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The Future Of The NZ Economy - Cullen Speech

Address To Beattie Rickman Business Breakfast - Hon M Cullen

The last few weeks have been dominated by the Knowledge Wave Conference. For two days 450 delegates and about 30 speakers - both national and international -debated what is needed to move our economy upmarket.

It was a diverse group but a key message to emerge is that New Zealand needs smart, active government intervention if we are to lift our economic performance.

Today I would like to offer some early reflections on the Conference. I stress early reflections. There was such a range and depth of material presented, and such an array of opinion and suggestion offered that a considered response from the government needs to be some way off if it is to do the conference justice.

It is important to remember why it was felt necessary to hold the conference in the first place. The idea that there is a knowledge wave out there in itself recognises that things are changing or are about to change. The idea that we have to catch that wave is of itself recognition that as a nation we cannot either act in an uncoordinated way, or indulge in hands-off minimalist government any longer.

That, to me, was reflected not only in most of the contributions but in the mood on the floor and in the networking sessions. It was a mood that had two parts. One was that we must move forward. There is no value in relitigating the past, either assigning blame for it, or wistfully trying to return to it. The second was that we are all in this together.

If our economic and social trajectory does not take all along with it, then it sells all of us short. A transformation project that ends up with the success stories hiring security guards to keep the marginalised and dispossessed at bay is neither desirable nor sustainable.

This was not the politicians or the academics talking. The strongest advocacy of this inclusive and forward looking agenda came from the next generation of business sector leadership.

Of course there were differences and even more especially contradictions in the proposals and prescriptions offered. That had to be expected from a gathering of so many and from so many different sectoral perspectives. There were stands that gained a level of media attention far greater than they received in terms of resonating with the participants. Again, that might have been expected because the sensational is better copy than the complex.

I have heard the criticism that the conference was not fully representative of the social make-up of the country. The observation was that women, Maori, trade unions, environmental groups and community organisations were present but under-represented. By contrast the science sector, the lobby organisations and the major corporates were fully counted for.

That is probably true, but then the conference was about innovation and change, and it is inevitable that primary change agents would be proportionately over represented. This wasn't a conference on everything, and we need to be mindful that many of the other challenges of the modern age need to faced, even if in different fora by different groups and individuals.

As far as themes for action are concerned, I detected seven main ones.

There is a stress on science. The government has recognised this and has taken bold moves: increasing the funding of Crown science, funding private research and development through grants, and tidying up the tax regime that applied to private R&D. It is moving to increase funding of centres of research excellence in the universities. More is always better, but competes with other priorities for scarce funds. We will need to look at prioritisation, coordination and partnerships to leverage the science effort regardless of how much funding it receives.

Allied to this was the stress on focus. Focus came up time and again. It was a subtle but strong message. In an age of rapid change, where scale and distance work against New Zealand, we cannot be generalists and we cannot continue with the scatter-gun technique of recent times. There is a need to recognise that we have natural competitive advantages and to work off those. My own view is that what we have obviously reflects some inherent advantage, and is not a bad place to focus the change process on: forestry, dairy, meat and wool, fishing, aquaculture, marine, tourism, film, fashion, education and the like.

Focus does not mean narrowing the emphasis to conventional products, processes and practices. Indeed, a novel aspect of conference deliberations was the attention environmental and social innovation and enterprise attracted. A lot of hard thinking and careful development work needs to go in on this front.

The fourth theme was participation. Just as there was a recognition that market mechanisms on their own were necessary but not sufficient, so was there a recognition that the government should not be expected to do everything. I had Parliamentary business to attend to in Wellington on the Thursday night, but I am told that one action captured much of the theory and the talk of the conference and put it in to action. This was a fashion show during the conference dinner. It was much more than that though.

The organiser had innovative flair, enterprise, knowledge and focus. She gave conference delegates a preview of a major fashion expo that is being held later in the year. The designs leverage the special talent and expertise that New Zealand has built up in this area. By combining the talents of a number of designers, the industry manages to stage an event that none of them could carry off on their own. She has attracted a number of overseas buyers to the expo - accessing a much larger market than local buyers can provide. In covering the costs she had found sponsors in the private sector and facilitation money from different parts of government.

