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Engineering better business and a better economy

Engineering better business and a better economy

Hon John Tamihere Speech to Association of Consulting Engineers annual conference, Friday August 13, 8.15am, Duxton Hotel, Wellington

Kia ora and good morning, and thank you for inviting me here to speak at your annual conference.

I know that engineers probably don't have the raciest public image – did you hear the one about how tell the difference between an optimist, a pessimist and an engineer? An optimist will tell you the glass is half full, a pessimist will tell you it is half empty, and an engineer will tell you the glass is twice as big as it needs to be. A BOOMING ECONOMY

But on to the topic of my speech today, and that is the direction of business and the economy. The short news about the New Zealand economy is that it is steaming ahead.

New Zealand has one of the fastest-growing economies in the OECD. We had 2.3 per cent GDP growth in the first quarter of 2004 which is likely to translate into a 3-4 per cent growth for the full year.

In the March quarter this year small business activity again led the way, as it has over the last eight quarters. Small business had growth of 2.4 per cent for the quarter, and year-on-year growth of 4.7 per cent - compared to 3.6 per cent for the economy as a whole.

Manufacturing, construction, wholesale and retail sales and the service industry all recorded solid growth, with growth strongest in the retail and housing sectors. Unemployment is at 4 per cent - the lowest it has been for 17 years.

The number of people receiving the unemployment benefit has more than halved since we’ve been in government, and 193,000 more New Zealanders now have paid jobs. More than 180,000 of those new jobs have been created in small businesses.

Things are also looking up externally. Last week Statistics NZ announced the largest quarterly percentage increase in exports since December 2000.

THE CHALLENGES

However there are challenges. For your profession, regulatory changes are being made, skill shortages are beginning to bite, and your industry is moving to a new way of measuring its professional skills.

The Construction Contracts Act has changed the way those involved in construction manage cash flow and payments to sub-contractors.

The Chartered Professional Engineers Act is now up and running. The profession has taken on the job of reassessing all engineers and ensuring they meet the professional standards required by the public.

THE BUILDING BILL

Now we have the Building Bill – legislation designed to ensure that buildings are designed and built right the first time.

This will give greater assurance to all building owners and users, particularly homeowners, that their building meets standards set out in the Building Code.

The bill repeals the 1991 Building Act, introduces a new framework for the regulation of building work, establishes a licensing regime for building practitioners and sets standards for buildings.

These changes will bring clarity to the standards we expect buildings to meet and guidance as to how this can be achieved.

We want capable people undertaking building design, construction and inspection, and more scrutiny of building consents and inspection. We want better protection for homeowners through the introduction of mandatory warranties.

We have expanded the role of the Ministry of Housing and changed its name to the Department of Building and Housing – and no, that's not just re-arranging a few bureaucrats' desks.

Because the agency will have housing and building as it’s key focus, it will be able to provide a “one stop shop” for regulatory issues and standards affecting building and housing, and for dispute resolutions.

SMEs

The membership of the Association of Consulting Engineers is representative of the large proportion of small-medium enterprises in your industry and indeed in the country: 150 of your 171 members are SMEs.

SMEs, when defined as businesses employing 19 or fewer employees, represent 97 per cent of all New Zealand companies, employ 43 per cent of all employees and produce 39 per cent of all goods and services.

This government recognises that to have a thriving economy that delivers for all New Zealanders, we need successful SMEs that can contribute to sustained economic growth.

We need well-run, innovative, world-class businesses.
This means businesses with good stakeholder relationships, - who compete on quality not price - who spend money on training and R&D and - who have a global mindset.


LISTENING TO BUSINESS

The government has a set of clear objectives to help business be their best – and if we come up short on any of these objectives I expect to hear about it.

But I need to hear more than a repeat of the policy differences.

For example, I need to hear that labour productivity is as much a business management issue as it is a government issue.

We are doing what we can from our end of the bargain to reduce compliance. Recently I announced that government departments have saved businesses time and money when complying with government regulations in 104 instances since 2001 – and many of these relate to small business.

