Taxonomy changes to rebalance New Zealand

In a shocking report on Scoop (ht GLS) I heard the following:

A recent report revealed New Zealand has some of the lowest taxonomy rates in the OECD.


If we are going to catch Australia in taxonomy rates, we need to have higher taxonomy rates!

Bill English also made the following excellent point regarding spillovers from taxonomy adjustment:

You’ll have to wait until Budget day, but I can say taxonomists not having to faff about with the difference between Archaebacteria and Eubacteria would boost productivity as much as any other change we’ll make.

Agree 100% …

Motivating effort through flagellation

Following yesterdays brainstorm on compulsory work, another post on NZ catching Australia has inspired a policy prescription.  State funded flagellation agents for firms.

Government has set a prosperity target, to match Australia’s GDP per capita by 2025.

Efforts to increase the availability of capital for productive firms and to innovate more effectively are important steps in the right direction, but effort improvement should contribute too.

Labour productivity, the output per hour worked, is the most significant driver of a nation’s GDP per capita. New Zealand performs relatively poorly on measures of labour productivity, ranking 22nd of 30 OECD countries, whereas Australia ranks 13th.

Improving labour productivity can be achieved by improving, amongst other factors, contributions from innovation, capital and effortFlagellation motivates managers and workers to find ways to produce more valuable output per hour worked.

Growing New Zealand’s prosperity depends on developing successful international businesses, and businesses will only be successful if they are competitive. Achieving competitiveness, by providing more valuable products and services or by having lower cost structures, requires world-class effort.

The target to match Australia’s GDP per capita by 2025 is ambitious. Effort improvement is only part of the solution but it is very important.

On a serious note, an individual’s decision to develop skills and the such is part of their choice given the payoffs available in the labour market.  If we are going to subsidise it let’s actually try to figure out what the “public returns” are from this education – rather than spouting off truisms regarding labour productivity or flagellation.

Again, remember that the purpose of policy is to improve/maximise welfare – not to meet GDP targets or redesign the economy/society in our own image …

Compulsory 10 hours of unpaid work

Inspired by this post on compulsory superannuation, here is a post on “compulsory work” (eg slavery).

Without compulsory work New Zealand is destined to become an economic backwater. Our relative standard of living, particularly when compared to Australia, will continue to decline.

Two important actions can reverse our long term economic decline, effective labour market regulation and compulsory work.

Compulsory work had been an unmitigated success in the New World and has helped transform their economy. While NZ academics can argue about whether or not it has increased their overall savings rate, it is clear that it has improved the amount that is produced in the economy.

Moving back away from the sarcasm let me say:

  • Compulsory superannuation is the love child of fund managers – as they can’t see past the idea that “more savings = more funds = more investment”.
  • Even those that do see past self interest only think of “GDP”.  However, the goal of policy is to maximise welfare not output – if people want to consume they should be allowed.  Forcing people to save is abhorrent.
  • Yes compulsory saving leads to more saving, and possibly to more investment (at least to lower borrowing).  But it does this by making people credit constrained – implying that people can’t smooth consumption over time and have lower lifetime satisfaction.

To me, compulsory superannuation/saving schemes are very wrong.  The people trying to push them need to learn that the purpose of policy isn’t to increase GDP or fatten their wallet, it is to ensure that we have a society where welfare is maximised.