Low productivity - situate the blame with the bosses

Philip Ferguson The Spark December 2005

One of the big myths perpetrated by bosses is that big profits are needed in order for companies to reinvest in expanding production and therefore hiring more workers and increasing pay. More ‘freedom’ for employers was one of the big slogans of the ‘new right’ economic reforms of the fourth Labour government and its National successor.

Yet, since the ‘new right’ reforms, and especially since the Employment Contracts Act of 1991, while profits have expanded, labour productivity in New Zealand has been falling further and further behind other countries in the OECD. An interesting comparison is with Australia, where productivity levels were similar until the ECA.

Why has labour productivity in NZ not kept up, despite big companies making vast profits and the wealth of the top capitalist individuals and families expanding massively?

The answer is to be found in the fact that there are two ways to increase labour productivity. One is to invest in research and development (R&D) and in buying new plant, machinery and equipment (PME). This makes each worker substantially more productive. However, it also requires substantial expenditure on the part of the capitalist class.

The other is to cutback on wages bills, by laying off chunks of workers, and making the remaining workers work longer and harder, for instance through the use of speed-up. This doesn’t require big new investments in R&D and in PME, so is good for employers. It’s bad for workers since it leaves us physically exhausted and earning less real wages for longer hours. And it means that, no matter how hard workers work, they can’t produce anywhere near as much as they could if there was substantial investment in R&D and PME.

Since the ‘new right’ reforms began, and especially since the ECA of 1991, NZ capitalists, as a class, have tended to favour the second form of increasing productivity. Rather than make substantial investments to massively grow output and employ more workers at higher rates of pay, they have opted to cut jobs and real wages and expand the hours of employed workers.

Statistics New Zealand has recently released two reports which show the low levels of investment in R&D, for instance. New Zealand in the OECD reveals (p. 36) that investment in R&D in New Zealand as a percentage of GDP (the value of goods and services overall) is a meagre1.16 percent, barely half of the average in OECD countries (2.24 percent). We’re ahead of poor countries like Turkey, but below places like the Czech Republic and far below the countries at the top of the chart. For instance, in Japan investment in R&D as a percentage of GDP is almost three times as high as New Zealand, while in Finland and Sweden it is over three times as high (3.49 and 3.98 percent respectively).

Not surprisingly, Finland and Sweden are far ahead of New Zealand in terms of GDP per person and in terms of economic competitiveness. In terms of the growth competitiveness, this translates into Finland and Sweden being first and third, while New Zealand languishes around the lower end of the top 20 (18 in 2004; 16 in 2005).

Yet employers in New Zealand want to blame workers for relatively low levels of productivity!

Moreover, although employers like to lecture us that ‘There are no free lunches’ when it comes to pay rises or the cost of health and education services, NZ capitalists expect free lunches from the government when it comes to both R&D and PME investment. Labour has already handed out $250 million in tax rebates to companies for investment in PME, for instance. Even with this kind of government handout, NZ lags more than 28 percent behind the OECD average in PME investment (see http://tinyurl.com/5zjyhj) The private sector in 2004 also received $67.6 million of government funds for R&D, as revealed in the second report, Research and Development in New Zealand 2004.

The state in NZ plays a crucial role in investing in R&D, because private enterprise won’t. Thus while private enterprise investment in R&D in NZ is lower than the OECD average, state sector investment in R&D in NZ is about 40 percent above the OECD average. Interestingly, NZ government spending as a percentage of GDP is the second lowest in the entire OECD. Essentially, the government in NZ provides 45 percent of the funding for R&D, compared to 30 percent across the OECD (R&D in NZ, p8).

Moreover, these official figures about levels of private sector and state investment in R&D give an inflated idea of the size of private sector investment in R&D since Statistics New Zealand includes state-owned enterprises as part of the private sector! (Ibid) In fact, if we take away the amount of private sector investment in R&D that is actually government-funded and the amount which is investment by state-owned enterprises, business investment in R&D, as a percentage of GDP, is even more negligible than the official statistics suggest.

In New Zealand, universities also play an important part in expenditure on R&D, contributing about $113.5 million, or just over 7 percent of total funding for R&D. The bulk of this (64 percent) is government-funded, although much of the R&D work done in the university sector benefits private enterprise.

Over the past 20 years, then, workers have been subject to a giant con by business. While we have been forced to sacrifice jobs, conditions, wages and leisure time in order to make NZ ‘competitive’, employers have pocketed huge profits and invested little in either R&D or PME in order to expand employment and lift wages.

The only way out of this is for workers to take over the workplaces - and the economy as a whole. We can then work shorter work-weeks, while still producing enough for decent wages and for free public services. And we’d still have plenty of funds left over for reinvestment in making our labour even more productive, giving us even shorter workweeks and even better free, public services.

Labour productivity, Australia and New Zealand; the above chart appears in Phil Teece, “In pursuit of the flexible workplace”, Australian Library Journal, vol 50, no 4.

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