Donal Curtin at EconomicsNZ wonders about productivity in our service sector:
If business innovation is important for growth, then we need to be alert to the need for continuous innovation, and we need to be as diligent at it as other places if we want to match their living standards.
But the Productivity Commission came across this rather suggestive piece of evidence that says New Zealand businesspeople's heads aren't in the right innovation space at all. They ran a survey which among other useful things asked businesses that hadn't invested recently in ICT, why not.
What would you think the lead answer was? Cost? Complexity?
Not a bit of it.
The top answer was, "I couldn't be arsed", which is my rough translation of the complacent result shown below.
"It would be cause for concern", the Commission said (pp177-8), "if this response reflects a large number of firms with no aspirations to expand or that face little competitive pressure". Indeed, and with knobs on when it comes to that point about "little competitive pressure", though as the Commission says, in what's either judicious analysis or one of the longer kicks for touch you've ever seen, "The response is, however, challenging to interpret. It could also cover cases where respondents are simply unaware of the possibilities of using ICT to improve their business. Equally, it could cover businesses that invested significantly in ICT more than two years ago or where there are small benefits from investing in ICT. Without further information it is hard to read more into this result".Roger Proctor at MBIE last year presented evidence on New Zealand's long tail of relatively low-productivity firms (see Aaron Schiff and me). For some of these, "couldn't be arsed" would be a perfectly fine reason: small owner-operator firms run by folks moving into retirement. Rather than looking at expansion and selling it off, some of them would be looking at slowly winding things down while pottering away at it. In other sectors, it might point instead to relatively low competition.
My feeling is that the Commission was onto something important, and I think it could have been very productive if the government had chosen, as the Commission's next line of enquiry, some deeper analysis of what's going on here.
One graph in Proctor's presentation suggested that low IT adoption might not be the reason for lower productivity:
That isn't to discount the power of "couldn't be arsed" in small and relatively uncompetitive markets. I'm sure every academic in the country can point to dozens of local examples of it within their own institutions. Why is it so hard for international students to navigate through the University websites to figure out what they need to do to enrol? Why aren't any universities offering international students protection against adverse currency moves in order to attract more students where it's easier for the large institutions to buy the hedge than it is for individual students? Why can't a University offer parking as innovative as that provided in the city of Palmerston North (a beautiful service-industry productivity move where NZ's leading the world)? Why do Universities make it so ridiculously difficult on the admin side to handle grants?
Is there a better answer than a "Couldn't be arsed" somewhere in the system?
Hi Eric
ReplyDeleteI see Professor Card is also speaking at the NZAE conference in Auckland. Do you know whether Professor Card will be giving a lecture in Wellington?
I haven't heard that he is but I can ask. I suspect that if he were, he's already done it.
ReplyDeletea good example is Massey University for distance learning. As the only choice in NZ for economics, the result is high charges, poor technology, some indifferent lecturers (a mixed bag) and an unwillingness to engage with students who dare to complain. A wonder how quickly they would improve if there was real competition.
ReplyDeleteI am not sure I understand your claim about the private sector businesses. Surely the efficiency claim made of markets is that preferences are maximised given the constraints. In this case the biting constraints are the work preferences of business owners that means, among other things, they do not feel compelled to engage in some forms of competition. That this does not fit what others want them to do is neither here nor there: the outcome is still just as efficient as if the owners had a German work ethic?
ReplyDeleteEric, you should get in touch with your inner Armen Alchian (1950). Entrepreneurs often do not know why they survived in competition.
ReplyDeleteGeorge Stigler in his autobiography told this wonderful story about how you could not get businessmen to admit in a survey that they maximise profits.
You are going to their office and asked them: Do they maximise profits?
Their answer would be, of course, not. I am here to provide employment to my workers and put a small amount aside for the education of my children.
The surveyor would then ask them: if you do were to raise your prices, do you expect to increase your profits?
The businessman would answer no.
The surveyor how would then ask them: if you were to cut your prices, do you expect to increase your profits?
The businessman would answer no.
The survey would then ask: can you point to a time in the last 12-months where you substituted profit for some other objective?
At this point of time, you would be thrown out of their office as some sort of lunatic.
I'm totally cool with people deciding to profit max or to utility max with their own firms. Where some of the slack allowing that is due to low(ish) domestic competition, I wouldn't mind things that get rid of barriers to competition or that brought in more overseas competition.
ReplyDeleteI'm not saying that the owners are doing anything wrong or that the situation is inefficient relative to the constraints.
ReplyDeleteI wonder instead whether some of the legislative constraints against greater competition might be relaxed a bit. In particular, occupational licencing rules that protect certain services from competition from immigrant workers and rules around land use and building materials that make construction less competitive than it could be.