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Idealog—in the ideas business

Road to recovery: There’s hope for New Zealand yet

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Idealog July/August 2007, page 72

We got uncharacteristically bleak in our last issue with ‘Road to Nowhere’, pointing out that New Zealand is languishing in the bottom half of the OECD wealth chart and most Kiwis don’t seem to care. We’re happy to report that Idealog readers care very much. Vincent Heeringa reads from his email

A journalist’s worst fear is that no one will notice what you’ve written. I remember a colleague congratulating me on a long, worthy piece for Metro magazine. “Great story, Vince. Had to be written. Not read. But written.”

What a wag.

‘The Road to Nowhere’ was read. I know this because I’ve never written anything that’s been so commented on—at parties, at my kids’ soccer, at business meetings, on radio and in email. It was recommended reading at the Thrive Auckland small business event in May and, ironically, given to me as background reading for a consulting job I’m doing. It’s been delivered twice as a speech. Campbell Live promised to interview me about it sometime. I’m still here, John.

I’d like to think this is all due to my, ahem, brilliance, but suspect it’s just good timing. The story touched a nerve in the same way that the first Knowledge Wave ignited our passions. Even those who criticised the specifics share my frustration that this terrific little country has been economically underperforming so badly, for so long.

But now what? To my mind the next step is to galvanise this frustration into a coherent agenda. The end result must be to rescue the frog from the pot; but a key outcome for now must be to make this the subject of dinner party chat, talk-rot radio, business lobbying and political party rallies. I don’t think political parties can make this their agenda until they experience heat from the electorate.

What might that agenda look like? I’m no economist but it seems to me that consensus is forming around five key items. From the opinions expressed on our website and correspondence in recent weeks, here’s how I see the agenda looking.

Leadership, please

Can more talk and more government actually help? For many, the answer is no. One PR professional and high-tech entrepreneur who doesn’t wish to be named says he was cynical about the Knowledge Wave. “It was actually a government relations exercise for The University of Auckland dreamed up by their—albeit very clever—PR company, and hence many of the players showing up then returning to their Chelsea pads.”

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Idealog May/June 2007, page 66

David Irving, chairman of The Icehouse incubator and of the now-defunct Competitive Auckland, says he is “wary about the dangers of trusting governments to do very much at all”.

Roger Kerr of the Business Roundtable says the government’s role is simple: get out of it. His approach is well traversed in New Zealand but he refused to elaborate because “anyone [he means me] who can simultaneously admire the broad directions of Australia and Ireland (towards greater economic freedom) and the Knowledge Wave (towards greater interventionism) has lost the plot.”

Oh well.

Most readers are less world-weary than all that. It’s a question of leadership. Software entrepreneur Rod Drury is up for it. “As a nation we are small enough to talk to one another then get things done. I mean, look at what’s happening now in broadband. So there’s a job to do in mobilising opinion around a central agenda.”

SME is key

A good number of readers point to the SME sector as the sleeping giant in the economy. Since New Zealand business is dominated by small enterprise, Craig Fisher, a partner with the Hayes Knight accounting firm, says a small improvement in each firm creates a multiplier effect. “But like many New Zealand issues, to really get traction we need to find ways to get the knowledge transferred and debate happening where most New Zealand business lives. And many of them will never be sexy success stories like 42 Below.”

Irving is working on it, with programmes such as the Owner Operator Management course run by The Icehouse. “While I have every regard for the macro picture I think it just adds to the talk-fest. Change comes when a manager decides to do something. That is why The Icehouse spends its time addressing their needs.” He says economic transformation operates best at a company and individual level—not as government-speak.

So any agenda needs to be SME-friendly, addressing ongoing frustrations such as the cost of doing business, access to capital, freer labour markets, quality of management expertise and entrepreneurial ambition.

Bigger, faster, better!

Mike Booker, a business writer and advisor, says productivity is the one metric to rule them all. Unfortunately, it’s also one of our weakest. New Zealand’s productivity, measured as GDP per hours worked, is consistently lower than the OECD average and has been for years, bar a spurt in the early 1990s. Booker worries that we’re in for a tough time if we don’t fix this. “The unsung heroes of our economy are the agriculturalists who year-after-year lift productivity, yet can’t charge more for it. I’m not sure how long that can last, particularly as other low-cost producer nations lift their game.”

Productivity is probably the most important measure in this whole story because, in essence, it’s all about making more from less—the very core of the creative economy.

Tax, tax and less tax

The people want less, the experts want less, and business people want less: lower taxes are overdue and with a projected $6 billion government surplus it’s not impractical either. But we need to go further. The smartest comment on tax in the post-Budget analysis was by New Zealand Herald columnist Brian Gaynor. Ireland, he points out, has been “the best-performing OECD economy since 1970 and New Zealand the worst”. A key difference between the economies is the tax system. Ireland has low corporate and personal income tax, but high VAT (the equivalent of GST). The system rewards the creation of wealth and punishes the spending of it. Seems morally right to me, at the very least. Ireland also generates almost twice as much tax.

Whatever system is finally promoted, our agenda would recommend reducing tax and overhauling the tax system as top priorities.

Invest, export, own

Along with productivity, the agenda needs to include two other key metrics: growth in exports and business investment. The ‘Cullen Fund’ and the new KiwiSaver will make a difference to investment—one estimate puts the increase in funds under management by 2013 at between $5 billion and $7 billion. That’s great, but as economist David Skilling points out that money needs to be put somewhere productive or it will simply go offshore. Our government seems unwilling to require investing the funds locally as the Aussies have, so we need to persuade fund managers of the wisdom of investing here.

