NZ Association of Executives - Michael Cullen Spch
Embargoed to 8:00 am, Tuesday 13 November 2001
Address to New Zealand Society of Association of Executives
The Wellesley Club, 2-8 Maginnity Street, Wellington
You have asked me to give you an update on the outlook for the economy. I am conscious that you tend to manage not-for-profit organisations, and your interests in the economic outlook may be different from those of commercially motivated chief executives.
The difference in interests may, however, be more a matter of degree than a matter of substance. Increasingly, all organisations, be they for-profit or not-for-profit, have to trade profitably.
There may be differences in primary focus, and degree to which organisations seek surpluses, but at the end of the day financial solvency is a necessary condition for continued operations.
Form the other end of the spectrum, businesses are increasingly starting to accept that if they are only for profit, they start to run into difficulties. Awareness of responsibilities to stakeholders is growing, not out of any new sense of altruism or civic duty, but out of commercial necessity. The ethical dimension of business activity has emerged as a constraint. Just as you need to trade profitably in order to pursue what we could broadly term ethical objectives, they need to trade ethically in order to pursue profit objectives.
The convergence is slow. I suspect that awareness of the imperative to trade profitably has dawned earlier in the not-for-profit sector that the imperative to trade ethically has dawned in the for-profit sector. Triple bottom line reporting and ethical investment have developed slowly, but, I suspect, are developing inexorably.
For now, what this means that your interests in the economic outlook are not that different from the interests of the business community.
There is a difference in emphasis. You depend more on the outlook for domestic spending, rather than for investment flows or exporting. Domestic spending, on the other hand, is itself influenced by the strength of investment and exporting. We are all in this together.
Let me turn now to the more general matter of the broader economic outlook.
This government has taken a broader view of economic management. We do not see it as a technical exercise. For a start, sound economic policy requires that the public as a whole has trust and confidence in government. Secondly, it must gain wider community acceptance, and that in turn means that it must be seen to be fair. Not only must the government govern for all New Zealanders, but the economy has to perform for all New Zealanders.
Community acceptance will be enhanced if there is a clear vision that sets out where the government intends to lead economic, social and environmental development.
We have delivered on our election pledge card promises in order to help restore trust in the government and to set the scene for developing our longer term vision.
Since we took office we have proved that MMP and coalition politics can deliver smooth, steady government.
In the past year the government has done a lot of listening. Through forums and discussions with business, local government, Maori, the community sectors, education and research interests and the labour movement,
I have become increasingly convinced that a shared vision for our nation is the way forward to build greater prosperity and growth for us all.
For I strongly believe that in building a stronger economy and better society, success for some must not be bought at the expense of failure for others.
The government has a clear idea of where we want to go:
„h New Zealand needs an economy that is less vulnerable to the vagaries and the long term decline of commodity-based production and trade;
„h we want to move to a more sophisticated trade in goods and services;
„h we want to use our brains, talent and institutional structures to turn New Zealand¡¦s great ideas into great business ventures;
„h we want to reward our people with well paid and interesting work; and
„h we want to see New Zealand back in the top half of the OECD economic indicators, as we already are on most social indicators.
We see the New Zealand of the future as an export-oriented economy with more global companies operating from a New Zealand base and developing strong clusters around them.
We have made a great deal of progress in putting in place the building blocks for a 21st century economy. We are co-ordinating policies relating to innovation, talent and skills, investment and business growth, excellence in education, and science, research and development.
We know where we were going and how to get there. The stage has been set. New Zealand¡¦s economy was performing far better than was anticipated, across a range of indicators, and ¡V in the immortal words of the Reserve Bank ¡V favourably out of sync with the rest of the world.
And then, without warning, the world changed.
With the attacks against America and the war against terrorism, in the short term, at least, the unknown became the unknowable.
New Zealanders were shocked and horrified by the events.
New Zealand immediately pledged support to the United States. We made clear our commitment to be part of a global coalition directed to combating terrorism in all its various manifestations.
But what of the economic implications?
Even prior to September 11 there were increasing signs that US growth was likely to remain weak for longer than many had expected.
