Monday, 20 July 2009

A productivity commission: Why? (updated x2)

Over at Kiwiblog David Farrar writes
I think a productivity is one of the most important things we can do, for increasing long-term growth. The Australian equivalent is one of the reasons they have done better economically
Really? Can David give one example of things the Australian productivity commission has done and show the growth that resulted from its actions? This question is asked because it is not clear that governments can do all that much to increase long-term growth. In this paper John Landon-Lane (a Canterbury grad, of course) and Peter Robertson ask "Can government policies increase national long-run growth rates?" and their answer isn't encouraging. Their abstract reads,
We obtain time series estimates of the long run growth rates of 17 OECD countries, and test the hypothesis that these are the same across countries. We find that we cannot reject this hypothesis for the first and last three decades of the 20th century. We conclude that: (i) there are few, if any, feasible policies available that have a significant effect on long run growth rates, and; (ii) any policies that can raise national growth rates must be international in scope. The results therefore have bleak implications for the ability of countries to affect their long run growth rates. (Emphasis added).
The paper concludes,
The results therefore have stark implications for the ability of most countries to determine their own long run growth rates. The many policy packages used across these countries, including differences in tax, research, education and investment, did not have significant long run effects on relative growth rates. We conclude therefore that long run growth rates are determined by international factors, and are insensitive to national policies, especially for small countries. This implies severe restrictions of the ability of most governments to increase national long run growth rates.
At the Stumbling and Mumbling blog Chris Dillow writes,
To get an idea of what they mean, here are some annualized real GDP growth rates for some significant countries between 1980 and 2007. I present the figures in ranges, such that we can be 95% confident that true growth is within this range. I do this because, even over a period as long as 27 years, it’s possible for two countries with identical true growth to differ if one has good luck and the other bad.

France: 1.7-2.5%.
Italy: 1.3-2.2%
Spain: 2.4-3.6%
Sweden 1.6-3.0%
UK: 2.0-3.2%
US 2.4-3.7%

These ranges suggest we can be pretty confident that Italy has done worse than the US or UK. But we cannot be at all confident that the US has out-performed Sweden, or vice versa. The opposing poles of mixed capitalism - social democratic Sweden and freer market US - are consistent with similar, maybe indistinguishable, growth rates.

Big differences in institutions and policies, then, seem to generate similar growth rates. Which suggests that - at least within the wide parameters set by actually-existing mixed capitalisms - policies (or at least those that have been tried) might not make much difference to trend growth.
So I have to ask, Where is the evidence that a productivity commission will do anything to our long-term growth rate? What I fear we will get is just a another group of bureaucrats wasting taxpayers money for no good purpose. Perhaps, therefore, we shouldn’t look to national governments to promote long-run growth.

Update: The Inquiring Mind says Productivity Commission – No, Growth – YES
What can a Productivity Commission do that companies, industry associations and other lobby groups cannot?

Is it not the responsibility of Company Boards to set direction such that their organizations are efficient, effective and thus productive?

What is it about NZ Business that continually makes it look to government or quasi-government bodies for direction and /or instruction?
Update 2: Matt Nolan asks When did NZ’s right become communist?
Long-term growth is based on technology, resource allocation, and to some degree the structure of institutions in the economy. I severely doubt that the government can turn around and improve any of these things to the degree required to “catch Australia”. Hell, Australia is closer to its markets, has a larger set of currently important natural resources, and gets “economies of scale” due to its higher population. No government policies can magically fill this gap.


V said...

Do you think there possibly could be some value if a productivity commission was the decision maker on issues that are currently politicised, i.e setting of minimum wage level, government infrastructure purchases, (ie Kiwirail) to ensure an economically researched basis to such decisions, rather than a please the electorate mentality that exists now?

Of course implementing a productivity commission would mean other areas of government should be downsized appropriately. Wishful thinking perhaps.

Paul Walker said...

V. Your idea may be better than what we have at the moment. But I think we could still do better. We could do away with the minimum wage, stop the government getting involved infrastructure etc. One problem may be that over time the Commission would be come politicised and so may end up in much the same position we are now.

Eric Crampton said...

Paul: surely it isn't that countries can do nothing to improve their growth rates. Most countries have many anti-growth policies currently in place; removing those would improve growth rates, although not much in some cases. Beyond getting rid of impediments, I'd certainly agree that there's not much countries can do. But there's a lot of room to move there....

Paul Walker said...

EC. The studies have been done mainly on the OECD countries where the basic good things that governments can do have been done and so the big improvements in growth from government action have already taken place. What we are looking at is marginal changes in policy which don't produce big increases in growth rates. So yes, there are things that governments can do to remove anti-growth policies but even these may not buy us as much in terms of extra growth as we think. And creating yet more bureaucrats doesn't seem like a good move.

Eric Crampton said...

Yup, OECD was where I was thinking "not much".

On the other hand, Viscusi shows that every $15 million in increased GDP correlates with a statistical life saved....

David Farrar said...

I can't, without research, cite specific examples of the Australian Productivity Commission. At some stage I will do that research.

My support for the concept is based on the many positive references to it I have heard from folks at the CIS and former and current Australian Ministers.

It seems it really is well respected (membership is not just a few bureaucrats), is well resourced and many of their proposals get taken up without great controversy as many Australian politicians understand the importance of productivity gains.

Many of the issues it looks at are state issues also, so not just dependent on the Federal Government taking action.

adamsmith1922 said...

As I noted in the post Paul kindly referenced I think that we could perhaps look beyond the OECD for some examples of what might be done, rather than indulge in the appointment of yet another quango to provide a figleaf for the non-performance of government and business.

I think John Whitehead has done us a service by admitting that there is excessive and poor quality government spend. Further he has opened the door to a debate on what are the boundaries of the state.

I have a feeling though that Key may move to close that door, because of the successful demonisation by Labour of anything like privatization, so that NZ suffers inefficiencies foisted on us by the acolytes of socialism.

adamsmith1922 said...

link is to the most recent statement by the APC on it's performance

Interestingly they seem to look at a lot of elements of government performance, but is it really a Productivity body as such. I wonder.

Michael Griffiths said...

I think that the reason that New Zealand is not Ireland is because we are still stuck in primary industries. New Zealand needs to move to high tech industries as Paul Callaghan proposes:

How sweet it would be if the government set up a free trade zone for the technology industry. New Zealand would become the silicon valley of the south pacific. Even the Greens would be for that, as in their eyes an internet company's offices are better than a methane pumping farm right?