It was, by all accounts, a wonderful cameo of how with energy and flair, the combined availability of talent and input can generate benefits to a wide range of participating stakeholders, private and public alike.

In a knowledge wave conference, education obviously attracted a lot of attention. I am more convinced than ever that we are on the right track with our tertiary education reforms, getting away from duplication and lack of co-ordination and linking provision with personal, social and economic imperatives.

The sixth theme was innovation. That is converting ideas into enterprises. This is a very broad topic. The government has recognised some gaps in the innovation chain, like the shortage of seed and start-up venture capital, and has moved to cover them. It is, though, a bigger issue that may require as much of an attitude change as a policy change. That attitude change involves somewhat vague features such as a capacity, individually and as a society, to take risks and to fail, but to accept failure as a necessary by product of an innovative society and to learn from it.

Some of the big spectacular knowledge projects like mapping the human genome brought home to me the advantages of scale. We cannot be a USA and we should not try to be. Learning to accept limitations as well as potential is important in disciplining what we can expect.

Finally, patience and realism. Most successful transformations have taken years and decades, not months and years. There is no point in adopting feel good targets that cannot be met: they merely guarantee that the country fails! I have often said that what we need is a process of continuous adaptation. I think the conference gave impetus to a broader based but careful change process. There is neither the evidence to back, nor the popular support for, another round of traumatic restructuring.

Those offering magic bullets and proposing big bangs should be treated with the cynicism that they deserve.

In the hothouse of a conference, where the biggest and the brightest parade the best stories to inform and inspire, it is easy to accentuate the negative. We have a lot going for us. We are growing and diversifying our economy. We have improved the lot of those exposed to the harsh edge of market forces. We have a number of projects underway in areas such as developing a biodiversity strategy, an inclusive economy, a sustainable economy, and innovation strategy and so on and so forth.

We are not in a crisis and shouldn't talk ourselves into one. We do need to lift our game, and have a fair idea about the range of integrated initiatives that need to be undertaken to do it.

In many ways, the conference was a staging post rather than a launch pad. I think there had been a reorientation of thinking going on. It started before the last election, was reflected in the election result and has been continued and refined since. The conference in some ways legitimised it, re-energised it and fuelled it with new ideas and new personalities. It was a result of the ideas change, not a cause, but is likely to be a cause of ongoing momentum and of refinement.

There is a broad consensus around the core issues, with dissent at the edges - on both sides of philosophical spectrum

The conference provided food for thought, and the government will certainly be doing some thinking. So should other groups and sectors.

Underlying the conference was a key debate which affects a range of government policies. That debate is between an approach which emphasises broadspectrum policy framework and one which emphasises a more targeted framework.

Generally speaking - whether in skills development, immigration, investment attraction, trade or a range of other areas - our approach over the last fifteen years or so has been a broad spectrum one. Thus, for example, in tertiary education the emphasis has been very much on lifting participation rates rather than any concern for what skills are being acquired.

Similarly, in investment attraction one has seen a broad spectrum approach which has tended to encourage initiatives in lower skill, domestically based existing enterprises.

The developing emphasis - dwelt on at the conference most by those drawing lessons from successful small economies - is a much more targeted one.

Alongside of this is the growing recognition of the need for strategies in individual areas of government activity to be integrated one with another.

This may all sound very commonsensical - and it is - but it does mark a significant departure from what has been the prevailing orthodoxy in New Zealand. It is reflected in the government's tertiary education reforms and will become more and more apparent I am sure in areas such as investment and immigration over the coming period.

There is much work to be done. If we are to lift our sustainable growth rate to four percent plus and develop a successful innovation economy strategy then it is down the path of greater specialisation and targeting that we will need to travel. Getting the broad framework right is a necessary condition for improved performance but it is now clear it is not a sufficient one. It is time to move on.


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