By J. D. Gould, Lecturer in Economics

The Monetary and Economic Council is the latest authority to warn New Zealanders of the slow rate of growth of their country's economy. During the 1950's, our output of goods and services is estimated to have risen by between 3 and 4 per cent. per annum; allowing for the growth of the labour force, this represents an increase in productivity (output per head of the labour force) of about 1.7% per annum.

Note the words "is estimated"; the measurement of the output of an economy is, statistically and conceptually, a hazardous and even dubious enterprise. (What is the output, for example, of a University lecturer? How does one measure changes in his output?) Still, allowing for the possibility that the statistical distort reality to some extent, it is undoubtedly true that productivity in New Zealand has not grown as rapidly as in many other countries. 1.7% per annum is less than one third of the rate of growth, for example, of West Germany and of Japan, fastest-growing of the major economies this side of the Iron Curtain.

Fundamentally, of course, it is productivity which determines the standard of living which a country can enjoy. There are, however, other factors which, particularly in the short run, can affect the issue. In New Zealand's case, two circumstances have combined to reduce the rise in the standard of living below the 1.7% annual increase which the productivity index tells us we might have expected to enjoy.

In the first place, the post-war rise in the birth rate, combined with the success of medical science in prolonging the expectation of life, has increased relatively the numbers of the population in the under-15 and over-64 age groups. Thus the proportion of the population in the age group 15-64, from which the great bulk of the labour force is drawn, has declined from 67.5% of the total in 1939 to 58.8% in 1959. Because of this change in age-structure, the labour force has latterly grown more slowly than total population, and the volume of goods and services available per head of the population has therefore not risen as quickly as the volume produced per head of the labour force.

Secondly, despite some sharp fluctuations, the "terms of trade (ratio of export prices to import prices) have on the whole moved against New Zealand since the early 1950's; and this has meant that part of the increase in our production has been siphoned off; so to speak, to compensate for the declining purchasing power of our exports in terms of imports. During the ten years ending March 31, 1959, for example, goods and services produced in New Zealand rose by 39%; but allowing for the deteriorating terms of trade, goods and services available for consumption and investment rose only by 30%.