“It is a socialist idea that making profits is a vice. 

I consider the real vice is making losses” – Winston S Churchill




New Zealand remains at or near the bottom of the OECD profit league tables, a position we have occupied for forty years. Current scorecard from Armillary Private Capital (here), using a Return on Capital Employed method of aggregation, shows our 2017 ROCE flat-lining at 7%, while USA is 14%, Australia 11%, and Europe 9%. Our Productivity Commission weeps at our weak productivity, which is its more inclusive term for profitability. Dreams of catching Australia in any per capita measure of income, productivity or profit are long gone.

Nor is the weak profitability of our firms because our workforce is enjoying a disproportionate share of business revenues. To the contrary – our employees are as poorly rewarded as our shareholders. Only through the increasing levels of Family Support subsidy can a working family make ends meet, even on a skilled wage. In fact, we have to thank our workforce for most of the recent growth in GDP, which has been derived from more hours worked by more people rather than any innovation or strategy by management.

The Productivity Commission chair, Dr Murray Sherwin, speaks here of their uncertainty at the root causes of our poor profitability, but lists key impediments in our circumstances, including: –

  • A remarkably weak connection with international trends, technologies, global value chains, efficiency gains and market clusters. We are missing out on the stunning growth in intermediate goods and services trade. We are not in the conversation of ideas.
  • Low capital formation and weak investment in high tech equipment, which can redress the current labour / capital imbalance. Untaxed capital gains tilt investment towards property.
  • Lacklustre big firms, drawing particular aim at co-operatives and SOEs (risk averse, xenophobic and capital poor) and branch corporates like banks (whose mandate is confined to NZ).

To these I would add examples of further drags on productivity such as: –

  • Bad investment decisions throughout the economy – from giant companies like Fletcher Building and Fonterra through to a public gulled into a misleading IPO prospectus.
  • Weak regulators – in failing to protect the country’s biosecurity, building weathertightness, financial markets or competitive commerce.
  • Excessive costs – of road construction, building materials, resource compliance.
  • Short-sighted, uncoordinated and stupid planning – of cities, infrastructure, transport, ports, housing, energy, skills.
  • Wasted public funds – on duplicated provincial services (health), moribund activities (rail), vote bribes (free university) and Coalition “pork”.

As a nation, we undervalue the need for prudent management and maintenance of our good fortune, built on the back of kind climate and hard work. We are lovably complacent. “She’ll Be Right” is as powerful now as it always was. However poor incomes have massive repercussions on the viability of our “First World” public services – education, health, welfare and transport infrastructure require a First World tax take.

Perhaps higher productivity is important after all?