On the road to nowhere
By Vincent Heeringa,
Feeling comfortable in your Pacific idyll? Times are good in Godzone, right? Don’t kid yourself, New Zealand—we’re going nowhere and most of us don’t seem to care. Vincent Heeringa worries aloud about our slow economic decline
Do you remember the Knowledge Wave? In 2001, at a week-long conference in Auckland, a tsunami of enthusiasm for a new kind of New Zealand was debated by a stellar lineup of business people, academics and politicians. The conference was abuzz with ideas about a second economic miracle, this time not as divisive as Rogernomics; it set out an exciting agenda of creativity, ingenuity and innovation. The nation was united: New Zealand needed an economic transformation and it would bloody well get one.
I was pretty excited by it all. Okay, so it was a talkfest and reminded me a little of a Youth For Christ rally. But for a brief, thrilling week, the idea pushed crime and sport off the front pages of the newspapers. It even had its own Sky TV channel.
What’s more surprising is that a consensus emerged about what was wrong: New Zealand had not finished the task of economic overhaul and without a concerted effort we were heading to economic hell in a handbasket. We used to be a rich nation: in the early sixties our per capita income rivalled that of places like Luxembourg. By 2001 we had slipped to 21st in the developed world, as measured by the Organisation for Economic Co-operation and Development (OECD).
The new task, as agreed by pretty much everyone, was for New Zealand to reach the top half of the OECD wealth chart by 2011 (Page 14 Growing an Innovative New Zealand 2002). It was a bold aim, but not silly. We had ten years, we’d been there before and heck, who was there to beat? Hungary? Greece?
“The one-time urgency of New Zealand’s great and good to create a knowledge-led, world-class economy has turned into a shrug of the shoulders. Where did the passion and ambition go? ”
Six years on, how are we doing? Have we created the Knowledge Economy we hoped for? More importantly, have we reversed the slide to join Mexico and Turkey at the bottom of the heap? Brace yourselves for bad news, New Zealanders: the answers are no and no. On the OECD’s wealth chart we’re back where we were in 2001, and slipping. New Zealand currently has one of the lowest economic growth rates in the developed world.
Surprised? That’s part of the problem, too. A widespread indifference has accompanied this reversal of fortune. I don’t know if it’s just me, but it now seems the one-time urgency of New Zealand’s great and good to create a knowledge-led, world-class economy has turned into a shrug of the shoulders. No one in government now talks about reaching the top half of the OECD rankings (there are some who deny it was ever government policy). Say ‘Knowledge Wave’ at a business function and you’ll get guffaws. Where did the passion and ambition of the Knowledge Wave go? And why isn’t this stuff the subject of documentaries, dinner debates and talkback chatter?
The answer, I suppose, is that it’s boring. And that rising property prices make us feel good, like a drunk who can’t feel the cold. For a moment too, it did seem that the miracle of economic transformation was at work. In 2002 and 2003 we outpaced world economic growth and our sharemarket was the toast of the bourses. The success of companies like Navman and Icebreaker fuelled our backslapping optimism that the Knowledge Wave was real.
Then we hit an all too familiar patch of rough water—a high dollar and low commodity prices—and the bad old days of economic underperformance came back and now look set to stay with us for years. We’re watching the leading pack slowly but surely pulling away.
This matters for very practical reasons. Take health. Twenty-two of 28 countries in the OECD publicly fund the expensive anti-cancer wonder drug Herceptin. All those who don’t—New Zealand has just adopted a controversial shortened programme—are in the bottom third of the OECD. According to 2003 OECD figures we’re ranked 21st for total expenditure on healthcare per capita—our combined spending on public and private healthcare was US$1,886 per head compared with the OECD average of $2,394. Our health spending as a percentage of the OECD average fell between 1990 and 2003 from 84 to 79 percent.
Anyone who has visited Australia recently will see for themselves just how far New Zealand is falling behind in roads, education, science and research, and simple stuff like investment in public spaces. We’re getting what we can afford.
So we’re doomed? Well, not yet. A lot has been achieved since that first Knowledge Wave conference. In excruciating detail we know what is wrong with our economy and we have a broad consensus on what needs to be done to fix it:
- Increasing investment in our businesses
- Raising productivity
- Becoming more globally connected
- Improving infrastructure
- Lifting our ambition
Some decent strides have been made in all these areas. Best of all, there’s now a much more solid portfolio of world-wise companies that are growing rapidly on the back of increased international market share. A 42 Below anyone?
But I can’t help feeling (back to the gloom) it’s all too little. The New Zealand economy’s default setting for the last 30 years has been under-performance compared with the rest of the world. It’s going to be very hard to turn that around. To give you some context of the size of the task in front of us, the New Zealand Institute, an economic think-tank, says for New Zealand’s economy to be comparable to, say, Australia’s, exports should represent 35 percent of GDP by 2020, up from 28 percent at the moment. The average for small OECD countries is 54 percent.
