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  • Writer's pictureIan Fletcher

Productivity, Covid, Housing & Health


‘Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.’ — Paul Krugman

Paul Krugman is an economist, and this quote is a pithy summary of one of the central problems of economic management for all governments: getting more output from the same inputs, especially people and their skills. Developed countries got steadily richer from the end of WW2 through to about the 1990s as productivity grew. But we have stagnated since, putting governments under pressure to do better.

Economies like New Zealand have looked bigger and better because of immigration, which keeps labour, health and education costs down per capita in the short run (migrants tend to be healthy and have an education when they arrive, pushing averages in the right direction – until they get old, sick or have their own kids). So, the productivity problem remains.

What to do? The New Zealand Government might be forgiven for saying productivity is tomorrow’s problem - today is Covid-19, tomorrow is housing, the day after is health (where the decision to merge the DHBs will be a nightmare in practice).

These problems are linked.

First, the good news: economists have detected an unexpected rise in productivity as developed countries get through Covid: companies have sharpened their performance. That may be through better use of IT, and it’s not clear how much will rub off in New Zealand. We should make sure it does. It’s already clear that Covid has led to big skill shortages, and so higher wages for many. That is a good thing. New Zealand is a low wage economy, and anything that pushes up wages here is a positive.

Housing costs make workers less mobile, and simply poorer – they have less money for other things. Solving housing will boost consumption and improve productivity, as workers can move to more productive jobs more easily.

Health reforms will magnify the role of the state, especially as we expect more effective health care, keeping up globally on vaccines and other services. State demand is a big driver of productivity if it’s managed right and used to fund innovation and technology adoption. Health reforms will be a big economic process in coming years, and we should use it to push productivity improvements everywhere.

Ian Fletcher

Ian Fletcher is a former chief executive of the UK Patents Office, free trade negotiator with the European Commission, biosecurity expert for the Queensland government and head of New Zealand’s security agency. These days he is a commercial flower grower in the Wairarapa and consultant to the apiculture industry with NZ Beekeeping Inc.

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