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Benchmarking NZ - Pete Hodgson Speech

5.45pm Thursday, 12 July 2001 Hon Pete Hodgson Speech Notes

[Address at the launch of at launch of NZ Institute of Economic Research publication Global player? - Benchmarking New Zealand's competitive upgrade ¡X Kimble Bent's, Parkroyal, Wellington]

Thank you for the opportunity to speak.

I too was in the Wellington Town Hall on 10 November 1998 to hear Michael Porter speak. What impressed me even more than his address was that the place was almost full.

I think people were there because they wanted to be part of the next instalment of the debate about New Zealand’s economic and social future.

That debate is still with us today. It is quickening and it is a more mainstream debate than it was only two and a half years ago. Many, many New Zealanders are engaged, perhaps optimistically, perhaps anxiously, in thinking through what our future might look like.

Back at the end of 1998 the environment was a little different to today. The period of restructuring was drawing to a close. So was the period of privatisation. And the fixation on cost cutting.

We had done that. Official debt was down. Inflation was low. The tax base was broad. The deregulation was complete. We at last knew how long Roger Douglas’s medium term was.

The question was: Now what? To put it more cynically, the mood was: “Is this as good as it gets?”.

Two and a half years ago the Government of the day was in something of a cul-de-sac as it sought to redefine itself. Elsewhere the language of the Third Way was in the ascendancy, along with new ideas about the stakeholder society, the role of a modern government, an innovative economy, the death of distance and so on. That was the context of the day that Porter filled the Town Hall.

Porter was pretty straightforward. "You have," he said, "got rid of most of the bad things and not done much about installing the good things".

"GDP per capita is not growing much, nor is productivity, nor is export growth, nor innovation.

"There have been dramatic changes, but not enough traction. Pay attention to human resources, your inter-connectedness, the supply of equity capital and the like. Your innovation record demands that.

"While you’re at it, deal to those producer boards, please pay much more attention to your agenda for cluster development, and please see economic and social policy as two sides of the same coin.

"Remember, above all else, that it’s not what you do, it’s how you do it. Productivity is the key."

I'm paraphrasing Porter, of course. And if I was to try to do that in a single phrase it would be something like "Not bad, but must do better".

Ten authors volunteered to write on aspects of the New Zealand economy since Porter’s earlier visit in 1991. The results are what we're looking at tonight.

Here’s a criticism. If this debate on New Zealand’s social and economic future is to progress, then contributions such as these ten quality, insightful authors have made need to see the light of day in a timely manner.

There will be good reason for the delay, I am sure. But it is nonetheless a pity that such expert commentary on such an important and fast moving debate should be made available, in this form, only now.

John Yeabsley has I think made a real success of pulling together the threads of ten individual contributions. These contributions do not knit together into one seamless whole. Nor were they intended to. But they do have a theme and it is how well do our small medium and large enterprises fare, and why.

What has changed between 1991 and 1998 and what hasn’t?

What about the role of technology, human resources or regulation? What role should and shouldn’t Government play and how have Governments fulfilled that role? How good are our managers, our industry training system, our immigration policy settings?

Yeabsley seeks to draw those questions and answers succinctly and concludes his opening chapter with a page of challenges.

Please excuse me if I dwell on the present and future from now on. Two and a half years is a long time. Our biggest corporate is no more and a bigger one has taken its place. Venture capital and incubators are now becoming part of our mainstream lexicon and so are clusters. We’ve defended the America’s Cup, and farmers are doing well again, for now.

There has also been a change of Government and a change of direction in how we approach economic development.

I don't intend to extol these changes, but merely list some of the key ones ¡X whether they are Government-initiated or not. In no particular order, I would say a new Porter analysis would have to take account of :

- The establishment of Industry New Zealand and its plethora of business assistance programmes;

- The new foreign direct investment initiatives that are producing growth and ¡X one hopes ¡X improved managerial skills in areas such as light alloys, yachts and wireless application protocols;

- The R&D taxation changes and increased public R&D funding, especially in support of private sector R&D;

- The incubator support programme;

- E-commerce, e-government, e-exporting initiatives;

- Centres of research excellence;

- TEAC and tertiary sector reform;

- The Venture Investment Fund we're setting up to accelerate seed and start-up capital formation;

- The Takeovers Code and amendments to the Commerce Act;

- Large producer board changes and extinctions;

- The identification and nurturing of some clusters;

- Initiatives in adult literacy, industry training and modern apprenticeships;

- The increased attention to regional economic development strategies;

- Business-friendly changes to immigration policy; and

- A substantial effort to reduce compliance costs, especially for small businesses.

That will do for a list. I had a longer one but that's long enough. I constructed it to remind us that a lot is going on. All of the changes listed have occurred in the last 12-14 months.

No one I know of in Government, or in the private sector, would declare that the job is done.

On the contrary, the debate that produced a near-full Wellington Town Hall two and a half years ago just continues to widen.

The Knowledge Wave Conference early next month is an important manifestation of that. Porter makes his next, fleeting, visit to New Zealand as one of an impressive list of local and overseas participants. Immediately before that the Science and Innovation Advisory Council will release its draft innovation strategy for examination.

Certainly I expect no one at that conference will countenance any slowing in pace. There is a growing sense of anxiety about our long term future. Importantly this is closely coupled to a growing sense of excitement.

The New Zealand economy is strengthening and becoming more innovative. Statistics are always tricky but I went to gently lob one of Porter’s back to him.

In the monograph Porter shows that New Zealand is near the bottom of the list of US registered patents, between 1972-96. True, if you don't allow for country size.

But it's equally true that NZ resident patent applications per 10,000 population have been close to the Nordic country average through this period, and not far below the OECD average.

Better still, between 1990 and 1999, the latest data I have, New Zealand posted the sixth largest percentage increase in US patent office registrations in the world. In ICT patents between 1992 and 1999 New Zealand's growth rate was second only to Finland's.

So when you take account of country size we are not doing too badly, and we

are on the way up.

At the heart of this Government is the idea of transformation. The Prime Minister’s opening address to Parliament in February had that idea at its core.

Moreover we do not hold that Government has no business in business. We see a role for modern Government as a leader, facilitator, broker, partner and occasionally funder.

Porter said in 1998 that “Today a new stage is necessary. New Zealand needs to sketch a future that is not about fear and pressure, but about excitement and confidence”.

Yeabsley, in his pithy summation in Chapter 1 of this monograph says “The government needs to move beyond the neo-liberal economic policy to create a climate conducive to economic growth. Indeed the government must be proactive and adopt a definite role in the economy."

That strikes me as a good time to declare that a consensus might be forming and that I should therefore stop.

My thanks to those who have volunteered their time and expertise to make this monograph possible. It makes a very useful contribution to the debate on our future. More debate, and more contribution, are eagerly awaited.


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