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Productivity Commission on the trail of frontier firms

Sarah Putt, Contributor. 14 January 2020, 4:50 pm

A new year and another inquiry being undertaken by the Productivity Commission, this time into Frontier Firms. What are they exactly, and why should we care?

In announcing the inquiry Finance Minister of Grant Robertson describes Frontier Firms as "the most productive firms in the domestic economy within their own industry."

"These firms are important as they diffuse new technologies and business practices into the wider New Zealand economy. While we do have some world-leading firms, we need them to lift performance and productivity to create a pathway for more firms to succeed on the world stage," he says.

Robertson says the Productivity Commission in 2016 suggested that New Zealand's firms are, on average, about one-third less productive than international firms in the same industry.

In its statement announcing the inquiry, the Commission says that the performance of the nation's top companies is vital to overall economic productivity.

"New Zealand is not a typical OECD economy. There are many factors behind our poor productivity performance", says Inquiry Director Steven Bailey.

"The Commission looks forward to unlocking the potential of our most productive firms versus their international counterparts, identifying opportunities to build comparative advantage and improve macro-productivity growth."

The Commission will also investigate "how innovations of knowledge and technology can diffuse more effectively from frontier to other firms in New Zealand."

The new inquiry will build on previous research, notably 'Technological Change and the Future of Work', which proposed four scenarios that ranged from a positive future in which new tech replaces more jobs than it displaces, to the rather bleakly titled 'Stagnation'.

Part of the scope of the inquiry will be to "establish a coherent and measurable classification of what constitutes a frontier firm, and what the distribution of New Zealand firms looks like behind the productivity frontier."

A quick Google search produced an OECD paper from 2015 on frontier firms, which provides a definition of sorts in the abstract: "Firms at the global productivity frontier - defined as the most productive firms in each two-digit (or major) industry across 23 countries - are typically larger, more profitable, younger and more likely to patent and be part of a multinational group than other firms."

The Commission will begin this inquiry with the publication of an issues paper outlining its proposed approach, the context for the inquiry and a list of key questions to be addressed. It will also seek submissions from all interested parties and consult broadly to help inform and ground its analysis. Its final report to the Government is due by 31 March 2021.


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