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Dr Cullen's speech to the NZSMS Auckland

Hon Michael Cullen
18 October 2000
Speech Notes

Address to NZSMS Auckland Branch

The vision: a high quality, value added, knowledge based economy and society

Dr Cullen's speech to the NZSMS Auckland Branch, Auckland Club

The topic you have invited me to speak on today – "Strategies for Growth in New Zealand" – has given me the opportunity to spell out the "economic vision" that the Labour Alliance Coalition Government has for our country.

We live in an age of unprecedented opportunity. People, ideas and capital have never been more mobile. Our mission is to use these opportunities while living here.
New Zealand has a special environment, a distinctive national identity and a proud culture. But it is, for all that, only a small part of a vast and changing world.

New Zealanders today are clearly feeling the effects of being part of a global economy through climbing oil prices and a low dollar. The price of petrol is putting pressure on household budgets and people are feeling that pressure.

Unfortunately the Government has absolutely no influence on OPEC and the price of oil - one only has to look to Australia and Europe to see that other economies are being forced to sit out oil price rises and their own falling currencies against a booming US economy.

As well, some businesses are seeing their profit margins squeezed by the fall in the value of the New Zealand dollar.

But the other side of this equation, and one that is worth highlighting is that our export growth figures are currently sitting at an eight year high. We have had very strong growth coming through in exports and tourism. The new economic powerhouse of the country is in provincial and rural New Zealand.

That too is changing. Increasingly the good news export stories are urban based: niche production for sales to wealthy markets, software, travel products and the like.

We are also seeing tourism leading through to sustain urban based retailing and hospitality sectors.

It is also reasonable to expect improved primary industry profitability to be reflected in increased purchases of services from urban based businesses.

So while elements like OPEC and the exchange rates remain largely beyond our control, there are many other areas where the Government can and is, moving to support stronger and sustainable economic growth.

The government's vision for the future of the New Zealand economy is one which I believe is very broadly shared. It is of a high technology, value-added economy, adaptive and responsive and able to take advantage of a wide range of niche opportunities in the global marketplace.

We have to be smart, skilled, organised and simply better. We have to add value at every level rather than singlemindedly concentrating on squeezing costs.

That requires big changes across a broad range of activities.

 Equip the country for the transition to the knowledge economy in a global marketplace;
 Rebalance our economy to establish the conditions for healthy and sustainable growth;
 Integrate our social and economic structures so that all our citizens may participate.

A wide range of complementary and interlocking policy initiatives are needed to achieve each of these results.

They include upgrading the infrastructure, modernising skills and improving access to new communications technologies. New Zealand needs to become a research area, using science to protect and transform our traditional economic strengths.

Policies must create opportunities for innovative enterprises. That means making the connections between enterprising individuals and capital markets,
between research institutions and training organisations, between business advisors and those providing the services needed for the successful incubation of ideas.

However, it is important that we do not get trapped into being a science exporter and a perpetual incubator: developing the skills and ideas that are applied and then exploited abroad.

Looking back over the past fifteen years, you would have to conclude that the reform process, while positive in many respects, also led to poor economic results, an unbalanced economic structure and many, many missed opportunities.

The assumption behind creating a level playing field was that it would mean capital and labour would move to areas of activity that would generate economic growth.

I actually passed a note to David Lange once, in the Cabinet of the fourth Labour Government, asking, "what happens if the market decides that we should be a loser as a nation? Do we close up New Zealand and leave?"

The fact is that the economic reforms did not lift our performance in many of those areas where we have long term structural problems.

So the real issue we face today as a nation is finding solutions to some of the very long term structural problems.

Historically, we have been poor savers, we have been poor at developing skills, we have had a low level of private sector research and development, and we have not been good at moving out of commodity production.

We have been spending more than we have been earning for many years now. So we do have to weather some structural change as the economy rebalances and we focus on moving from a consumption led recovery to a wealth creating one.

We are committed to a reorientation of economic activity towards exporting and tourism. This will take some pressure off the weak external accounts that this government inherited.
Previous governments have focused on cutting costs. We are focusing on adding value. We are getting in there and supporting export development, investment attraction and business growth.

This Government is retaining the useful instruments of economic policy. We have retained the major legislative and philosophical framework for macro-economic management:

 The Reserve Bank Act has not changed.
 The Fiscal Responsibility Act has not changed.
 The State Sector Act has not changed.
 The State Owned Enterprises Act has not changed.
 The government is running a tight fiscal policy and budgeting for surpluses over the forecast period.
 Government spending is actually decreasing as a proportion of GDP.
 The government welcomes foreign investment to grow the economy, and
 The government supports fair and open global trade.

We do not want to pick winners. We do not want to regulate, subsidise or compel. We do want to help businesses find new markets and become winners.

At times that means getting the regulatory framework right so that short term opportunism does not damage the wider public commercial good.
At times it means ensuring the right financing options are available. At times it means taking a direct leadership role.

