[OPE] The organic composition of capital in New Zealand

Just in case you thought that Marx's concept of the OCC is 19th century
economics, have a read of this news item:

NZ can catch Australia: Brash
NZ Herald Wednesday Jul 22, 2009
By Brian Fallow

(...) For a while, back in the 1960s, New Zealand's economic output per head
was slightly higher than Australia's. But last year, according to the OECD,
while Australia's population was five times New Zealand's its gross domestic
product (GDP) was 7.2 times larger, implying per capita GDP was 31 per cent
higher across the Tasman.

Much of the gap is a legacy of the 1970s and 1980s. New Zealand's per capita
GDP went more or less sideways between the mid-1970s and the end of the
1980s, while Australia and the OECD as a whole continued to forge ahead.
When growth resumed in the 1990s at an internationally respectable rate, it
was from that comparatively low base and it has not been strong enough to
narrow the gap. And much of the growth has come from people working longer
rather than more productively.

In 2006 New Zealand ranked fifth in the OECD for hours worked per head but
only 22nd for labour productivity (Australia was 10th). (...) Statistics New
Zealand says labour productivity growth averaged 1.3 per cent a year over
the eight years to March 2008. That compares with 2 per cent in Australia,
and 2.5 per cent during the 1990 to 1997 cycle. (...)

Research by Treasury economists in recent years has highlighted the
importance of New Zealand's relative capital shallowness - or low levels of
physical capital per worker - in explaining the productivity gap. Thirty
years ago the capital-to-labour ratio was almost the same on both sides of
the Tasman but by the early 2000s Australia's was about a third higher. Some
economists have pointed to weaker wage growth in New Zealand, especially
since the labour market reforms of the early 1990s, as part of the
explanation, making it more attractive for firms to grow by a strategy of
more hands to the pump, rather than investing in a better pump.

The Treasury notes that the difference in multi-factor productivity - the
effectiveness with which both labour and capital are used [i.e. the change
in output per unit of combined inputs, Solow's "coefficient of ignorance"] -
has not been markedly different between the two countries in the current
decade: 0.5 per cent a year in New Zealand and 0.7 per cent in Australia.

This suggests that capital deepening - an increase in capital per worker -
explains most of the higher labour productivity growth across the Tasman.
[Productivity Taskforce leader Donald] Brash appeared to accept the
importance of capital deepening yesterday but said that ideas about how to
improve it would have to wait until the taskforce's first report, due in
October.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10585873

But hey, wait a minute: on average, New Zealand gross wages are now between
20% to 30% lower than in Australia, although for the most part the same
kinds of technologies are used and the intensity and efficiency of labour is
basically the same. The measure of net output (value added) used in these
calculations INCLUDES the factor income represented by the compensation of
employees, as well as gross profit and tax. So, really, it looks very much
like the lower output value per New Zealand worker is largely attributable
to LOWER GROSS WAGES in New Zealand.

If wages fall, logically the aggregate net output measure will fall also,
unless more workers are employed (increasing the total value of the wage
component in net output), or total gross profit volumes increase in
proportion. The fact that on average more NZ workers than Australian workers
are employed to produce the same output value, means primarily that NZ
workers earn less, simple as that. The problem being referred to in this
article is really that the historic reduction of NZ gross wages has not been
compensated for by a proportional growth in gross profit from production.
Had gross profit growth fully offset the tapering off of wage growth, there
would have been no problem, because in that case total net output growth
would have stayed much the same.

However, even as the rate of surplus value increased, this did not translate
into sufficient profit growth. Hence the idea now that more must be invested
in production to increase the physical productivity of the worker, because,
assuming real wages stay constant, that is the only thing that can generate
more gross profit and thus a greater net output value. But, assuming this is
done, how can workers buy the additional output, if real wages remain
constant or even fall? The only way out of that is to export even more...
And so it goes on. The underlying problem is that insufficient capital
resources were invested longterm in production for many years, because the
yields from asset speculation and property deals were greater and faster, at
a lower risk. Capitalists are now being invited to invest more in upgrading
production technology, but how can this be profitable in the middle of a
recession - there are now three times as many NZers on the dole as at the
same time last year - when final demand is falling, rather than rising? The
main problem of the rich is not that they are rich, but that if income
inequality strongly increases, this undermines the very possibility of
cumulative economic growth.

Jurriaan

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Received on Tue Jul 21 18:23:54 2009