Productivity: how New Zealand rates

MASE SIAOPO couldn't read or write much English when he started at the Mangere plastics factory. So the company taught him. Now he's one of its "stars", wielding his daily sheaf of orders and managing half a dozen other workers.

Back in 1992, he was fresh off the plane from Samoa. At 32, "my English was not very fluent. I could write, but not really. I could read, but not really." The company gave him and many of his Pasifika co-workers weekly lessons in its training room.

"It helped me a lot. Without these [literacy] programmes, I'm nothing," he says. "So I give them back for what they have done for me."

It would be fair to say that Siaopo is devoted to Rotaform Plastics Ltd. "I'm very, very happy. I found out that there are people who care for me and my family," he says. "I know I'm important to them."

Now he is not only a much more valuable employee, he's a more confident man. He helps his three kids with their school homework. Siaopo is proud of the fact that he was given the chance to give a speech at his church.

Rotaform's chief executive, David Brumby, has seen his company blossom along with its workers' English. "You get a double whammy of not only learning new skills but secondly becoming so much more motivated and part of the team," he told the Sunday Star-Times. "We've seen people go from quiet, shy people who you wonder what they're all about to team leaders and area supervisors."

The company's main business now is spa pools "complicated shapes to mould and complicated things to assemble". Workers have to follow complicated instructions.

When it started the literacy programme back in 1998, the company found that "our guys didn't understand the difference between a kilo and a gram", says Brumby.

"And yet these were the same guys who weigh out all our raw material by hand. The value of a year's material is enormous so even getting a tiny percentage of measurings wrong makes an enormous difference to us."

Many of the workers about half the company's employees are Pasifika had problems they were reluctant to expose. "We found out that a night shift leader couldn't actually write. He wasn't even filling in his form the day shift people were filling it in for him."

The literacy programme weekly lessons in reading, writing and arithmetic with plenty of homework had spectacular early results. The rejection rate for below-par products fell by half. The company expanded it now employs 35 people. Productivity went up.

Now it runs a "lean manufacturing" programme, a variant of the Toyota production system. "It's basically an open honest system of continuous improvement where people meet daily and basically look at yesterday and look at what went wrong and make sure it doesn't happen again," Brumby says.

Each morning leaders from each section of the company gather in front of a whiteboard for what they call "haka" meetings. "You're all standing up, it takes 10 minutes bang, bang, bang. You don't bring coffee, you don't bring anything. You stand there, these are the statistics from yesterday, and you go around the circle and say, `Is there anything going to impede you in achieving your goals today? Yes, yes, no, no.' And you sort it out."

Hakas at the whiteboard wouldn't succeed with illiterate workers. And the "no-blame" system of seeking out problems wouldn't work with reticent employees.

Literacy helped Rotaform Plastics get many more bangs for its buck. Increased productivity, in fact, is the secret to wealth for countries as for companies. If a worker can make 10 widgets an hour instead of five, the company can increase his or her wages, make more profits and not have to increase prices or could even reduce them. Everyone wins.

But getting big increases in a country's productivity is not a simple matter: if it was, everyone would have done it already. And the fact is, New Zealand's recent record in this area has not been good. Growth in productivity has actually slowed since 2000, as a Statistics New Zealand report this month showed.

One measure labour productivity, or how much the country produces per hour of work has increased on average by only about 1% a year in that period. During the 1990s, the figure was more than double that.

Another measure multifactor productivity, a horribly named and somewhat mysterious category that reflects things like knowledge, technology and innovation is worse still. Average annual increases under Labour were a mere 0.4%, compared with about 2% in the 1990s five times higher.

Business Roundtable executive director Roger Kerr said in a newspaper opinion piece last week that this "shows there has been no substance to the government's `knowledge wave' and `economic transformation' talk".

Even critics less hostile to Labour agree that the figures are disappointing. David Skilling, of economic think tank the New Zealand Institute, says: "The longer term view is not a particularly optimistic one. We're going forwards but there's no clear evidence of the step-change in performance I think we were looking for."

So why haven't we done better? And what can we do to improve?

One reason labour productivity growth has slowed is that more people are in work. Unemployment has plummeted and there are now labour shortages.

"You started getting people who were fundamentally less productive in other words, the unskilled in the labour market," says Phil O'Reilly, chief executive of the employers' umbrella group, Business New Zealand.

"You're not going to get great productivity out of them you've got to train them and all those sorts of things."

Nearly everyone agrees that this is part of the reason for the fall in labour productivity growth. There is agreement about little else. On the subject of productivity, debate quickly becomes "religious" or ideological, says economist Brian Easton.

