Hon Jim Anderton
Deputy Prime Minister

Speech notes

New partners, new directions

Address to Economic Development Agency of New Zealand

9:00AM Friday, 10 March 20000

Centra Auckland Airport, Manukau City

Invited guests and delegates

Chairperson Chris Pickrill

EDANZ executive director Judith Young

Thank you for the opportunity to talk to you this morning about the economic development initiatives of the new Government.

This is an auspicious time for organisations involved in economic development.

Over recent years a void was created as central government withdrew from the provision of many essential services.

One of those was its role in assisting and providing for the economic developmnt of New Zealand.

In many parts of the country that role has ben picked up by local authorities as well as through private sector and community initiatives. Economic developmnt agencies have emerged and facilitated a wide range of programmes aimed at attracting new productive invstment and fostering local initiatives.

The resulting expertise at the local level in many cases far out-strips the abilities of central government, because it is an area that central government has not been actively involved in.

There are exciting programmes underway around the country.

For example I visited Dunedin recently. There, an economic development arm of the City Council is involved in attracting new investment, in the development of an industrial park, and in a partnership with the local university designed to promote industry clusters around innovative new businesses. There is much more it contributes.

In Southland, local authorities have undertaken a topoclimate study that has produced highly detailed maps revealing the best use for soil and land in the region. The resulting information makes a difference not only to local enterprise, the expertise developed could be applied in other areas of the country.

A number of economic development agencies have been working on business incubators to identify companies with good ideas and in need of investment capital. They bundle groups of such companies together as a package presented to potential investors.

Economic development agencies play an active role in partnership with central and local government as well as business and community organisations. Your role is to be a conduit between organisations involved in the economic development of New Zealand, providing and facilitating assistance and co-ordination.

Many EDAs are capable of playing a much wider role, and are making a positive contribution in fields as diverse as migration, commercialisation of technology and R&D, skills training and venture capital.

The missing ingredient in intiatives that have unfolded around New Zealand has been central government. There are some unique contributions that only central government can make.

When I announced the establishment of the Ministry of Economic Development and Industry New Zealand, I said the era of ‘hands-off’ for central government is over.

I make no apology for saying that a new era is beginning. It’s an era of genuine partnership.

The objective of the Government’s economic development programme is to provide increased opportunities for employment and rising incomes for all New Zealanders, no matter where they live.

I cannot emphasise enough the urgency of the need to do better.

Unemployment has remained far too high for far too long. There are more than two hundred thousand jobless in New Zealand. During the 1997 Superannuation referendum, the Treasury prepared economic forecasts which predicted that unemployment in New Zealand would remain at 6% of the workfordce or more for the next fifty years.

That is a social, economic and human catastrophe which we cannot allow to happen.

If we can reduce the level of unemployment, then we will not only make a vast difference to the lives of tens of thousands of people. It will also mean that the government doesn’t have to pay out two billion dollars a year in unemployment benefits…and we can spend that money on priorities such as health care and education.

New Zealanders’ incomes have been dropping compared to the incomes of other developed countries.

When the hands-off era began in 1984, New Zealand’s per capita income stood at 95% of the OECD average. By 1992 it was down to 81%. The figure rose to 87% in 1995 – still 8% behind the position at the beginning of the ‘hands-off’ era. It has slumped back ever since.

In other words, after fifteen years of hands off, we are much further behind other countries than we were when we started.

We’re not even doing as well as we used to do.

Our per capita growth rate in the decade from 1987 to 1997 was only a third of the growth achieved in either of the two previous decades: 1967-77 and 1977-87.

Yet those two decades were a time when things were so bad, we had to change – remember?

We haven’t paid our way in the world for twenty-seven consecutive years. Our current account deficit is now running at 8% of GDP. That is a very serious deficit on any measure.

At the same time, our economy has built up a huge overseas debt. It now tops a hundred billion dollars.

In other words, we owe more overseas than the entire economy produces in a year. We owe overseas the equivalent of about three and a half years worth of exports. Back when the free market policies began, in 1984, our overseas debt amounted to about a year and a half’s worth of exports – and that was when the debt was so bad that it was one of the major reasons the Muldoon Government lost office.

The servicing costs of that debt alone will be a very heavy cost to our nation's economy for a long time into the future. We talk a lot about the future cost of superannuation. But we talk very little about the future cost of past profligacy and spending more than we have earned overseas for twenty-seven consecutive years.

