Tuesday, 23 March 2010

Productivity commission, Why?

Over at Kiwiblog David Farrar writes on Labour on Productivity Commission. He says,
I’m pleased to see Labour supportive of this initiative, for two reasons.

The first is simply because it is a good idea.

The second is because the sucess of the Australian Productivity Commission is partly because it does have bipartisan support. and I have long stressed that any NZ counterpart needs to also have such support, to be truly effective.
A good idea? Success of the Australian Productivity Commission? What success? 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 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.

Over at the TVHE blog Matt Nolan asked a while back, 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.
Thus back to my question: productivity commission, Why?

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