Journal article

Productivity and changing technology

14 Aug 2017
This short article discusses in broad terms what new technologies could mean for New Zealand in terms of productivity and economic development.





An orbital-class rocket with a 3D-printed engine launches into space from the Mähia Peninsula. A self-driving car crosses the Auckland Harbour Bridge. A pizza company begins testing delivery using airborne drones. While these may sound like things of science fiction, they are in fact stories that have been in the New Zealand media over the last year.

These stories provide a glimpse of how technology is changing. Changes are not just happening around the edges but could be as disruptive to models of production as earlier industrial revolutions. As the World Economic Forum noted:

The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. (Schwab, 2016)

New technologies associated with a fourth industrial revolution include advanced robotics, artificial intelligence, autonomous vehicles, nanotechnology, the internet of things, biotechnology, 3D printing and quantum computing. This short article discusses in broad terms what these new technologies could mean for New Zealand.

Given our geography (our distance from major markets) the news should be good: there are opportunities from a shift to a more ‘weightless’ economy based on trading knowledge-intensive products down fibre-optic cables (Skilling and Boven, 2007; Conway, 2016). However, getting to that point takes time, as innovation runs ahead of people’s capacity to adjust. So rapid technological progress, while ultimately improving productivity and living standards, carries with it the risk of a period of disorienting and uncomfortable change. Policy action is required to make the most of rapid technological change and mitigate any negative side effects.


The fourth industrial revolution poses some new challenges and opportunities for the New Zealand economy. To an extent, the impact of these changes is already being felt, with some promising recent signs, such as increasing export diversity and a growing high-tech sector. This suggests that in some areas of economic activity the forces that have worked to limit the productivity of New Zealand firms may be loosening their grip. For example, with dramatic falls in the price of transmitting data over distance, a window of opportunity is opening for some firms to engage in new ways internationally. This trend is likely to continue, given the ‘servitisation of manufacturing’ and strong growth in digital products that can be marketed and delivered worldwide through fibre-optic cables.

Making the most of these opportunities and avoiding the risks requires some fresh policy thinking. Nothing is guaranteed and unless we work on understanding and addressing New Zealand’s productivity weakness, we may fail to make the most of the opportunities these new technologies could provide. The challenge is to continuously inform and improve policy in line with our growing understanding of the reasons for low productivity. Only then will productivity-enhancing innovations, such as those mentioned in the first paragraph above, become the basis for strong, inclusive and sustainable economic growth.




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