However more work is needed. Evidence of our commitment to cut compliance costs includes a couple of really good initiatives:

The Biz portal. The Business Cost Compliance Panel recommended that we should increase the accessibility of government services and information on compliance requirements via e-technology.

We responded by setting up the Biz portal in July last year as a one-stop portal where businesses can get quick information and help with taxes, regulations, ACC, work place safety and other important regulatory information.

The Small Business Advisory Group The group of nine people was appointed to independently represent the interests of small business. It gives a genuine business sector view on any policy or issue relating to small-medium enterprises.

PROGRAMMES FOR BUSINESS

We also need to take practical steps to improve both business process and capability.

New Zealand Trade and Enterprise was formed in 2003 and offers a huge range of programmes aimed at assisting those who want to develop and grow their businesses.

For example the Enterprise Training Programme provides free training and advice throughout New Zealand to give new skills to owners/operators of SMEs so that they can develop their businesses.

Enterprise Grants of up to $20,000 are also available to assist to with capability development and business performance improvement.

Also, in this year’s budget the government announced a management development initiative of $1.2 million for each of the next two years to improve New Zealand's management capability.

The programme aims to raise awareness of management capability and strategic management to help businesses build a sustained competitive advantage and growth.
When you consider the wide range of skills necessary to develop a business – marketing, technical, managerial, staff and so on – it’s impossible for a small business to possess them all.

The solution is to use specialist expertise, freeing up the manager’s time to focus on their core business. We need to be better at seeking outside help, and part of this new initiative will be to persuade managers to do just that. SKILLS

In the last two National Bank Small Business Monitors skills shortages have been reported as the biggest barrier to SMEs. Skills shortages are a challenge for your profession, with an average 4 per cent vacancy rate and a 16 per cent staff turnover rate amongst members of ACENZ.

While low unemployment is fantastic in almost every way, it does make it harder for businesses to find the skilled people they need. Therefore, on-going skill development is crucial.

This government has a skills strategy to make sure the labour market is well equipped to meet the current and future needs of our growing economy.

We have placed a high priority on industry training, and have adopted a target of getting 150,000 New Zealanders learning on the job by the end of next year. We are well on the way to achieving that target, with 127,000 workers in industry training already.

ECONOMIC INFRASTRUCTURE

This government is committed to providing a stable environment in which businesses can make decisions with as great a degree of certainty as possible. Sound government finances and a strong “no surprises” policy framework leave a margin of safety in the uncertain world economy.

In the budget this year the government announced the $500 million Growth and Innovation Package to strengthen our ability to compete in the world economy as a creative, diverse and technologically advanced country. It covers four key areas where New Zealand must take action to reach the next step in economic growth: global connections; innovation; skills and talent; and infrastructure.

The aim of the Growth and Innovation Package is an ambitious goal of returning our GDP per capita to the top half of the OECD – and I am confident that this is a goal we can achieve.

PHYSICAL INFRASTRUCTURE

There are some things we take for granted, and we can easily forget that a reliable infrastructure underpins all sustained economic growth.

We are now grappling with the consequences of infrastructure neglect in the 1990s.

If we want a world-class economy, we need to build it on world-class infrastructure. If governments are going to create the conditions under which individuals can prosper through market activity, they need to do more than just write the rules that govern commercial contracts.

They need to create the environment within which market activity can flourish to create, maintain and upgrade infrastructure.

Obviously infrastructure costs money, and while we need a modern infrastructure, we must build and maintain it alongside prudent debt levels.

No matter how well intentioned and determined we are, solutions are seldom quick. There is a need for pragmatism: we need to be open to new ways of planning, constructing, operating and financing different components of the infrastructure.

The Government recently undertook New Zealand’s first Infrastructure Stock-take, completed in May this year.

The key message from the Stock-take was that New Zealand’s infrastructure is in reasonable shape. While it highlighted a number of national and local infrastructure concerns, these are subject to existing government work programmes. No new issues that might pose a serious barrier to growth and sustainable development were identified.

I take the point that ACENZ has made that years of under-investment and a lack of co-ordination in assessing the state of infrastructure has led to the “Could do Better” assessment from the consulting engineering industry.