The free market policies of the last century failed. They didn’t produce growth fast enough or increase the incomes of New Zealanders as fast as incomes in other countries increased.

The countries that have been powering ahead have been the majority of EU countries and East Asia members of the OECD.

Successful economies like Ireland, Finland, Scotland and Taiwan have adopted pro-active economic development policies.

They have discovered that advantages are created, not endowed. The governments of those countries worked in partnership with the private sector. They identified opportunities that relied on the innovation and skills of their populations and invested in those. They broadened and deepened the industrial base of their economies. And they invested in weak regions.

These countries have recognised that a country needs strong regional economies if we are to have a strong national economy.

If we think of the New Zealand experience, local infrastructure in many parts of the country is under-utilised: schools, hospitals, banks, petrol stations and other services are closing. A cycle of decline sets in where people drift away from regional centres, which undermines the viability of remaining services – and the loss of those services drives even more people away. Meanwhile, in places such as Auckland, infrastructure is under stress. It’s a continuing struggle to keep pace with the rapid demands of the population migrating to the urban centre.

Successful economies recognise the need to encourage even development, rather than development that polarises around a couple of urban centres while the remainder withers.

Successful economies recognise that development in the regions and across the whole economy has to be based more and more dependent on skill and innovation, compared to natural, commodity-based advantage.

I’m suspicious when politicians bandy about phrases such as ‘the knowledge economy’. It’s a phrase that often seems to be used most frequently by politicians who, to put it bluntly, suffer from an economy of knowledge themselves.

Knowledge and innovation have always been critical – at least since the Industrial Revolution…Probably since the first cave dwellers harnessed fire and employed rudimentary tools.

Now, though, innovation, intellectual capacity and technological advance are becoming relatively more valuable. Minerals, crops and commodities are relatively less valuable.

Brains are in. Brawn is out.

That represents a challenge for an economy like ours, which has been based very heavily on exploitation of our vast natural resources.

We need to meet that challenge by transforming the economic base of New Zealand. We're going to invest in job-rich, high-tech, high-skill, high-value new industries.

There is no shortage of good ideas in New Zealand. Mail is stacked up in my office from people who have suggestions for ideas that could contribute to this country's economic development.

Now, of course some of these ideas will not be runners. But what if some of them are? Some of them are sure to include ideas that could contribute very significantly to New Zealand's industrial and economic development.

We only need a few successes. Companies like Tait Electronics. CWF Hamilton. Snowy Peak.

The Labour-Alliance coalition government has learnt from international ‘best practice’.

What New Zealand has lacked is a supportive Government and an economic development dimension to New Zealand's economic policy planning.

We intend to provide that dimension in partnership with local authorities and the private sector. We intend to utilise existing structures, such as the economic development agencies you represent, as well as opening new mechanisms to harness the creative potential and innovation of New Zealanders.

We have transformed the old Ministry of Commerce into a new Ministry of Economic Development. Its task will be to oversee and co-ordinate the Government’s partnership approach. It will be involved in all significant aspects of economic development policy design.

We will set up Industry New Zealand with a budget rising to $100 million a year. It will be the delivery arm, providing industry assistance through a range of flexible programmes tailored to individual and local needs.

Together with local agencies and the private sector, the Ministry and Industry New Zealand will identify resources and opportunities for economic development.

There have been many requests to spell out exactly which industries will be supported, and what level of support there will be. That is to mistake the partnership approach we are taking.

The answers to those questions will not be determined by me in my office in Wellington. The answers will come from partnership between communities, businesses, the scientific innovative sector and Industry New Zealand.

The range of partnership contributions the government can make is limited only by the imagination of those involved and the needs of the economy.

There will be venture capital available.

Development grants and loans for both new enterprises and to help fund business expansion will be available.

We want to provide better access to expert advice and professional expertise. Many potentially successful ventures fail only for a lack of marketing, managerial or technical expertise.

Assistance could take the form of bringing together young apprentices or trainees with businesses offering the opportunity to harness their skills.

The new approach will be flexible and dynamic. If it works well, we will do more of it. If it doesn’t work, we'll stop doing it.

There is no silver bullet. There is no blunt ‘one-size-fits-all’ theory which relies on a straightjacket of purity.

The form of co-operation will be tailored to the type of project and its circumstances.