And the prospect of an unsteady outlook was mirrored elsewhere, especially in Japan and the rest of Asia.
It is worth noting that the weaker than expected world growth earlier this year has not yet translated through to substantially weaker activity here in New Zealand.
There are a number of reasons for this. The stimulus to the export sector is now feeding into the domestic economy with increases in consumption, construction and investment in plant and equipment. Monetary conditions remain stimulatory, but inflationary pressures do not appear to be increasing. World commodity prices have held up despite the slow down in global activity.
What is not so widely agreed is if when and how external events will impact on the New Zealand economy, although the if is probably not disputed.
New Zealand is a trading nation. That is how we survive, and while we are certainly not immune to negative global developments, we do appear to be better placed to cope than we have done in some of the past periods of global slowdown. For example:
„h The economy grew by 2 percent in the June quarter. Most industries recorded increases with the manufacturing sector leading the way with a 4.8 percent rise in activity;
„h The current account deficit is at 4 percent of GDP the lowest it has been for 7 years;
„h Unemployment has fallen to the lowest levels in 13 year - 5.2 percent;
„h We have fiscal surpluses and government debt that is low by relative and historical standards;
„h Global demand for New Zealand products is still reasonably good despite the slow down the world has experienced over the last year;
But even with these buffers in place, the international environment still poses a significant risk to the economic outlook going forward.
Opinion is divided as to how much New Zealand¡¦s $13 billion tourism industry will fare as people around the world reassess international air travel.
At this stage it is too soon to make any firm predictions, but there is the prospect of any global decline in tourism being moderated by other factors, for instance; New Zealanders choosing to holiday at home, Australians reappraising holiday destinations and even south east Asians looking south rather than east when deciding where to holiday.
Where we see an immediate impact is in the decline in business confidence. This is to be expected given the continuing economic and political fallout from September 11. Australia, too, has tumbled into negative territory.
And it is worth stating again that the government will allow the fiscal stabilisers to work and we will not repeat the mistakes of the response to the Asian crisis when a fiscal contraction compounded the downturn.
But overall, I am confident that, insofar as the government can influence the economy, we are on track for getting the investment and economic environment right.
We have maintained a careful control of government spending. This, in turn, has maintained our reputation abroad as a responsible economic manager, and has taken some of the pressure off monetary policy ¡V allowing the Reserve Bank to lower interest rates.
We have strengthened New Zealand¡¦s capital markets by allowing the Government Superannuation Fund to invest in the share market, by providing stronger protection for smaller shareholders and by establishing a venture capital investment fund.
We have encouraged new investment by using a ¡§whole of government¡¨ approach to fast track required consents for new enterprises and by offering incentives where desirable.
We are helping new businesses get up and running and we are helping established firms grow through the programmes run by Industry New Zealand, and through an export credit guarantee scheme to assist firms develop new overseas markets.
One of the most important things this government has done is to introduce a series of initiatives to raise the skill levels of New Zealanders.
These include: a modern apprenticeships scheme, increased funding for industry training, larger quotas for skilled and business migrants, measures to reduce the cost of student loans, the reform of the tertiary education sector to make it more responsive to the needs of the economy and to reduce wasteful duplication of resources.
Partnerships are a central pillar in the government¡¦s economic approach. For a generation, central government has been the missing partner in economic development.
Indeed, ours is the lesson of every small economy around the world. No small economy has thrived under a hands-off regime. You only have to look at the successful forward economies - whether Singapore, Finland or Ireland - to see that it is not heavy handed intervention but rather a smarter, more targeted level of government involvement and good working partnerships that make a difference.
The challenge is to incorporate other dimensions of social organisation into this programme of modernisation and integration. This is where the organisations that you lead can offer valuable insights and suggestions. We do need to monitor and respond to the emerging global environment and its domestic effects. We should not, though, put our programmes on hold until all of those effects are evident. Frankly, we do not know when that will be. So the government has to move forward with cautious confidence. In some ways our disadvantages ¡V smallness and isolation ¡V have become protections. We must remain confident in our ability to control our destiny.