The reason for this report was to discover what we need to do better – and that will definitely be focusing our energy in the future.

PROCUREMENT

I have been asked to mention Government procurement policy.

Upfront price is of course very important to budget-driven organisations. The right mix of cost and quality will vary with the nature of the good or service to be provided. But generally it is safe to say that the best tender is not necessarily the lowest price tender.

At the same time, it is also a key principle of policy that there be open and effective competition. A competitive and efficient market with fair opportunity for interested and capable suppliers will give buyers the best opportunity to ensure best value for money.

I understand that your association has played a constructive role in Transfund’s development of a new “Price Quality Method” competitive procedure for procurement of professional services by road controlling authorities and regional councils.

I also understand that you are still concerned that other government buying organisations may be placing too much weight on price and not enough on quality in their competitive selection of engineering consultancy service providers.

Each agency has its own procedures for ensuring best value for money, guided by the broad government procurement policy administered by the Ministry of Economic Development, and good practice guidelines issued by the Auditor-General.

The government is looking at further ways to encourage uptake of these principles across all government entities including SOEs.

GROWTH AND PRODUCTIVITY

Finally moving onto the area of growth and productivity, I'd just like to mention that It is disturbing to see attitudes such as those revealed in the 2003 Industry New Zealand survey which showed nearly half of those surveyed viewed business as a “necessary evil”.

About a third believe it is not appropriate to celebrate business success. They prefer successful businesspeople to remain modest about their achievements.

I believe this cynicism arises from self-serving corporate behaviour, for example, people who were seen to enrich themselves at the expense of others, and I think the Greed is Good ethos upheld by some in the 1980s has had a lasting effect on people's perceptions of business.

The research showed only six percent of New Zealanders mentioned business or the economy as factors likely to ensure their ideal New Zealand.

Nearly half the country found economic issues boring.

More heartening were the March 2004 findings of the Growth and Innovation Advisory Board.

It found that most New Zealanders agreed that business success ought to be encouraged and that they supported economic growth as a primary goal for the country.

However many people also had concerns about the impact of economic growth – in particular, the impact on core New Zealand values such as egalitarianism and teamwork and a healthy environment.

So, do we need economic growth and does it really matter that some New Zealanders don’t think this way?

I’d suggest to you that it makes a big difference. Economic growth is not an end in itself. It’s something we pursue to unlock the potential of New Zealanders. It means more jobs, higher incomes and more secure social services.

In 1970, New Zealand had roughly the same per capita income as Australia. If we had grown at one percent faster each year for the last30 years, we would now have a living standard equal to Australia's.

- Incomes: 1 per cent higher growth since 1970 would mean that the average worker would now receive an additional $240 a week. - Health: that extra 1 per cent growth would have meant we could invest $3.7 billion a year more on health. - Education: $4.2 billion more would be available per year. That's roughly an additional $3,500 per student. - If our GDP had grown at the same rate as Australia we could have invested twice as much on roading over the last 30 years.

Yes, economic growth matters.

And SMEs are the engine for economic growth in New Zealand.

Most of our innovation and new products comes from our SMEs.

This Government is working to help business get on with business. This is the work of practical implementation, of continual improvement, innovation of process and capability building. Government cannot do this alone. We share a vision for New Zealand. We also need to share a commitment to consultation and practical implementation.

We are genuine in making that commitment and seeking a genuine debate, and I thank you for this opportunity to contribute to that debate.

It's all pretty serious stuff, so I'd like to finish with a more light-hearted take on your profession.

Three NASA engineers, one from headquarters in Washington, one from the Johnson center in Houston, and one from the Jet Propulsion Laboratory (JPL) in Pasadena were discussing whether it was better to have a wife or a mistress. The HQ guy said it was better to have a mistress, because they are more understanding of the long absences required of a NASA employee.

The Johnson guy retorted, "Oh, no, one must always follow proper rules and procedures, and marriage is the proper procedure, so it is better to have a wife." The JPL engineer replied, "No, it is better to have both. That way, you can tell your wife that you're with your mistress, your mistress that you're with your wife, and go to the lab and get some work done."

ENDS

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