This conservative target, requiring export growth of about four percent a year, means our exports would need to be worth $35 billion more in 2020 than they are now. That, the institute points out, is equal to creating three new Fonterra-sized companies or 150 Pumpkin Patches.
Barring a huge oil strike in the Southern Basin, or the world suddenly deciding it wants to pay vastly more for our dairy products, it’s hard to see where this growth will come from. Our exports actually decreased between 2005 and 2006 and Treasury is forecasting miserly rises of between 1.4 and 4.6 percent for the next four years.
Whose fault is all this? Partly it’s our modest ambitions. Food and beverage exports represent about half the goods leaving these shores. Yet last year the Food and Beverage Taskforce set its growth goal for 2016 as doing no worse than it had in the previous decade.
Partly it’s due to scale. Our information and communications technology sector is more ambitious but it’s embarrassingly short of global contenders. Export income from ICT is running at more than $1 billion a year. A sector profile estimated that for the sector to reach its target of constituting ten percent of GDP—in line with the wealthy nation norm—ICT exports would need to be worth $16 billion a year by 2012. Okay, there are some great Kiwi ICT companies out there, but given critical problems such as the shortage of ICT professionals you have to wonder how that $15 billion gap is going to be bridged.
Size matters. Take wine. Last year wine exports were worth more than $600 million—double that of 2.5 years ago. The industry projects it will hit the $1 billion mark by 2010. So an industry in which New Zealand has huge natural advantages will take more than 20 years to get from $10 million to $1 billion in exports.
The government, once the cheerleader of our climb back to the top half of the OECD wealth charts, is an easy target for blame. Tellingly it has abandoned the top-half aim, or at least has recognised the immediate bleakness of the situation and gone quiet. It has already back-pedalled once, dropping references to the original 2011 target, now describing it instead as a ‘feasible goal over time’.
And the good stuff—for example KiwiSaver, company research and development tax breaks, the revival of New Zealand Trade & Enterprise, moves on breaking Telecom’s hold over the national telecommunications infrastructure—is all too little, too late. What we’re not getting is a transformation. Helen Clark predicted as much at the first Knowledge Wave conference: “Faster growth won’t be achieved by waving a magic wand. It will be achieved by a series of consistent steps taken towards our goals. Crash-through approaches which leave the public wallowing in their wake won’t work.”
Ireland is often seen as the model for our own transformation—Sean Dorgan, the chief executive of Ireland’s Industrial Development Agency, spoke at the conference. Many identify Ireland’s success at consensus-building as important for our own transformation, but the Irish also engineered a radical revamp. Ireland cut corporate taxes to almost zero, massively reduced public spending and invested heavily in ensuring the country became and remained internationally competitive. Through a combination of planning, good timing and geographical good luck, Ireland went from being ‘the beggar of Europe’ to one of the region’s richest nations in little more than a decade.
“What’s the business community doing? Bugger all, really. But the biggest culprits in this decline are me and you. We just don’t notice that we are getting poorer ”
And as an example of the fight New Zealand has on its hands to catch the rich nations ahead of us in the wealth rankings, Ireland is still cracking the whip. In its latest National Development Plan , Ireland aims to spend NZ$105 billion on infrastructure over the next six years. Our government , under the heading of ‘economic transformation’, will spend $3.6 billion between 2006 and 2010 on infrastructure, lifting skills in the workforce, and research and development investment.
But it’s unfair that our failure to overcome all of the economic sins of the last 30-odd years should be dumped on the lap of the current government. It’s done as much as any over this period to recognise the wobbly underpinnings of the New Zealand economy. MMP hasn’t helped. The government is in a weak political position, having to cobble together coalitions to get policies through Parliament. At the same time, the National opposition often appears more interested in playing politics than finding solutions.
What’s the business community doing? Bugger all, really. Most of the energy of business lobby groups has gone into fighting the government on red tape and employment law. The key figures behind the Knowledge Wave Trust have all gone offshore to pursue their own careers (who can blame them?). The Trust was rolled into the New Zealand Institute, which has been keeping up the good fight with powerful research but gets scarce airtime. Business leaders seem to have dropped from public view. Where is the Doug Myers of today, weighing into public policy debates and discussion about nation building? Or is that all too embarrassing to talk about in public?
By far the biggest culprits in this decline are me and you. We just don’t notice that we are getting poorer. There is no widespread electorate pain driving calls for change that a government is forced to listen to. Perhaps if we had a common land border with one of the richer nations we’d be more aware that their roads are better, their schools better equipped, their houses flasher and their inhabitants healthier and more prosperous.
At Idealog, we see a steady stream of creative Kiwis with passion and clever ideas. They’re inspiring but they’re small in number. And a bit like the wine industry, no matter how sexy, clever and successful, it’s small beans in economic terms. Our national economic performance requires a national ambition.
It’s time for a coherent, united and urgent response. I don’t want my children to grow up in a poor country. Do you?