Rebuilding our economy as we emerge from a global pandemic is a hot topic right now. Business leaders are calling for more engagement with government. The World Economic Forum is calling for a “great reset” to a more inclusive and greener economy.

However, New Zealand has an Achilles heel that will limit our ability to provide both prosperity and sustainability. That is our serious lack of productivity growth.

Addressing this endemic problem requires a substantive direction change. We are stubbornly under-performing relative to other Small Advanced Economies (SAE)s. Incremental policy adjustments and rhetorical flurries have failed to deliver. It is time to get busy.

The NZ Productivity Commission (NZPC) needs to be commended for their current inquiry into the paucity of NZ “frontier firms” – those that have high productivity and high value, sophisticated exports. The enquiry, at the request of DPM and Minister of Finance Grant Robertson, provides an opportunity to substantially raise NZ’s economic development agenda.

Recommendations in the draft NZPC report place emphasis on attracting more multinational corporations, foreign investment, researchers and talent to build on our strengths and grow our roster of frontier firms. On the face of it that seems logical as they are features of frontier firms in SAEs. However, observing that other SAEs have far more, far bigger and more sophisticated frontier firms is one thing, understanding how they got there, and how we get there, are others. We need to concentrate more on the ‘how’ than the ‘what’.

In the foreword to a submission to the NZPC by Ffowcs-Williams, Galwey and Wilson; Dr. Christian Ketels, a global leader in economic development, proposes it is time for NZ, as Denmark has, for example, to move to an innovation policy focussed on regional clusters.

Dr Wilson says: “We need to create the right conditions to grow our own frontier firms. Strong, innovative ecosystems will attract international attention and investment.” Fundamental to this approach is not continuing to try and run everything from Wellington. It’s leaning on entrepreneurs, firms, researchers, networks, and communities who are close to what is possible in their regions and can build from the ground up.

Ffowcs-Williams, Galwey and Wilson argue that we can’t rely on undifferentiated commodity exports for our continued prosperity. To address this, transformation is required in how we do economic development, not further policy fine tuning. A major shift is necessary away from a centralised policy prescription to a bottom-up approach focused on regional strengths, regional innovation systems, smart specialisations, and targeted business support. And ‘regional’ must include cities.

It is at a ‘meso’ level, in regions, where we need to organise. Other SAEs do this, they support business growth and innovation through cluster strategies, for example, recognising that innovation has a tight geography. Its “face-to-face in a place.” Generic industry policies or false hopes in ubiquitous digital technology are not enough.

Building regional innovation ecosystems requires collaboration around regional priorities and among key government agencies including Callaghan, NZTE, MBIE, MPI, TPK, universities and tertiary institutions, and CRIs. But Government, in all its forms, is only one part of the triple helix needed for innovation, the other two parts are businesses and researchers.

Regional economic development agencies are struggling to build coherence and provide focus in their place. New Zealand’s centralised innovation efforts still focus on individual firms, from a raft of agencies, not the more complex but necessary task of building regional innovation ecosystems.

Moving from a clutter of support to alignment around regional strengths will require coordination and leadership within regions. Regional development agencies could be positioned to orchestrate this kind of systemic, long-term, joined-up approach that is at the heart of SAE success.

Will we continue down the well-trodden path of the last 50 years that has failed to deliver? Or are we ready to go to the next level, to economic development 201, and empower the regions?

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 NZPC’s draft report https://www.productivity.govt.nz/assets/Documents/5a581e022b/Draft-report-frontier-firms.pdf

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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