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Idealog—in the ideas business

On the road to nowhere

Idealog May/June 2007, page 66. Photo by Jason Hosking (The Image Bank/Getty Images). Retouched by Adrian Clapperton

Idealog May/June 2007, page 66. Photo by Jason Hosking (The Image Bank/Getty Images). Retouched by Adrian Clapperton

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?

Originally published in Idealog #9, page 66

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Great article Vincent. Well done.

I share your concerns but sometimes despair with the practical leadership steps we can take and whether these will make enough of a difference. Yes we try in our area of direct influence, with clients, in my case with the accountancy profession through my board responsibilities. But is it enough? Like the solution to many challenging issues I believe it requires everyone in the supply-chain to be inspired, to be driven, and to lift their game; from education, to business, to government, to families, to individuals. I’m not sure our government will be able to do this in our current MMP constrained environment. I believe business has a large part to play, just as I believe it will be business that starts to drive some of the good sustainability initiatives that are emerging—because fundamentally doing good is good for business in the long run. Jude Manion of the Robin Hood Foundation is doing a great job of getting that message across at the top end of town. But like many NZ issues; to really get traction we need to find ways to get the knowledge transferred, & the debate happening in SME land where most NZ business lives. And many of them will never be sexy success stories like 42 Below I also suspect many SMEs them have trouble relating to such companies—but if we can lift their game 10% each I’d imagine collectively it gets us to the overall desired result.

All we have to do is to sort out how this debate gets co-ordinated to get traction—easy huh!

Great article Vincent. So it's easy to see what New Zealand has to do…We need to keep up dialogue, to build capability, to convince NZ SME's to take on advisory boards of directors, to embrace creativity, to turn our backs on the old boys network, to become ambitious, to add value, to realise that we don't have the luxury of a large natural resource base, to realise that despite the hype we still need people to make things here, to align SME's needs with economic development policies, to learn more, to read more, to look to successful and creative businesses here and overseas, to utilise design for all aspects of a business, to educate our youth on what commerce truly is, to integrate technology, education and design and to on the one hand drop our tall poppy syndrome but on the other stop putting people on pedestals. LETS KEEP THE DIALOGUE UP! [i][/i]

As usual for Vincent, this is not so much a criticism as a call-to-arms. Let’s not waste too much time and energy looking at what failures we’ve been, and instead get on the right road by identifying and building what we need to do to get back up in the OECD upper quartile (top-half just doesn’t do it for me). I don’t for a minute think governments can do anything other than provide a platform on which entrepreneurs, companies and people can build the future, but we haven’t got the platform yet. That needs big, bold leadership of a shared vision by industry, both sides of Parliament, our public service, our local bodies, our education system and our media. That vision can incorporate all those things that make us distinctively who we are (or want to be). A growth agenda can include our social and environmental aspirations too.

We need to get excited about the future and committed to making it happen. I’m willing to sign up. What about the rest of you?

Thanks for the comments. A lot of the things that you say (Ben) are already being done in patches. Andy Hamilton of the Icehouse for example compalined bitterly to me that the story ignored the seven years of work put into terific stuff like their owner-operator programme and the fact there are now six or so incubators nationwide. Andy is not part of the problem. The problem is that it's all too little. and the creativity and flair we see in the creative industries, important though it is, applies to a tiny part of our economy. Here's an idea - what if the same level of energy, creativity flair and imagintion was applied to farming? What would the efect be of turning that huge economic wheel just one or two more degrees?
Is agriculture the missing part of the knowledge/creative economy? Yours thoughts welcome.

You're correct Vincent - it's about integrating the disparate attempt to get go forward - yes the incubators work well but then you don't have integrated fiscal policies to facilitate them achieving their goals. NZTE is flawed in its strategy of trying to pick winners. All credit to Sam and Geoff (Morgan/Ross) but its the mid size businesses (and smaller ones that can scale to mid size) that NZTE should be hitting. Partly becuase the TradeMe's and 42 below's of this world have the ability to do it pretty much on their own but also because such rapidly growing businesses are prey for (generally offshore) takeovers and when that occurs - it like sequestering carbon in a tree and then chopping it down. At least Sam Morgan (and Rod Drury for that matter) have stayed here and reinvested in new businesses. It suprises me hugely that Icebreaker has no, as yet, sold to one of the European or North American fashion brands - watch this space I guess. So we need to get together and get integrated dialogue going between educationalists, businesspeople and local/central government. Want to join me in setting up TED-NZ, but is a more sustainable and viable way than the knowledge wave? Stay in touch……

And yes you are right - Fonterra is doing well, but imagine if they could link with some of the technology coming out of the CRI's. And then the same could be done with the meat industry. Vertical integration, leading edge technology, adding value and branding

What a recipe!

Some good initiatives did emerge out of Knowledge Wave - I've had the pleasure of being involved with one or two of them myself. But sometimes it feels like we are nibbling around the edges of a much bigger problem. It's no good putting forward good ideas if the macroeconomic settings are out of kilter for example.

In the circles I move in, talk about the Knowledge Wave has long faded, SMEs are off the agenda and there's a quiet acceptance that perhaps we might not get 100 X $100 million new tech companies by 2012.

There should be a Knowledge Wave event every year and a panel of resident private sector entrepreneurs and creative change agents who can keep pushing things along.

Great article Vincent and perceptive comments from all. As noted there are both macro and micro economic issues to consider. Starting a business is quite easy here but bringing a start up to market is very hard. The whole incubator, start up and vc funding structure is devoid of imagination and capital is hard to raise. Government interferes causing an uneven landscape and perpetuating a "who you know" approach to success. I don't think government should be involved at all really other than creating the macro conditions for development such as nationwide broadband access and communication networks at much lower cost. That's the equivalent of roads for technology and service industries these days.

