Hard News by Russell Brown

160

On Ideas

For all that it stretches the imagination to suppose that a productivity task force appointed by Rodney Hide and Don Brash will be stocked with independent and open minds, I suspect that will need to be the case if the latest addition to Hide's menagerie of pet projects is to have any real credibility.

In one sense, the appointment of Brash as chairman of the taskforce is a gift to the Opposition parties. Not only can Brash be cast as the economic bogeyman, there's a reasonable chance that he'll live up to the role. That his ideological convictions will trump political commonsense and the taskforce will offer up extreme solutions. And that its findings will consequently amount to a version of Auckland City's "Birch Report" on a national stage.

John Key seems already to be trying to head off that possibility by declaring that "there's no point coming up with policies unless they're implementable". Declaring that your economic doctor will be ignored if he insists on acting crazy seems an odd way to start.

But the productivity problem is real: we do need to hear new ideas. And the taskforce's explicit orientation towards "catching up" with Australia suggests that some of those ideas might be heretical. An honest comparison of our liberal regulatory environment with Australia's, for example, may struggle to conclude that ours has worked better.

An interesting story by Brian Fallow in the Herald today notes that Treasury research suggests that a key problem isn't the efficiency of the labour market, but "capital shallowness" -- a failure by business to make productive capital investment.

Fallow ventures in his story that "Brash appear[s] to accept the importance of capital deepening", as if he is describing a man coming around to the idea that the earth isn't flat. Well, perhaps the taskforce could do with a member who won't quote Hayek like the Bible. Someone who has written about our low capital intensity before. And who wrote at the beginning of this year:

Improving productivity was relatively easy during the first 15 years of economic reform. Deep structural change made the economy more efficient which in turn created a large supply of spare employees and plant.

As the economy grew, companies expanded by absorbing the spare capacity.

But in recent years, we've run out of spare people and plant. So we can progress now only by investing heavily in the skills of people and the technology of plants. Worse, the level of sophistication required of both for the country to remain internationally competitive keeps rising rapidly thanks to fast progress overseas.

Thankfully, the economic development data shows we are making progress. The ratio of capital to labour in the economy trended up slowly from the late-1980s then accelerated rapidly from 2003. Once the labour market became really tight, companies began investing more heavily in plant and technology.

Total investment in plant and machinery equalled 8% of GDP in 2005, a higher rate than Australia, Denmark, the UK and US the four OECD countries the study uses as benchmarks and higher than the median rate for all OECD countries.

Yes, Rod Oram. I'm saying it more in hope than expectation, but I'm saying it.

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Meanwhile, if Phil Goff wants to float ideas, could he please ensure they don't have any holes in them when he pushes them out from the jetty? He was obliged to deeply qualify (and that's a kind way of putting it) his call for unemployment benefit to be available to people with working partners almost as soon as he made it. There is a case to be made that the current household income thresholds are too mean, and that's the one he should have made in the first place.

If he wants to squander the momentum his party gained in the Mt Albert by-election, he's going the right way about it.

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And finally, if David Farrar wants to be known as a man of ideas, perhaps he should stop screaming when people discuss them. His STFU attack on Sian Elias was not pretty.

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