigger than we think and the income gap between us and Australia smaller. He added the bank was looking at differences in how the two nations measured their respective gross domestic products (GDPs).

And that is the point. Fact or fiction often rests in what and how things are measured. Are they relevant and are they real, given the prevailing context?

New Zealand sticks to fairly traditional GDP-based productivity measures. But the onslaught of previously unimagined scenarios is reshaping our world and almost certainly undermining the value and relevance of some GDP metrics. Economic opinion is swinging toward factoring in more environmental and other social measures. The question, therefore, is whether New Zealand is up with the play.

The world's most pressing problem is the "so-called real economy", according to America's Nobel economist Joseph Stiglitz. "The real economy has been in a state of wrenching transition for decades, and its dislocations have never been squarely faced," he wrote in a recent issue of Vanity Fair magazine. "A crisis of the real economy lies behind the Long Slump, just as it lay behind the Great Depression."

Stiglitz' comments are embedded in the work he did as chairman of the Commission on the Measurement of Economic Performance and Social Progress set up by French President Nicholas Sarkozy in 2009. The Commission set out to identify GDP's limitations as an economic performance and social progress indicator and to assess the feasibility of alternative measurement tools.

"What we measure affects what we do; and if our measures are flawed, decisions may be distorted," the report said, and then added: "GDP is an inadequate metric to gauge wellbeing over time particularly in its economic, environmental and social dimensions, some aspects of which are often referred to as sustainability."

Wellbeing

Politicians and policymakers push for greater productivity on the basis that it drives growth and enhances individual and national wellbeing. The need to get a better fix on relevant productivity measures is important and will grow along with increasing social, environmental and other population growth pressures. The days of single-minded economic measures are probably numbered but it's difficult to know by how much.

Departing New Zealand Institute director Rick Boven is suspicious of New Zealand's existing productivity measures. They do not, for example, take account of what he considers important changes in New Zealand's environmental balance sheet. Driving productivity per capita up in the short term can have long-term negative impacts, such as the depletion of environmental resources.

GDP measures both good and bad activities. GDP will, for example, increase if more people go to hospital or buy inefficient cars. Measures like these can create odd incentives in the behaviour of policymakers. For reasons like this, Boven thinks GDP suffers some serious measurement deficiencies.

And current productivity measures don't record the effects of participation changes. For example, the last Labour government reduced the number of unemployed by diverting more marginally employed people into lower wage jobs. "We reduced productivity by doing that," says Boven.

"But while the action was a drag on the productivity per capita measure, that didn't mean it was necessarily a bad thing to do. The result could have been that the productivity of existing employees went up and the productivity of the new employees -- while lower than the productivity of existing employees -- also went up. …

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