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Known Policy Challenges Must Be Tackled Head-on To Strengthen Economic Resilience

Published: Tue 20 Feb 2024 11:46 AM
The New Zealand Productivity Commission Te Kōmihana Whai Hua o Aotearoa (the Commission) has released its report on the Improving Economic Resilience inquiry.
The inquiry found clear and strong connections between the challenges of building resilience, fostering innovation, and raising productivity. Further, an increasingly uncertain and volatile economic and geopolitical world reinforces the need to tackle these challenges.
In its report, the Commission focused on two important questions:
- How can New Zealand prepare for a disruption where the nature, timing and impacts are unknown?
- How severe could the impacts of a potential disruption on New Zealand be?
Modelling work undertaken as part of the inquiry gives valuable insights about the size and nature of impacts on New Zealand from three representative disruptions:
- a trade war in Asia
- a new technology making our dairy industry largely obsolete
- a massive rise in the price of oil.
Such disruptions could see between 24,000 and 112,000 jobs affected. Research on labour market outcomes for workers who have been involuntarily laid off indicates that a third permanently exit the labour force. Post-layoff earnings are substantially below pre-layoff earnings, even for workers who are re-employed. Further, earnings for workers can take almost three years to recover to pre-layoff levels.
These results not only indicate the quantum of dislocation from such disruptions, but their disparate impact on industries, regions, and communities. A critical insight from this modelling is the importance of the mobility of productive resources to minimise negative impacts and maximise growth opportunities. Investment to foster the mobility of people and other productive resources is required to improve economic resilience.
The Commission recommends the Government build the capability for firms and industries to identify trade exposures and undertake risk analysis in their supply chains through proactive sharing of trade data and information. It also recommends coordination of proactive investments in economic resilience by strengthening networks between industry and government to align investment intentions. This includes:
- Leveraging focused innovation policy to support firms to export high-value products at scale, enabling New Zealand businesses to diversify export markets and increase resilience towards trade shocks.
- Sharpening the focus on economic resilience in existing industry-facing growth and innovation funds.
- Developing a strategic focus on economic resilience in the longer-term by building strong institutions, effective leadership, and good relationships among government bodies, industry organisations and the community.
Productivity Commission Chair, Dr Ganesh Nana noted that the Commission’s recommendations provide direction to strengthen institutions and focus on the long-term.
"These recommendations aim to improve resilience, encourage innovation, and address the productivity wero that remains for all to tackle.
"The future may be uncertain, but what is certain is there will be disruptions," says Dr Nana.
Resilience, innovation, and productivity are long-term objectives that are closely connected. They require strong and sustained commitment and investments from successive governments, industries, businesses, communities, and institutions.
Building a more resilient economy will allow New Zealand to be better equipped to absorb the impacts of supply chain disruptions, while supporting firms and communities to better tackle cross-cutting economic challenges including productivity and innovation.
"Good governance and proactive investments to improve resilience and foster innovation can help equip New Zealanders to face the challenges that lie ahead.
"These investments are necessary to lift productivity and enhance the wellbeing of current and future generations of all in Aotearoa," says Dr Nana.
Notes for editor
Economic resilience is the capacity of industries and associated communities to anticipate, prepare, absorb, recover, and learn from supply chain disruptions.
The 53rd Government directed the New Zealand Productivity Commission to investigate the policies and interventions that can enhance the resilience of Aotearoa New Zealand’s economy to persistent supply chain disruptions. The scope of the inquiry focuses on medium-term economic adaptation to persistent disruptions. Focusing on short-term critical supplies and long-term infrastructure issues was ruled out of scope by the terms of reference.
For more information and to see the full report, go to Productivity Commission | Improving Economic Resilience

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