SMELLIE SNIFFS THE BREEZE - Haier purchase rules

SMELLIE SNIFFS THE BREEZE - The new rules of Haier purchase

By Pattrick Smellie

So you thought the most important thing this week in the economy was the Budget. I beg to differ.

The most important thing was the purchase by the Chinese whiteware manufacturing giant, Haier, of 20% of Fisher and Paykel Appliances. If you want a small but significant example of what's happening to our economy and to the place of the West in the world, look no further than that transaction.

Global wealth is shifting from the West to the East. The global economic meltdown is rapidly accelerating that process. When you look at the deal available to Fisher and Paykel through Haier, it is very difficult not to see it as good for New Zealand.

Haier has huge scale. It is a winner in the cut-throat world of Chinese manufacturing. What Haier needs is the kind of smart innovation, design ability, creative thinking and general overall niceness that F & P have to offer.

We have to hope that is the case anyway. It is the only way that New Zealand will keep metal bashing jobs going here and it is all about driving up the country's very low rates of productivity growth.

For me, that was the missing link in the Budget. The New Zealand Institute captured the sentiment when it said the Budget was "as inadequate as a lone chopstick."

"Like just one chopstick without its mate, avoiding a ratings downgrade was necessary (and welcomed) but insufficient." the Institute's researcher Chye-Ching Huang said. "To fuel New Zealand's economic growth and make it stronger coming out of the recession than before, the Budget also needed to take bold measures to address New Zealand's poor growth performance."

"Disappointingly, the flagship 'new investments' announced in the Budget - such as more money for roads and prisons, and the home insultation scheme - will do little to attract to New Zealand the mobile businesses and talent that will be seeking new engines of growth when the world economy starts to recover."

The Institute believes this country could leapfrog ahead of others by using the global crash as a chance to catch up and overtake because of the profound disruptions created by the collapse of the old world financial order.

That sounds a bit hi-falutin' and it is not the sort of thing that New Zealand has ever been terribly good at. But the Institute may have a point.

One of the casualties of the current world environment is the big corporate structure. In exactly the same way as the internet is dismantling traditional media formats and smearing ever larger audiences across ever cheaper platforms, the creative and innovative potential of digital technology is freeing people from the tyranny of the big corporation.

When the best people start realising they don't have to work inside a stultifying bureaucracy, ruled by meetings and pecking orders, they leave and start doing their own thing.

Increasingly, a brain, a laptop and a decent internet connection are all you need to take on the mighty cost structures of old school big business. That trend has enormous implications not only for how people work, but has the potential also to up-end how much people earn.

The key observation is that this style of working and wealth creation is based on small teams of like-minded collaborators rather than complex corporate processes.

This is very good news for New Zealand, because we are generally pretty crap at complex corporate processes, while being rather good at thinking stuff up. In a post credit crunch world where creativity, nimbleness and trust are highly valued, and a lot of old style asset - heavy industries have been leveled, there is no reason to think New Zealand might not be rather well placed.

Unfortunately, there is not a lot in this Budget to make any of that happen, although investment in a national broadband network will help. That's why the Budget projection assumptions for productivity growth look so weak.

The sharp jump in unemployment gives New Zealand a short productivity boost over this year and next year, but that is only because fewer people are doing the same amount of work for a while.

Over the long haul, the Treasury assumes annual productivity growth of just 1.5% a year, lower even than the 1.8% annual average of the last decade or so, and that was nothing to write home about either.

Meanwhile, the stitch up of the week has to be the perfectly timed visit by the team from the international credit rating agency Standard & Poors. Hardly was the Budget speech out of Bill English's mouth than S&P was confirming our AA+ rating and throwing in an upgrade from ‘negative’ to ‘stable’ outlook.

So of the two things that the Budget had to do, the debt strategy was a raging success.

But the Budget's other task, putting New Zealand on the road to recovery, remains a work in progress. New much tighter spending limits in future make the 2010 and 2011 Budgets inevitably austere. That puts a lot of freight on non fiscal regulatory reforms such as those occuring in the resource management and electricity sectors to deliver real benefits to the economy.

To assume that that would be enough is rather heroic. The question remains whether this government really does have any fresh ideas to lift New Zealand's game.

(BusinessWire)

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