Rick Boven - Fresh Ideas for a Productive Economy

Notes for Fabians Seminar "Fresh Ideas for a Productive Economy"
July 2011 - Legislative Chamber, NZ Parliament

New Zealand’s Economic Strategy

Rick Boven
The New Zealand Institute

Presentation Slides

Rick Boven – New Zealand Institute

The New Zealand Institute’s approach to economic strategy is influenced by its purpose to improve long term outcomes for New Zealand and New Zealanders. The Institute is independent and non-partisan and its scope includes economic prosperity, social well-being, environment quality and environment productivity.

New Zealand got rich by exporting commodities to the high value UK market. Many farmers earning high incomes provided wealth for the small population. When the UK entered the EU the high incomes were no longer available so the economy was diversified and reformed.

Small countries export high value goods and services to earn high incomes. New Zealand’s export earnings remain dominated by agricultural commodities and tourism.

Both of these export industries have competitors who limit prices and therefore productivity, because productivity is measured in earnings per hour. They provide export volumes sufficient to limit the current account deficit but productivity is low, approximately equal to New Zealand’s low overall productivity.

When commodity prices rise and fall, the economy responds, reinforcing the historical belief that agricultural commodities are now and should be the source of future wealth. Agricultural efficiency will remain important as a source of foreign exchange and to provide low cost inputs for value added exports.

Now the world’s economy has grown large relative to the size of the environment so scarcities, climate change and ecosystem damage have become important threats to future incomes and well-being. One consequence is that prices for commodities are rising. Earnings from agriculture are likely to continue to increase. However increases sufficient to return New Zealand to high incomes would lead to huge disruption in the world because poor people would be unable to afford food.

New Zealand’s economic challenge is to pursue high quality economic growth, building technological capability and reducing risks by increasing resource use efficiency, protecting and restoring the environment and ensuring supply chain security.

To achieve this New Zealand should do what other small rich countries have done, which is grow exports of high value, differentiated goods and services. A worthwhile start has been made. Many of the institutions required to support an innovative economy have been established. The TIN100 largest technology based exporters account for $5 billion of exports each year, around 10% of total goods and services exports. There are over 1,500 non-commodity firms that either export or engage in research and development.

Many New Zealand industries have potential for further development including value-added foods, niche manufacturing, ICT, scientific and medical, and services. Clean-tech and greening the economy offer potential for high value export growth along with efficiency gains and improved environment outcomes.

The challenge now is to turn the rhetoric into action via policies that accelerate the right kinds of economic growth. The foundation for doing that must be to get past the pervasive complacency and provincialism that leads us to think we are doing well. Our best innovators, managers and marketers are very competent but the average performers fall well short of world class. Our commodity history leads us to take a transactional approach to business relationships and there are no centres of excellence for the full-time study of entrepreneurship and international marketing of new products and services.

The response is to downplay the challenge, highlight our progress and celebrate our successes. Despite government’s prioritisation of the economy there is no sense of mission mobilising the population. Both recognition of the risk of being consigned to the periphery of the world and strong leadership will be required to build support for change.

The small size of New Zealand, distance from markets and fragmented institutions combine to make it difficult to build international businesses. New Zealand does less to help its emerging exporters than competing countries in the mistaken belief that the market will overcome the obstacles to international business success despite institutional inadequacies and macroeconomic imbalances.

Policy responses are required to establish the conditions that will allow high value exporters to grow more rapidly. Specifically:

• Establish at-scale national institutes of excellence building competences in science, engineering, operations, marketing and entrepreneurship throughout New Zealand;
• Ensure tertiary institutions will produce the mix of skills we will need – science, engineering, technologists, international business and entrepreneurs;
• Incentivise investment in high value exports instead of in residential and rural assets;
• Ensure there are sufficient internationally connected capital providing institutions providing funds for growing high value exporters; and
• Assist small growing firms more by providing information, services and connections, and by growing clusters in New Zealand and colonies overseas.

The easy answer is to say we are doing all these and it is true that some small steps are being taken. But countries that make step changes in economic performance do not do so by taking small steps. They identify where their opportunities are and invest sufficient capital and effort to achieve rapid change. It is not enough to say we are making progress. So are our competitors.

The purpose of this event is to identify what should be done to improve the economy so I should add five broader economic priorities to support the five above that focus on accelerating growth of high value exports:

• Reduce the effect of exchange rate volatility on exporters’ earnings;
• Complete the infrastructure catch-up;
• Balance the government’s books and reduce the aggregate debt;
• Ensure more of our youth are well-prepared to contribute – use e-learning to keep young people engaged at school and ensure successful transitions from school to work; and
• Lift the productivity of domestic industries, releasing capital and talent to fuel export growth.

Rick Boven leads the New Zealand Institute. He was a strategic management consultant for more than 25 years and was the founding partner of the Boston Consulting Group in New Zealand. An Accredited Fellow of the Institute of Directors, Rick's recent directorships include ASB Bank, Sovereign Insurance, Wellington Drive Technologies, and Simtics. Rick has worked with leading companies in Australia, New Zealand and the U.S.A in a wide range of industries including financial services, industrial distribution, energy, telecommunications, information technology and on-line, transport, manufacturing, and agriculture. He has a Ph.D. in Environment Management from the University of Auckland, a Master of Business Administration from the Australian Graduate School of Management, and a Master of Arts (Psychology) from Victoria University of Wellington. Rick has university teaching experience in psychology, social work, research methodology, business strategy, and managing change. He has publications in social welfare, mathematical psychology, the educational sociology, strategic management, business ethics, and economic development.

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