Local initiatives aimed at boosting the performance of industries on the local, regional, national and international scene are not only welcome, they are vital.

No one has a monopoly on the good ideas required to enhance New Zealand's economic development. In principle, anyone should have access to the economic development process. Individuals, trade unions, community groups, private companies, Maori economic entities and local authorities can all play their part.

We need to combine well-judged public investment in education, infrastructure and science and technology with creative private sector investment focused not just on adopting technologies already available but on continuously creating new products, processes and designs.

There needs to be a high and relatively steady rate of new investment.

Investment raises incomes by directly increasing production and employment. It also embodies new technology. This introduces new products, raises outputs per person and improves the competitive position of firms and the country.

The sources of venture capital in New Zealand appear to be expanding. I’ve met a number of organisations recently that are demonstrating confidence in our economy by setting up new venture capital funds.

The traditional banks have not performed well in this area. They are risk averse. And the stock market is attracting pronounced criticism for its failures as both a reliable source of investment capital for new listings and as a source of steady returns to investors.

Industry New Zealand will provide capital for Small and Medium-sized Enterprises -- not only to establish new businesses but also to sustainably expand existing ones.

Higher incomes are crucially dependent on innovation.

Innovation is not just entrepreneurs thinking of new ways to make widgets. It is a systematic approach to technical progress, involving professionally conducted research and development in all sectors – services and infrastructure as well as manufacturing and agriculture.

The Government is working on its contribution to this area.

The tax treatment of R&D will be studied as part of the Government’s review of the entire tax system.

More immediately, Industry New Zealand will be able to enter R&D joint ventures, with an emphasis on new technology industries providing sustainable, skilled, well-paid jobs and high added-value exports.

I am supportive of much greater public sector funding for science and R&D through Crown Research Institutes and Universities. The Foundation for Research, Science and Technology has cautioned the Government that a large number of worthwhile projects are being refused funding each year.

Universities receive only 18% of public sector funding for R&D, compared with an OECD average of 27%, even though they are internationally recognised as hotbeds of innovation and new business formation.

By under-valuing university-based research, New Zealand is likely to be missing out on a valuable source of commercial applications and new business formation on the knowledge frontier.

Business incubators are a vital source of innovation which are gaining momentum and popularity. The Government will soon make an announcement about an incubator development programme.

Better jobs and higher incomes are crucially linked to the development of skills.

Innovation and investment cannot occur without a well-educated population, equipped with a high level of industry-specific training.

The overall number of science graduates New Zealand produces each year compares well with other OECD countries. But we have a very low number of scientists working in research and development compared to other developed countries: Two thirds as many as Australia, the US or Canada and only one third of the number in Japan.

We produce only half the number of engineers as the UK or Canada and a quarter of the number in Germany, France, Finland and Japan.

And although the number of engineering graduates has been increasing, much of the increase is made up of overseas students who leave New Zealand after qualifying. More alarmingly, the number of New Zealand students who leave New Zealand after graduating is increasing steadily.

It is hardly surprising that our best and brightest are leaving New Zealand when we are burdening them with enormous debts for their education.

If we want to retain our most skilled young New Zealanders, we have to bring down the cost of education.

Finally, the public sector must play its part in supplying investment to improve the productive capacity of the whole population.

This means the Government has to meet its obligation to invest in education, health care, infrastructure development, basic science and R&D.

The era of partnership will replace the ‘hands-off’ approach of the past. The new approach combines our educational, scientific and business skills in a strategic economic development programme. It won’t remove the operation of markets, but complement and improve their effectiveness.

Policies to create advantages for New Zealand must be innovative and skill-based. Created advantage arises from a process of continuous innovation. It is driven by the practical application of research and skills in new ways to produce goods and services people want to buy.

Successful economic development feeds on itself. It generates increasing returns to scale as it unfolds and as the level of technical capability rises.

The development of new skills and techniques, investment in technology and the involvement of the Government to provide investment, education, training and infrastructure are all crucial to success.

These features are the outcome of a vibrant partnership between the Government, private businesses and local communities.

There is no such word as 'can't.' New Zealanders are innovative. I believe we have the most creative society in the world.

Our economic development programme is aimed at harnessing that creativity in the interest of lifting the well-being of New Zealanders.

It's up to us to shape and develop our nation's future as well as our own, and I am looking forward to hearing of your creative ideas, plans and proposals.

ENDS

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