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Productivity Commission’s Report On Frontier Firms: Too Wellington Centric

The current Productivity Commission report into 'Frontier Firms' – those highly productive, sophisticated and high value export firms - is timely. It outlines an issue we clearly have in New Zealand. The Chair Ganesh Nana says that productivity gains from our frontier firms is a key part of the puzzle to improve wellbeing in NZ but unfortunately ‘labour productivity of New Zealand’s frontier firms is less than half (45%) that of the best frontier firms in other small advanced economies (SAE)s’.

Stating the problem, however, is a far cry from understanding why this is so and how we will change it. And unfortunately, the Commission is off track here.

Increasing innovation is about bringing people, place and business together. It has a tight geography. The knowledge exchange works better that way. The current Productivity Commission report is mainly about economics, with a bit about people (labour productivity). It misses ‘place’, your place, your town, city or region and the people and businesses in it. It is spatially blind. It does not acknowledge that regional differences, specialisations, assets, resources and knowledge play a part. This is a fundamental flaw in the report and explains why the Commission thinks that an “Innovation Council” in Wellington will solve the problem with yet another strategy and more policy.

So, officials in Wellington will bring together leaders from across central government, with Maori, business, education and research leaders to set up this Innovation Council and decide on a ‘strategy’, a few ‘focus areas’ and new innovation policies for the country. And this will bring us to the nirvana of innovativeness, frontier firms and increased productivity. Learning from other small, advanced economies indicates otherwise.

Innovation cannot be institutionalised. It happens face to face in a place. Across the farm fence with the neighbour, a chat with another company facing similar issues, a chance conversation with a researcher, on the shop floor, at a business get together. It can be in production, marketing, new services or products, new ways of doing things in your patch. Being smart about what you specialise in, understanding market need and opportunities. R&D and innovation are not the same. One may lead to the other, but not necessarily.

As the Commission identifies, smart strategies need execution, we agree, but how are we going to implement the strategy? Who takes the lead?

The Commission has spent a lot of time researching this issue, it’s a good piece of work. They have said we need to learn from other SAEs. What we find interesting is that policies and strategies we have advanced for years now, such as building regional innovation systems, smart specialisations and clusters of market-oriented businesses are why SAEs have more frontier firms than we do. They didn’t just appear. The work starts there and there is a plethora of experience with these policies. We can learn quickly and get going. The Commission talks about NZ learning from others, well yes, but we also need to create our own learnings and we have tried and tested strategies to learn from.

There is certainly scope to address the siloes and support agency clutter at the national level that the Commission identifies. However, this coordination particularly needs to be fine-tuned around regional specialisations.

The small, advanced economies have accumulated a decade and more of practical experiences in furthering their regional innovation systems that we can learn from. One aspect is using a public competition to identify the best dressed proposals for public support. This bottom-up approach enables each region to shape - and then own – it’s focus.

These countries have taken a very granular approach to identifying their regional specialisations. Drawing on this learning takes us from ‘NZ Agritech’ in general to acknowledging that ‘Agritech’ in the Waikato centres on dairy farming; in the Bay of Plenty its ‘Hortech’ with a kiwifruit emphasis; Hawke’s Bay has ‘Hortech’ with an apple flavour; Marlborough its viticulture & wine; mid Canterbury its small seeds. Across these regional specialisations are umbrella issues, including digitalisation, that may require addressing at a national level.

We agree with the Commission when it says that NZs innovation ecosystems are ‘too focused on science excellence rather than responding to industry needs’. However, many of the recommendations in the commission’s report fit with this model. Their ‘direct’ interventions may in fact exacerbate regional inequalities. Innovation can create unemployment, think robotics replacing RSE workers, creating inequality not well-being. These are complex issues which require a far more nuanced bottom-up approach that utilises local knowledge, assets, and resources. One that works for all regions in their journey to prosperity and well-being.

The Commission has started us on the journey to a more innovative and prosperous New Zealand. Powering up our regions is central to delivery.

Authors:

  • Ifor Ffowcs-Williams from Nelson, a global practitioner in cluster development with hands-on involvement in over 50 countries,
  • Dr. Doug Galwey from Wellington, with public and private experience in growth policy and firm capability, and
  • Dr. David Wilson from Auckland, member of the Independent Advisory Panel for the Provincial Growth Fund, immediate past CEO of Northland Inc and Chair of Economic Development New Zealand.

Further information

For the Commission’s Final Report: https://www.productivity.govt.nz/inquiries/frontier-firms/

For the full submission ‘NZ: Prisoner of an Outdated Paradigm’ https://www.productivity.govt.nz/assets/Submission-Documents/ce11abf60b/DR-063-Ifor-Ffowcs-Williams-Doug-Galwey-David-Wilson.pdf

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