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Jim Anderton Speech The Partnership Economy

10 August 2000 Speech Notes

Embargoed until 3:00PM Thursday, 10 August

Jim Anderton Speech The Partnership Economy

Address to the Economist Roundtable Conference

Park Royal Hotel, Wellington

3:00PM Thursday, 10 August 2000

In the time available today I want to try to cover three basic areas.

The first is to outline the reasons that the Government's new partnership approach to economic development is needed.

Second, I want to explain some of the specific policies we are putting in place.

Finally, I want to look at some of the issues in our economy that we need to deal with to promote economic development, and suggest some of the options for making a difference.

When I first launched our economic partnership policy in Opposition, almost exactly a year ago, I was called a 'dinosaur.' In fact, that is the exact word used on television by Alex Sundakov.

Economists like Alex Sundakov and Tony Alexander perform for the media more like politicians than real economists. Mr Sundakov has this year become a media commentator. It is to him that some of the media rush whenever they want someone who can be relied upon to denounce the economy or the Government's economic policies.

Yet the idea of a partnership between central and local government and the business community is mainstream commonsense in most successful economies.

If we want to make our economy as successful as those of our trading partners, then we need to transform the New Zealand economy. We need more jobs and higher incomes for New Zealanders. We have to develop innovative industries and realise the full econom ic potential of our regions. There can't be a strong national economy if the regional economies of New Zealand are weak.

It has been 25 years since we had a dimension in politics at government level that addressed developmental economics. That took the issues of regional and industrial development seriously.

For the last decade, regions and businesses have been working on strategies and plans for development. Central Government has been the missing player.

The time has come to judge the hands-off policies that Alex Sundakov and the now Opposition parties wish to take us back to.

The emphatic evidence is that the policies of hands-off have failed. I'm a pragmatist. If they had worked I would have admitted it. I would have said I was wrong. But they haven't worked.

In 1984, New Zealand's per capita income stood at 95% of the OECD average. By 1992 it was down to 80.6% - a relative fall of 15%. 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, our average incomes compared to other developed countries are falling.

Our GNP per capita growth is not as good as it used to be. Per capita growth from 1987 to 1997 was only a third of the growth achieved 1967-77 and 1977-87. And that was the period when things were so bad, we had to change – remember?

The countries that have been powering ahead have been the majority of EU countries and East Asia members of the OECD. Since 1970, the per capita income of EU countries has increased from 91% of the OECD average to 95%. Japan's has increased from 86% to 115% and Korea's from 20% to 67%.

The current account deficit alone should alarm anyone who examines the New Zealand economy. We haven't paid our way in the world for twenty-seven consecutive years. At around 8% of GDP this year, the current account deficit is piling up a very substantial overseas debt. The servicing costs of that debt alone will be a very heavy charge on our nation's economy for a long time into the future.

We talk a lot about the future cost of superannuation but very little about the future cost of past profligacy and spending more than we have earned overseas for twenty-seven consecutive years.

We think of ourselves as a great trading nation. When it comes to commodity exports, it’s true that we’re good at it. But close scrutiny of our export base shows how precarious our position is.

New Zealand has a very narrow export base. Only 4% of our companies are exporting: That’s only 8500 businesses in the whole of New Zealand. 82% of merchandise exporters sell less than half a million dollars of merchandise products a year overseas. 95% of our exporters sell less than $5 million a year worth of goods and services overseas. Just 127 companies account for 73% of our total merchandise exports. Thirty companies earn half of our foreign exchange.

What this adds up to is a very narrow, and shallow, export base. New Zealand is highly dependent on a relatively small number of large exporters. We need to grow our small and medium exporters into larger companies. More small and medium companies need to become successful exporters.

New Zealand is the lowest exporter of high-tech products in the OECD. This is a key sector for most other developed countries, large and small. Yet, according to a study by the Association of Crown Research Institutes, our current levels of high-technology exports are similar to those of other developed countries twenty-five years ago!

Countries like Ireland, the UK, and the US, have all increased their proportion of sophisticated exports.

