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Anderton Speaks At Business Forum

Hon Jim Anderton Speech Notes

Address to the Business to Government Forum


Our present position – where we are starting from

Our economic performance has been falling compared to other developed countries. The real incomes of New Zealanders have been falling for thirty years. Real wages are ten per cent lower today than they were in 1984. We have a huge overseas deficit. Massive overseas debt. Unemployment is locked into the economy. Inequality has grown enormously. Our social services are under enormous pressure.

We can and we must do better – at a local, regional and national level.

The economy is too dependent on commodities alone for our export income. We have to import too many of our capital goods.

We sell products to the rest of world that are largely undifferentiated from the products of our competitors. Although we are good at it, over time, the price we can achieve for commodities is slowly falling. At the same time we buy the complex manufactured goods that command prices set by sellers.

If we want rising incomes and more good jobs then we must produce more – far more – products and services that depend on the skill, imagination and creativity of New Zealanders, and not just on our sunshine, rainfall and clean soil.

I'm not buying into the new-economy/old economy argument. We need to develop our old economy by adding innovation: Finding new ways to process, package and market our meat, wool, dairy and timber products.

New Zealand is the lowest exporter of high-tech products in the OECD. We import five times as much high-technology production as we export. Even Greece, which is the next worst of all developed countries, imports a little over three times the value of its high-tech exports.

Only 4% of our companies are exporting: That’s only 8500 businesses in the whole of New Zealand. 82% of merchandise exporters sell less than half a million dollars of merchandise products a year overseas. 95% of our exporters sell less than $5 million a year worth of goods and services overseas. 127 companies account for 73% of our total merchandise exports. Thirty companies earn half of our foreign exchange.

What this adds up to is a very narrow, and shallow, export base. New Zealand is highly dependent on a relatively small number of large exporters. We need to grow our small and medium exporters into larger companies. More small and medium companies need to become successful exporters.

Transforming our economy is not an easy task or a particularly quick one. To do it, we have to mobilise the resources we have.

We have some important competitive advantages in the world.

We have a stable, democratic government. That puts us far ahead of many parts of the world to begin with. We have a solid infrastructure of roads, ports, clean water. We have a competent education system. New Zealanders are quick to adapt to, and use, new technology. We have significant natural resources and an exciting natural environment.

We have a cheap cost structure. That is the upside to low income levels, and the low value of our currency. Low cost helps to give our manufacturers and exporters an edge. Eventually we have to compete by providing better value, and having better ideas, not cheap labour. But we have to start from where we are.

The giant international sharebroker and investment banker Merrill Lynch recently published a study. It looked at qualities such as the supply of capital, the education and skills of the people, the availability of technology. Is the Government free from corruption? They looked at the social structure of countries and deducted points where they found wide inequality.

They ranked New Zealand seventh in the world. Not a bad place to start. So there is a solid base to build from.

We also need to consider the challenges.

It’s almost a truism to say the world is changing around us. Some of the most profound changes will have far-reaching effects on New Zealand:

 Developed countries – including our own – have aging populations.

 International trade is growing quickly. Complex and powerful global trends have emerged.

 Technology has never advanced as rapidly. The Internet is changing nearly everything.

New Zealand is not a natural winner from these changes.

Whether we like it or not, the major impact of these trends is a much stronger international marketplace for certain services, particularly for skills and talent. Capital has always been mobile. Skilled labour is now becoming much more mobile too.

The growing global marketplace for skills and talent helps to explain why we are undergoing a debate about the 'brain drain.' If we are going to reverse it, simplistic solutions relying on a single 'silver bullet' won't work.

The challenge for New Zealand is to be a country that is attractive for skilled, talented individuals to live in. Attractive to invest their energy and resources.

Chris Liddell of Carter Holt Harvey had a commendable commentary published in the New Zealand Herald yesterday. His argument was that in order to retain New Zealanders, and build our economy we need to become the best little country in the world.

To do that we obviously need a strong, diverse economy. One where skills, talent and creativity can be developed. Where there will be rewards for success and for skills. Where those who try will be encouraged and supported. Where working people can look forward to rising real incomes.

But incomes alone will never be enough. There are important quality of life issues as well.

Individuals need to feel personal security. Security from being left without life’s essentials, security in ensuring personal safety and the security of property. Security in the form of some assurance about the future. (Super scheme).

