Improvements in competition policy and increased adoption of ICT will be key to improving productivity in New Zealand’s services sector.
In this May 2014 report, the New Zealand Productivity Commission investigates the reasons for poor productivity growth by OECD standards in the New Zealand services sector. The report explores the role of both competition policy and information and communications technology (ICT) in improving productivity growth in this sector in the future. The study concludes that competition policy could be enhanced to improve the efficiency of service sector firms and that encouragement should be given to firms to invest and adopt ICT that has been shown to generate productivity improvements in other countries.
The report notes that New Zealand data is consistent with international evidence that industries with intensive use of ICT are more productive than those without. In particular, it notes that the cost of producing ICT has fallen considerably while the quality has improved. This continual increase in computing power per dollar is believed to be the driver of this productivity growth. In light of these findings the Productivity Commission recommends increasing digital literacy, adoption of cloud technology and investment in ICT more generally to benefit from this “steam-engine” of the services sector.
The Productivity Commission emphasises three main areas to improve competition in the services sector. These are reducing barriers to trade; enhancing the capacity of consumers to drive competition; and sharpening competition law. The first area is of particular importance given the remoteness of New Zealand geographically. The Commission recommends implementing changes to reduce barriers to trans-Tasman trade as a first step in promoting competition. The report also hopes for improvements in price comparison websites and other elements related to customer searching and switching to increase consumer-driven competitive forces in the services sector. Finally, the study emphasises the possible role competition authorities could play in improving competitive dynamics in the market by conducting more market studies in poorly performing industries.