I’m uncertain how any of this relates to Dr Cullen’s call for more investment. I was merely trying to come up with an explanation discussing why his call for investment might be a good way policy.

If you do want to discuss productivity though – which is an important and interesting issue, you could make a post at the standard and I’ll make a post for a reply (after replying to a post from Terrance 🙂 ).

So those companies in those societies have been doing efficiency investments earlier and more consistently. You get a cumulative spin off effect because a single company getting a return off an efficiency investment forces their competitors to follow.

The second is that in my experience you seldom get productivity increases at a company level unless there is a compelling reason to do it. The easy ones are usually done early.

The harder ones usually require up-front money to be invested well before you see any results. Managers will always try other alternatives in NZ to capital expenditure, because capital is a hard resource to get, and carries expensive costs both in interest and in company control. That shows up particularly strongly in my industry of software development.

If you have the ability to hire someone, then it is usually cheaper to do that rather than putting in hardware, software or systems. The gains to the bottom line usually happen far more rapidly.

It is only after the cost of labour goes up, or the availability of the required skills goes down that you start looking at how to get better use from your existing staff.

You notice that in the treasury graph that productivity decreases when unemployment became widespread here in the mid to late 70’s. Given the chronic shortage of capital here for any type of risk, it has been cheaper and less risky since then to hire more low-wage people to increase bottom line profits.

Productivity is raising its head now as an issue because effectively everyone who could be employed is. It shows as chronic skill shortages and increasing wage demands. So managers start getting concerned about how to use their existing staff more efficiently.

That is my take on it..