Enabling productivity: an international governance challenge

The International Monetary Fund (IMF) has called for countries around the world to prioritise productivity enhancement. In the blog World Must Prioritize Productivity Reforms to Revive Medium-Term Growth the IMF focuses on the need improve productivity through policy intervention and leveraging emerging technologies.

Recent discussions with directors as part of the ASB and Spark productivity series of events sought to ground productivity in a company or organisational context. New Zealand Institute of Economic Research reports for the ASB and Spark highlighted the factors that underpin New Zealand’s ongoing productivity issues. There was a strong view, at the events, that directors have a key role in enabling productivity improvements in their organisations.  

The IMF blog looks at the productivity issue through an international lens and suggests solutions that New Zealand boards should consider. 

Prioritising productivity for sustainable growth

In the face of a global economic slowdown, boards of directors should prioritise productivity to ensure sustainable growth for their businesses. The IMF blog highlights a stark reality: without leveraging emerging technologies and policy intervention to enhance productivity, the robust growth rates of the past may not return. 

The analysis underscores that more than half of the growth decline since the 2008-09 global financial crisis (GFC) is due to a deceleration in total factor productivity (TFP) growth, a measure of the efficient use of labour and capital, which is fuelled by technological progress and efficient resource distribution. From the IMF’s perspective, hurdles such as policies that favour or penalise firms regardless of their productivity have impeded TFP and global growth. Reflecting on the analysis from a governance perspective, boards need to consider advocating for policies that remove barriers which prevent capital and labour from reaching the most productive companies. This will have the benefit of unlocking productive companies’ growth potential.

Strategic policy shifts

The IMF blog points to demographic pressures (the proportion of working-age population is shrinking) and weak business investment as inhibiting economic growth. Looking at this from a New Zealand perspective, this suggests that boards could consider working with government to support strategic policy shifts on these issues. Additionally, harnessing the potential of artificial intelligence (AI) could significantly boost labour productivity although, given the fast-moving nature of AI developments and limited take up in some cases, this remains somewhat uncertain. By focusing on market competition, financial access, and labour market flexibility, global growth could increase by approximately 1.2 percentage points by 2030, the IMF says. In the long run, innovation-driven policies will be essential for sustaining global growth and improving living standards.

Taken overall and reviewing the analysis in the IMF blog, boards can play a critical role in ensuring that productivity remains at the forefront of business planning and execution. By doing so, they can help turn the tide on the current low-growth trajectory and pave the way for a more prosperous future. This is critical in a range of countries globally, including New Zealand.