But where to invest? We are so woefully short of companies worth investing in, especially exporting companies. A government initiative, Export Year 2007, is a good idea and will produce results. But as Rod Drury says, “We can’t expect the government to do it for us. We need to make it patriotic to export—and even just to start a business.” Our agenda will aim to produce many more Rods.

Innovate or die

If productivity is the outcome, then innovation is the process.

It’s a key objective of Idealog to mediate between the creative community and the business community to reinforce commercial creativity. Often, immigrants and returning expats appreciate this aspect of New Zealand best. Vortex Technology’s Raf Manji comments: “New Zealand is the sort of place that inspires new ideas. I know many people who come here … and after a few years find themselves getting involved in businesses they would have never done back in London, New York, or wherever.”

The unsung heroes of our economy are the agriculturalists who year-after-year lift productivity, yet can’t charge more for it. I’m not sure how long that can last, particularly as other low-cost producer nations lift their game

Measuring innovation is tricky. We need to rely on a suite of metrics that would include growth in the number of patent registrations, technology graduates, elaborately transformed manufactures and revenue derived from copyright and licensing. We’ve already started to look at some methods on my weblog.

Our plan of action will ensure that innovation, however it’s measured, will be included along with traditional economic metrics.

Call to arms

Jim Donovan, the Wellington-based chief executive of Fronde, suggests my story is a call-to-arms rather than a piece of journalism. (Is that a compliment?) If it is a call to arms, I’m not the only one calling—there are plenty of organisations already pushing the agenda. The New Zealand Institute, headed by Skilling, is probably most important in terms of thoughtful analysis. The truth is that our economic dilemma is well understood in business, academic and political circles, but isn’t getting through to mainstream New Zealand. We’ve been the ‘frog in the pot’ for so long now that Kiwis younger than their mid-thirties don’t even know that New Zealand was once one of the wealthier countries in the OECD.

So here’s what I reckon needs to be done. We need a concerted effort by those who care to use high-brow and low-brow means to ram home the point to ordinary Kiwis that our country is poor and getting poorer—and that there is a solution. The message needs to be academically sound (over to you, Mr Skilling) and cleverly packaged (hello, advertising agencies). It needs to be apolitical, cross-industry and inclusive of age and race. It probably needs a few people to kick-start and coordinate. I’ve made a start. Check out our blog.

A poor country is as useless as tits on a bull, and if anyone knows that it’s Kiwis.

Originally published in Idealog #10, page 72

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Comments

Yep Vincent - even if sometimes you odn't reply to my emails - you're speaking my language.

From memory my comment on the "road to nowhere" post was couched in terms of "we need to achieve cross party, cross vested interest buy in." So we need to all be sitting round a table and talking about the same things in the same language with the same degree of understanding and vision. We need to attempt to move on from the artificial constraints of a three year electoral cycle and put into place changes which will take a decade (at least!) to come to fruition. we need to get off our laurels and realise that we're doing badly and getting worse and that a concerted effort is not an option but a necessity. We need to break down the institutionalised walls which make big business unlikely or unwilling to listen while at the same time trying to get central government to "get it". We need to avoid the NZ tall poppy syndrome while avoiding putting people up on pedestals in the first place. We need to find innovative business models (Inspire magazine, Xero et al examples) but we need to realise that to create a TradeMe or an aftermail out the top of the triangle every six months or so (which we need) it's going to take a heap of innovative ideas feeding in at the bottom end of the triangle. Rod being a serial entrepreneur is fantastic but we need more of him and more VC. Most of all we need more ideas. We need to see design as integral and we need to start always referring to design with a big "D" it's not about product, it's about a 360 degree view of a business to measure every aspect of that business under one simple criterion - creating delight for it's customer

So that's the answer - easy really.

Let's all go for a coffee and discuss…

It was a compliment, Vincent. On reflection, I'm not keen on more talkfests if all we end up with is calls for more innovation, more design, more branding, more start-ups. We do need more mid and large scale companies that can foot it globally. That's fundamentally about bigger business managerial skills, bigger company supply and dsitribution channels, bigger brands, the money and scale to do bigger things. Start-ups and small business are important, but achieving comparative wealth requires scale. The ICT Taskforce was poohpoohed for its goal of 100 companies > $100 million annual revenues. I stil think we (I was one of them) got it right, and that other industries should set similar large goals. Stop looking to govt to lead us - thay can at best support us. Govt can fix infrastructure (urgent action needed), education (getting better), and the legislative/tax environment (fix the RMA and do something radical with tax). By far the bigger part is up to business.

Jim I'm just not sure - given how far we have to go to get to a reasonable level on the OECD's rankings, I don't think the 100>$100mil concept is viable. Theres just too many threats and too many weaknesses to our fundamental position here in NZ. Not to mention that the energy taken to achieve $100mil is all lost (well much of it anyway) upon sale offshore (which is often the case).

Surely 1000>$10mil is more viable, more sustainable and a less risky option for our country???

Obviously I agree with you in terms of the infrastructure requirements, ditto the legislative framework and so/so on the education front.

Where our opinions diverge is whether or not we can realistically create 100 TradeMe's or Xero's in this country or whether 1000 David Trubridges would be better


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