As the CRIs put it, "Our reliance on basic commodity exports to satisfy our demand for sophisticated imports has constrained growth and led to our balance of payments difficulties. Even worse, instead of using sophisticated technology to produce sophisticated exports, we use it to produce cheap commodities. This is not a sustainable strategy."

It is not a matter of saying that our areas of competitive advantage like meat, dairy and wool have to be written off. They have to be matched with innovative technologies. For example, meat has to be packaged in a way that excites consumers and handled in hi-tech works that can keep the product fresh for a hundred days.

The era of hands-off did not generate structural change fast enough. It hasn't significantly improved New Zealand's trade position or our relative international income level. It hasn't created the jobs or the incomes we need. It has stripped some of our regions of their viability.

If hands-off didn't work, what will?

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

It goes much too far to say that the Labour-Alliance coalition Government is copying those approaches. Scotland, for example, spends $1600 million a year through Scottish Enterprise on industry and regional development initiatives. Industry New Zealand, with an annual budget growing to a hundred million dollars in the third year is quite puny by comparison.

But we're making a start.

And the small size of our industry and regional development programmes means that the emphasis has to be on using Government commitment as a catalyst for the private sector to lever off.

It has to be a partnership with communities and industry to transform the economy. We're taking a ground-up approach. It is designed to unlock the potential of regions.

In the Tairawhiti region (on the East Coast of the North Island between Gisborne and Wairoa) we have created a Development Taskforce which I am chairing. For example we have a project to improve access to information technology on the East Coast. We have 2-thousand computers that are surplus to the Government's requirements in Wellington in departments like Work and Income. We are distributing them to schools and community groups on the East Coast. The computers will provide opportunities for students to be trained in computer use, maintenance and installation.

This scheme is an example of how we are looking to solve problems across the entire Government service spectrum. Various Government departments had surplus computers and we have found a great way to utilise them. Businesses could do the same (and in some cases, they are).

Not only that, but the needs and solutions are coming up from the community, rather than being imposed from the top-down. That is why we have taken a TaskForce approach, involving the community itself in identifying what needs to be done by Government – and by the community itself – to create sustainable employment and economic development.

This approach is leading to advances on a number of fronts. The Government is engaged with the forestry industry. A forestry report to the Tairawhiti TaskForce indicated that 20-thousand jobs could be available in that region in the forestry industry over the next ten years. That will require a commitment in skills along with infrastructure such as roading and ports.

Central Government and local leaders are working together with the private sector to bring economic development plans to fruition.

We are focusing on Tairawhiti first. Other regions will follow.

Industry New Zealand itself is not yet even established formally in law. The Bill establishing it should be passed early next week, depending on the progress of the Employment relations Bill through Parliament this week. Yet the Government already has significant programmes in place aimed at three basic areas:

First, in assisting innovative new companies and supporting them through their initial growth phase.

Second, bringing about the conditions to ensure small companies grow and become larger.

Finally, supporting major projects in regions and major industry investment.

In the start-up phase, companies need capital, expert advice, access to information, and a regulatory environment that doesn’t load unreasonable costs on small business.

The Government is providing an Investment Ready Scheme designed to give innovative small businesses and entrepreneurs a better chance of raising finance. It provides training and deal brokering services. An “angel investors website” will draw on the emerging venture capital market and facilitate the matching of investors and businesses.

An Enterprise Awards scheme will provide 250 of our most innovative small businesses and entrepreneurs with up to $10,000 to test and develop concepts or buy in specialist expertise.

In addition, business incubators -- which nurture small businesses to the next stage of their development – are being supported.

Many companies either collapse or fail to grow once they are established.

There can be many reasons, including management skills and attitudes, the need for capital or resources, or a combination of these.

Industry New Zealand will maintain a group of industry specialists who are able to sit down with the companies and work through the options and opportunities for growth.

These people will be able to put companies in touch with the skills and resources they need.

For major investments, Industry New Zealand will have a Strategic Investment Service to work with companies, facilitating investment and helping to remove roadblocks to their growth and location in New Zealand.

The Government sometimes needs to get rid of the roadblocks that deter businesses from staying here and flourishing. Work is under way on reducing compliance costs – the costs that meeting the Government’s requirements places on business.