We need a country that is confident in its own unique culture. We need to see New Zealand performers on the world’s stages. We need to be proud of what we do and the unique, distinctive way we do things.

We need a country that offers world class education and health care. That requires access on the basis of ability or need – not on ability to pay.

We need far more scientists, engineers and designers. We need far more pure research and we need research linked specifically to commercial opportunities. We need tertiary institutions much better equipped to meet the teaching, learning and research needs of New Zealanders.

One of the singular quality-of-life advantages New Zealand can offer is the physical beauty of our natural environment. That doesn’t mean turning the whole country into a museum. We’re more inventive than that. It’s using resources sustainably. It’s protecting our unique flora and fauna.

Economic development policy

Where does economic development policy fit into this?

The Ministry of Economic Development and Industry New Zealand have been established to take a partnership and a whole-of-government approach towards our problems.

One of the criticisms that has been levelled at Industry New Zealand is that – with an annual budget that rises to $100 million a year – it is to small make a difference to the real economy. This line of thinking argues that Industry New Zealand will promote inefficiency because it will simply prop up businesses or even industries that are not viable on their own.

Another criticism is that it is about handing out cash to businesses that satisfy the criteria of government bureaucrats.

Those criticisms betray a misunderstanding of what we are trying to do. It is not about handing out cash to prop up ailing businesses. Industry New Zealand is designed to provide leadership, and to ensure good ideas get off the ground. The idea is for investment to lever off the government's contribution.

For example, there is an investment ready scheme that brings together people with good ideas and venture capital to fund those ideas. There is not a shortage of venture capital. Venture capitalists say there is a shortage of ideas that are ready for investment – that is, backed by strong management, business plans and so on. So Industry New Zealand helps innovators get their ideas up to a level where they are ready for investment.

A team of industry specialists within Industry New Zealand will work with high growth potential companies, identifying barriers to growth and helping them find ways past those barriers.

Industry New Zealand is making enterprise awards to small businesses and enterprises to help them get good ideas off the ground. One of them was a company with the potential for $90 million worth of export orders. It needed $10,000 – and it couldn't get it from the bank because it had already borrowed to its limit. The return that the government gets from making that grant will be repaid many, many times over.

We will launch a strategic investment scheme to help promote investment in innovative new enterprises in New Zealand.

A Regional Partnership Programme is underway to revitalise regions. The approach is guided by three principles:
1 an approach based on making the most of what the region has rather than solely a vehicle for transfers from prosperous to less prosperous regions;

2 engagement with the local community to respond to local opportunities and to integrate social, environmental and economic concerns; and

3 a "whole of government" goal where the activities of central government are integrated into regional strategies together with local players.

In doing all this, issues often get highlighted that require a co-ordinated government response. For example, MED's work in the East Coast region has identified constraints to wood processing as a key economic development issue not only for that region but elsewhere in New Zealand.

We have worked with the forest industry on a wood processing strategy to identify key issues for forestry development. Infrastructure development such as roads and ports, labour supply, and investment promotion and marketing are all issues that this joint industry/government strategy must address.

This work also highlights the need for government to act, as much as possible, in a coordinated way. It is not acceptable for business to get passed from one entity to another with no one taking responsibility. If there is one thing a small country has going for it, it should be co-ordination and flexibility. I am not convinced we have that – and I doubt you are either. That is one goal of the Ministry of Economic Development.

These are some of the programmes we have underway. I know there are other ideas about the contribution we can make. I want this forum to develop some of them. The largely private sector board of Industry New Zealand will ensure others flow through. I'm a pragmatist. If ideas work, I'll support them. If they don't work, we should stop doing them and try something else.

Conclusion

There is no shortage of innovation and good ideas in New Zealand. There are many reasons why the economy has not flourished as well as it might. But it is indisputable that government has been a missing partner in economic development. We are now attempting to ensure that the government plays its part. It's not a matter of the government doing it all. It is a matter of working together.

I want to conclude by saying that New Zealand's economic development is a journey. It's one that is never over. We will never be able to say that we have done enough.

But it is a journey that we are committed to embarking on in partnership with both the business community and New Zealanders of goodwill. The ideas that we can generate today will help to determine how quickly we can move along that journey.

Ends.

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