O'Reilly, for instance, blames the government for its industrial law changes, which, he says, have made labour less flexible and therefore less productive; it stopped freeing up the economy; it still imposes "high" taxes.

Finance Minister Michael Cullen replies that Australia has had a more tightly regulated labour market and yet it has, notoriously, outstripped New Zealand average incomes. "If you look at Europe, you've got much more regulated markets but higher labour productivity," he told the Sunday Star-Times.

One reason for the higher productivity growth in earlier times was that unemployment was going up.

CTU economist Peter Conway points out that labour productivity reached its peak in the late 1980s.

"We lost 56,000 manufacturing jobs in that period and unemployment was growing rapidly. So you can lift productivity by sacking lots of workers and you'll also notice that 1989 was the highest year we lost people to Australia.

"So while you want labour productivity to rise, you don't really want it to be at the cost of massive increases in the hours of work, massive increases in unemployment, huge layoffs and much more flexible hours `Come when we need you, go off when we don't'."

Conway admits that the Employment Contracts Act the union-busting measure brought in by a National government in 1991 actually raised productivity by making wages cheaper. "But unless you make it more and more and more liberal and wages cheaper, cheaper, cheaper you run up against limits around what you can do."

The answer, he says, is not to work harder New Zealand working hours are already among the longest in the OECD but to work smarter. It is here that capital plays a crucial part. Greater investment in plant and machinery means more productive workers. Give them better tools and equipment and they'll do the job better. New Zealand's investment in capital, however, has been notoriously below-par much lower than Australia's, for instance.

O'Reilly says employers do not seek a return to the ECA: times have changed, and such a radical change is not needed. It does, however, seek some "reasonable removal of restrictions" in the labour market. It would also like to see a probation period for new workers, especially for small employers.

O'Reilly also sees recent increases in capital by employers. During the hard times of the 1990s, businesses "learned not to invest a lot in capital because that was expensive and risky" while labour was "less risky and cheaper". But now, with a very tight labour market, things had changed. "You can't hire labour any more so you've got to buy machines."

But O'Reilly also concedes, perhaps surprisingly, that managers could do better. In a small country with only a tiny number of large companies, Kiwi managers, though "very creative and adaptable" do not get the breadth of expertise or the confidence that those in other countries are exposed to.

Managers in larger countries "cycle in and out of" the big companies and gain knowledge and experience. Here, small company managers have to rely on "advice from their chartered accountants and their mates". This means many find it hard to make the big jump into exporting. He is leading a project to help them tap into the knowledge offered by the country's universities and polytechs.

In one sense, there is a lot of effort going on to try to lift New Zealand's poor productivity growth. Cullen points to next week's cut in company tax rates, its increased incentives for research and development spending, and the planned personal tax cuts. The government has spent heavily on infrastructure such as roads and public transport. It has made it easier for New Zealand firms to invest overseas. It has changed the regulatory system in telecoms to encourage more investment.

He could have added that the government has moved to increase the capital available for investment by the Cullen superannuation fund and through KiwiSaver. It has put money into industry training and changed tertiary funding to emphasise research rather than just bums on seats: unproductive activities like twilight golf no longer get government funds.

"There are quite a lot of building blocks being put in place that will help productivity growth," Cullen argues. His critics say that it is all too little too late, and that New Zealand shows no signs of getting the kind of productivity spurt that will lift it into the upper half of the OECD.

That argument will get hotter as the election grows closer, but there is at least one sign of possible progress. There has been for about five years now a concerted but hardly well-known campaign by unions, the employers and the government to work together to raise productivity.

Mention the word productivity, says O'Reilly, and most people turn off. Talk instead about the way things are done in the office and the factory, and everyone is interested and has an opinion. So the campaign has identified seven things to produce more bangs per buck. These sound banal in theory better management, more worker involvement and training, encouraging innovation but can have big effects in practice.

One of the case studies produced by this campaign is that of Rotaform Plastics. Here, a forward-thinking management invested in its workers, spent money giving them greater skills, and moved to new ways of working. "An engaged worker," says Conway, "is a productive worker."

The payoff was clear both for the company and for Mase Siaopo. He learned to read and write and became a better worker and a happier one but after all that he still earns only $16.75 an hour. With bonuses he makes about $45,000 a year the average wage. With three young children and a wife at home, he can't afford to buy his own house and his lifestyle is far from princely.

New Zealand Inc still has a long way to go.

 

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