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Policy And Strategy For The New Economy

Thursday, 22 November 2001, 6.00pm Hon Pete Hodgson Speech Notes

Policy And Strategy For The New Economy

[Address to the Export Institute of NZ, Auckland]

I want to talk today about the relationship between science, technology and economic and regional development.

You’ve advertised me covering a very specific topic, to do with what the Foundation for Research, Science and Technology has been doing to support non-primary exporting. I’ll answer that, but I’ll go a bit wider too.

Taking a wide view of government activities in economic development is vital in my view.

Both government and business in this country have grown out of the extreme view that government should have no active role in facilitating business growth.

I believe there is more of a consensus now that government should be a partner, facilitator, broker and occasionally a funder of economic development.

If government is to be smarter and more active, it must also be more careful to keep watching from the helicopter. We need to think strategically to ensure that our activities are well coordinated — and that is what we’re doing.

The laissez faire approach to the New Zealand economy failed to lift our living standards as fast as other economies, even though we have significantly improved the value of products in our primary and natural resource-based sectors.

Those sectors can only ever deliver modest growth compared with the higher technologies that other economies developed in the last decade or two, on a scale New Zealand has not matched.

Auckland business agrees, I think, that it is time for a more strategic approach to our nation’s growth.

In the last 10 years Auckland has achieved minimal growth in GDP per capita – close to zero, compared with 1.2% for London, 1.8% for Adelaide, 2.2% for Brisbane, 2.4% for Sydney, 3.1% for New York and 4.1% for Singapore.

Other cities have taken the initiative in response to the changing economic environment. Now it’s our turn.

We need to build on our strengths, which very much include those resource-based sectors, adding value through technology and knowledge.

Overseas experience also suggests that successful economic development requires a focus on a select number of key industries.

A review of Auckland’s existing business base has revealed that the region has relatively few large, well-established industries with high growth potential. Auckland is predominantly a service economy with a local focus.

The Competitive Auckland strategy, which will be familiar to many if not all of you, recognises this. It has set out to identify high growth potential industries, based on the possibilities for value creation measured in foreign exchange.

This is the same measure the Government applies when assessing the activities of Trade New Zealand.

Competitive Auckland is a pretty good piece of evidence, if you like, for my assertion that business – and particularly Auckland business – is more in agreement these days on the need for development strategies.

Competitive Auckland has developed projects and built partnerships. I understand that it now plans to move to its next phase, putting those projects and partnerships to work towards its targets of 5% GDP growth per annum, an $18b increase in GDP by 2010 and a 30% improvement in Aucklanders’ average standard of living by 2010.

Competitive Auckland’s six “focus industries” — biotechnology, marine, tourism, IT&C, export education and food and beverages — are a pretty good indicator of the diversity of exports coming out of the city.

Trade New Zealand’s work here reflects that diversity. Most of its account managers, who deal directly with exporters, are based in Auckland.

It is hard to miss the higher-profile activities Trade New Zealand supports here, such as the Sovereign Yachts project, New Zealand Fashion Week or the investment campaigns attached to the America’s Cup.

But the more routine services are also important. The export hotline, for example, offers advice to intending exporters all over the country every working day, and fields inquiries from companies ranging from the tiny to the large and sophisticated.

Lately Trade New Zealand has noticed a surge in demand for its services from hi-tech industries, enough for it to double its team of account managers for this sector. I take that as a very promising development.

Trade New Zealand is also rolling out an e-Business initiative funded by this Government to ensure more exporters have the e-business tools they need. This will combine with the Export Hotline to make Trade New Zealand’s services accessible to a wider export community.

E-business will also let Trade New Zealand manage its resources more efficiently, by devoting its limited face-to-face time with exporters to those it can add most value to.

The Foundation for Research, Science and Technology — to come round to the topic you’ve presented me with — is a quite different beast to Trade New Zealand, but no less significant for our economic future.

The foundation is the body that allocates most public research funding in New Zealand. It is set up to do that independently of political influence, so it is not an agent of government policy in the direct manner of a ministry or department.

But the foundation does have responsibility for funding a lot of research with high commercial potential, and for running Technology New Zealand — an agency that is an important part of this government’s business growth strategy.

Some 43 percent of this year’s budget for research, science and technology goes directly to the economic goal for investment, which is to increase the contribution of knowledge and technology to the competitiveness of New Zealand enterprises.