As part of that role, the Government the newly launched takeovers code will be good for business. There has been significant public support from the business sector for this initiative to protect small shareholders.

International evidence shows that investors have seen New Zealand as more of a risk because it does not have a takeover framework. We have now put that right.

Let me turn now to the driver behind our support for business and industry. Some people have lamented that we are not spending enough on Industry Development. Apart from having to live within our means, there were other reasons for this.

For example some of the good work that has been done already has not required large grants. What has been needed is facilitation and help in getting through the bureaucratic mechanisms. A good example is the new Superyacht enterprise in Whangarei.

The new Ministry of Economic Development essentially facilitated this and it emphasised that you don't necessarily have to throw lots of money at people to get them to start up business. But what you do need, and what we are offering, is to help start up businesses through the maze that local and central Government tends to create.

Our programmes for actively encouraging high quality investment to the country are reaping rewards. Over the last few months Trade NZ has had its highest level of inquiries and activities in terms of inbound investment and greenfield activity for a long time.

The Government may have to look at further assistance in the future,
but another reason for the very moderate levels of assistance at the moment is that we are building new programmes and therefore it is important to monitor those to see they are working.

We do not want the temptation of throwing large sums of money at industry development when we are not even very used to throwing small sums of money in this area.

We have to relearn all of the institutional knowledge in this area that New Zealand has lost over the past 15 years.

We have already made good progress in bedding in some of the fundamentals for a modern economy within a modern society. We are building on our past strengths. New Zealanders are famous for our can-do attitude, for our integrity, for our ability to think laterally and for our resilience.

We are building on these strengths so that knowledge, skill, science, research, technology and innovation increasingly drive the economy.

Education is critical to the ability of New Zealand to compete against the rest of the world. Our young people must be equipped with the right mix of technical skills for the new economy. The quality of the intellectual capital in an economy is the major factor in its production and use of technology.

We have made a good start by lowering the cost of tertiary education. This is not just in the interest of students, it is in the interest of the whole country.

We cannot afford to burden our young people with a lifetime sentence of debt nor can we afford to continue to provide graduates free of charge to Australia as our young people make their way across the Tasman to seek out higher paying jobs.

A strategic review of tertiary education is under way and I urge business and employers to take part in this process so their voice is heard.

We have introduced a new Modern Apprenticeship system to boost the numbers in trade and technical training. This programme is targeted at young people, to provide them with skills that will lead to jobs in growing areas of the economy.

We have greatly increased science and research funding. The 10 percent increase in R&D in the 2000 Budget is the largest ever increase in government support for private sector R&D. We have put up $11.8 million for a new grants scheme, plus $8.5 million for the business assistance schemes already run by Technology New Zealand.

The Research and Development grants are already bearing fruit and we are doing further work on R&D. I will be announcing the details of that soon.

Next month the government is staging an e-commerce summit. The highlight of the event will be the release of our e-commerce strategy –
our blueprint for how New Zealand can move forward in this critical field. It is no longer a question of if e-commerce will be the way we do business, but when.

I would like to finish today by spending a little bit of time putting "the knowledge economy" into context. The Government is committed to transforming New Zealand from a commodities dependent economy to one where knowledge not only adds value but creates value.

Because new wealth increasingly comes from knowledge and innovation, not stuff, we are gearing policy across government to strengthen the knowledge, technology and skills base of the economy.

That means increasing the quality and often the quantity of public investment in crucial areas like education and science. It means removing barriers and offering assistance where necessary to private sector investment in research, technology and skills.
And it means supporting and expanding the domestic and international links between innovators and entrepreneurs that make new business happen.

I think some New Zealanders are struggling with the label "knowledge economy". Their perception is that New Zealand is more part of the 'old economy' rather than the new 'knowledge based economy' that we keep talking about.

The truth is that New Zealand is very much a part of the knowledge based economy already.

There is a tremendous amount of innovation out there, a very high level of IT uptake. We are world leaders in the levels of IT penetration and productivity across the Asia Pacific region.

New Zealand has the infrastructure in place to produce high-value, knowledge-based products and, as nation, we manage that infrastructure exceedingly well.

New Zealand also leads the way for being the only country in which the levels of IT penetration in small companies exceed that in large corporates.

And yet, there is a feeling among some that being part of the new economy must mean being Silicon Valley or that we must all be web site designers. That is not so. Being part of the new economy simply means that we apply information technology,
new ideas, research and development to a broad range of economic activity.

For many New Zealand companies that means that the application of IT will continue to be based upon the continuous improvement and diversification in areas where we are already world leaders with innovative manufacturing and design and exciting developments in the primary sector.

Thank you for your time today. I would like to leave you with a statement from a young new entrepreneur who established a leading edge technology company in Christchurch. "Any country where you can have a hangover-induced idea one Sunday afternoon and turn it into a multimillion dollar company in less than a year must have something going for it".


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