At the regional level a Regional Partnerships Programme has been put in place to fund the development of strategic planning. The Government will provide assistance – both financial and with specialist expertise -- through Industry New Zealand to identify and develop the capacity to make the most of the economic development opportunities in a particular region.

Once those opportunities have been identified, and priorities are agreed through a community-led process, then Government funding will be available to implement regional partnership programmes.

I want to stress that there are more Industry New Zealand programmes to come.

This is just the beginning.

As I have noted, the Industry New Zealand Bill has not even been passed through parliament yet. It doesn't even have a chief executive. There will, however, be new programmes, and exciting new partnerships delivered.

I believe we are on our way to creating a Partnership Economy.

We formerly referred to the Free Market Economy at the end of last century. The test is this: Will the Opposition go into the next election opposing all of this? Vowing to destroy it?

I believe they will find it politically unsustainable to go into the election declaring their opposition to a government/community/business partnership to promote economic, industry and regional development, as they did at the last election.

In fact, we are more or less getting admissions of that already from the likes of Bill English and even Max Bradford. When John Luxton goes down to Southland and tells them how outrageous it is that the Government is funding Topoclimate, I can feel Bill English wincing.

The small steps we have taken towards a Partnership Economy will not solve New Zealand's problems on their own. They will be a start. But if we want to do better than we have done for the last couple of decades, then we need to take a whole-of-government approach.

For example, we don't produce enough scientists and engineers. We don't have enough technicians. These are the people and the skills needed if the economy is going to develop a more sophisticated, broader and deeper export base.

Yet our education system imposes a lifetime burden of debt on young people for undertaking the tertiary study the country needs. We are driving them offshore. In the not too distant future, the student debt will exceed the entire national debt. Yet the student debt is shown on the Government books as an asset. It is a dubious asset at best. A considerable sum will never be repaid and it is having a demoralising effect on many of our best and brightest young New Zealanders. It's odd – but I don't remember economists like Alex Sundakov warning the country about this dodgy accounting.

So the cost of education has to come down. Not in the interests of students – but in the interests of the nation as a whole.

If we want rapid economic development, we have to get the competitive environment right.

Already I've been visited in my office by a telecommunications corporate intending to make a very significant investment in this country. They wanted to make sure this Government was serious about making the telecommunications market competitive. Because they weren't going to waste their money here if the market was going to be run the way it has been for the past decade, with an entrenched natural monopoly for Telecom.

There are other anti-competitive roadblocks on the highway to economic development.

I'm worried about the behaviour of the petrol companies for example. I'm cynical about the most recent round of petrol price rises.

BP led the current round, for example and yet BP Amoco the next day announced its quarterly profits – of 8 billion New Zealand dollars. OK, it's a big company; it's going to be capable of making very big profits. But in announcing what it described as a record profit, it said that the rising profit was partly due to much better margins on petrol refining. Yet higher refining costs are the reason the local BP arm gave for increasing pump prices.

Whenever I have raised these kinds of issues in the past, it has been described as anti-business.

It isn't. It is a matter of advocating for the business environment that will suit the entire economy.

Those businesses that benefit from an anti-competitive framework are doing so at the expense of other businesses who are their potential competitors – and also at the expense of those businesses who would benefit when consumers have more money in their pocket from the lower prices produced by competition.

I want to finish by saying I am very optimistic about New Zealand.

I've been out in the regions virtually every week this year.

I am amazed at the positive attitude of people who are committed to New Zealand – particularly regional New Zealand.

It is the people who have stayed in the regions that have helped to build the flavour and the spirit of their areas.

That commitment is what glues our society together

It is not just the captains of industry talking about hundreds of millions of dollars of investment that is important.

It is the people on the ground.

That is what New Zealand communities are about.

People live in New Zealand and its regions because they want to be here.

They want to be able to continue to live here, get a job here, bring up their kids and allow their children to get jobs here. Satisfying, well-paid jobs. They want a decent future for themselves, their children and their grandchildren. And why not?

From one end of NZ to the other there are people who are passionate about what they are doing and what they want to do for themselves, their businesses and communities.

That is the solid foundation from which we can build.

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