It would be a big mistake, however, to think that the rest of our public research spending has no economic value.

The funding that goes toward the knowledge goal – which is to accelerate knowledge creation and enhance New Zealand’s capacity to innovate — is vital to our ability to function as a modern economy and society. The same is true of social and environmental research. A nation that does not know itself, or its environment, will never keep its place in the developed world.

An article on the foundation’s various research funds in yesterday’s issue of the New Zealand Exporter gives a pretty good rundown of what’s available to businesses with an R&D component.

The New Economy Research Fund and the Research for Industry money will be most relevant to those seriously involved in research. Grants from these funds are not easy to get, however — they are for top quality, cutting-edge science.

Technology New Zealand’s programmes, however, are relevant to a much wider range of businesses. Its budget has doubled under this government and I know of nobody questioning the value of its programmes to help businesses take up and exploit new technology.

Technology New Zealand also helps promote and reward talented young scientists, by funding them to work in businesses. This happens through the Technology for Industry Fellowships and there were 185 of them this year — over 100 more than last year. Next year and there’s a bigger budget again.
There’s also more than $1 million is available this year for Bright Future Enterprise Scholarships, which co-fund degree courses that have a research component.

Supporting New Zealand’s scientists and technologists is very important, but it isn’t the whole story — just the beginning of it.

New Zealanders dream up new ideas easily. Commercialising them is another thing again.

To help business fund its own R&D we’ve improved the tax treatment of it, allowing full expensing.

The Technology for Business Growth scheme, another of Technology New Zealand’s schemes, has grown. And we have the new Grants for Private Sector R&D scheme, which on its own promises to lift private R&D by 10 percent.

Beyond R&D we’ve moved to help new businesses grow with Industry New Zealand’s Enterprise Awards scheme, the Investment Ready scheme and many other Industry New Zealand initiatives. Again there’s a good list of those in the Exporter.

You’ll all be well aware that we’ve set up the NZ Export Credit Office as well, to give you the kind of support that overseas governments routinely offer their exporters.

Paul Swain’s e-commerce strategy is designed to make sure New Zealand businesses are on the world’s desktop.

We are also setting out to make better use of the diaspora of New Zealanders abroad – the network that the historian Jamie Belich calls “a New Zealand world-wide web”. A "brain gain" project called World Class New Zealanders is building an international network of talented kiwis.

We’re working to make government processes more accessible and user-friendly through the e-government and compliance cost reduction programmes.

Business incubators have sprung up throughout the country and we’re backing them with the incubator support programme.

Some of the ideas coming out of all this research, incubation and collaboration may well get funding next year from the New Zealand Venture Investment Fund, which we set up with capital of $100 million in the last Budget.

That fund is designed to accelerate the development of the venture capital market, which is a vital part of business creation.

The first subsidiary fund, incorporating private finance, is expected to be set up in the first quarter of next year. There have been more than 40 applications to manage a subsidiary fund, many of a very high quality.

Another boost to the innovation economy will come from the Centres of Research Excellence policy in the tertiary sector. The call for applications for the new $60m CoRE fund has gone out and we expect three to six centres will receive funding.

A further $35 million in the Tertiary Education Strategic Change Fund will give public tertiary institutions the ability to make changes in response to the Tertiary Education Strategy coming in next year.

We’re trying to encourage both the concentration of expertise and increased collaboration — amongst tertiary institutions, between them and other research centres, and between their researchers and the private sector when opportunities arise.

The earlier levels of education are vitally important too, which is why we have initiatives like the Digital Opportunities partnership, with key information and communication technology businesses.

We’re also piloting four new information and communications technology programmes at secondary level.

There is always more to do, of course.

Our private sector R&D, although growing at an impressive 10 percent a year, is still a third of the OECD average.

As I remarked at the beginning, Government can still do much to improve the coordination and alignment of policies intended to stimulate economic growth.

We can do more to build the necessary partnerships with the private sector. That’s what initiatives like the Knowledge Wave conference, the Knowledge Wave Trust and the business-government forums are about.

A small country, like a small business, needs strong networks, both internal and external, to make the most of its talents and resources.

We’re working hard on policy coordination and alignment. There’s a lot of strategic thinking going on in government that is yet to emerge publicly.

But let me say in closing that we are very clear that we don’t have a monopoly on wisdom. We’re always looking for new ideas, always grateful to those who volunteer them. So I’ll stop speechifying now and perhaps we can start a conversation.


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