What government can do is cut corporate and income taxes to say 25%, introduce a capital gains tax at 25% and increase GST to 15% which will hopefully level the incentive field a bit. A Foreign Transaction Tax (on funds leaving the country) may slow that flow down a bit or at least take in some income.

Our banking industry is owned by overseas investors. That is not healthy for NZ business or taxpayers at all. We need a stronger domestic finance system because at the moment the taxpayer subsides the banking system to the tune of billions of dollars, which is the profit made by the banks in the creation of interest bearing loans every year.

Strong and forward thinking leadership is required from the primary industries because it's a great business to be in. There is value at all levels of the chain to be had. It's time to move on from the redneck vs greens arguments and really harness the resources we have in a thoughtful manner.

NZ will continue to lose its best and brightest and that is unavoidable. We cannot compete with the richer countries at the moment. Witness the All Black exodus.NZ is a great pool of cheap skilled labour for many markets.

So raising wages is critical. Maybe scrapping fees for certain degree courses is an idea….such as medicine, IT etc…otherwise they will continue to head offshore to pay off their debts and we will end up importing cheaper doctors who may not be as good?

There's lot to think about here but i don't think its the role of government to do it. I think the problem with big events like the Knowledge Wave is the government involvement and all the slapping on the back and great pronouncements. What might work better is more relaxed dialogue and brainstorming sessions amongst relevant interests.

Just some food for thought. I do think its important to start thinking ahead about these issues and not waiting for government to sort it out. They wont and its not their job anyway.

I also wanted to comment briefly on the BMW, bach and boat thesis. I think there is something in that, namely that most Kiwis don't aspire to major riches and are more focused on getting to a point where they can enjoy life. That's probably a good thing. Added to that is the makeup of immigrants. Many come not for the great jobs on offer but for the "lifestyle". NZ is almost a retirement destination for people who love the outdoors and low population density. Then again it's the sort of place that inspires new ideas and i know many people who come here with great skills but no job and after a few years find themselves getting involved in ideas or businesses they never would have done had they been back in London, New York or wherever.

It's an interesting subject which would be worth expanding on in a more focused article i think.

Vincent, your remarks re farming are a bit off the mark. We've got probably one one of the most sophisticated farming sectors in the world. We spend more on farm-related science and innovation (as a proportion of GDP) than most countries and our dairy industry is one of our few global scale ones. As a strategist I agree with concentrating our resources where we have strength, and I don't begrudge the farm-based industries the dollars that the government puts into them. But at the level of a national economy we need to place a few more bets, not least being good infrastructure, a sound tax and legal framework which does not distort productive investment or the exchange rate, and a regulatory environment which does not discourage sensible development.

Regarding the red herring of student fees (much less than the government subsidies by the way), we spend a higher proportion of GDP than most countries on student support, so it's not student subsidies that are the problem (indeed higher participation has been the hallmark of the last 10 years, although relevance is another matter, but that's being fixed now).

In brief (very brief) I would make these points:

1. It is a reminder of why we should never be seduced by governments and conferences.

2. When I was Chairman of Competitive Auckland (around 2000) I used to finish with the question, do we want to become Singapore or Fiji? I think that unfortunately we are closer now to Fiji. Hence the value of our land goes up even if the economy does not.

3. 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.

4. The Icehouse in our programmes does see “transformationâ€? and it is very significant whether it be the going concern itself or the individual, but usually benefiting one benefits the other.

5. As a baby boomer every time I read about the declining capability of our health sector I think I might not get access to best health solutions when I need it.

I'm a big fan of the Icehouse and David Irving is a personal hero. He is one of the few business leaders with a passion for developing real change in Kiwi businesses. But how many David's do we need to reverse the slide? I worry that micro is too, er, small. There's unfinsihed business on the macro that's getting more urgent as time rolls on. Remember Ireland: 0% corporate tax. Now dere's a ting.

I agree Vincent - no amount of micro level changes will add up to a major macro shift (well maybe heaps and heaps of micro level changes but that's not practical). We need to integrate the same momentum along many sectors and areas and the only way to do that is macro level change management. I understand David's concerns of yet another talkfest but I guess if we find people that are able to not only walk the talk but also to convince others to do similarly we might achieve something - regards Ben.

I was cyncial about the ‘Knowledge Wave’. It was actually a government relations exercise for Uni of Auckland dreamed up by their – albeit very clever – PR company, and hence many of the players showing willing then returning to their Chelsea pads. However I do share your ‘frog in a bath’ feeling. What I’m not sure about is whether it’s always been like this or if in fact we are entering a new period of decline.

It generally comes back to sovereignty: our population would support maybe one or two universities and maybe a couple of decent hospitals in, say, a major US/Euro/AsiaPac city of our size. The fact is to maintain a ‘country’ like ours, a large number of folk end up working for the state sector in those kinds of services, leaving very few left to earn exports and create wealth (in a direct sense – obviously a healthy, well educated society helps create wealth). I do think the ‘small government’ cycle may turn again if the electorate decides that, notwithstanding this administrtion’s good intentions, the ROI has been too low. We’ll merge currencies, outsource defence and get over ourselves. (This is what comparisons with Europeans miss – eg Scandis or even Ireland to a degree. The EU has actually made enormous progress in so many of these areas – notably infrastructure – that has allowed ‘nation states’ to grow.) But that would take leadership, and are ‘the Hollow Men’ capable of that?

Excellent article, Vincent.
A voice in the wilderness perhaps?
I do not see similar pleas in the big papers.
Yet New Zealand's declien continues.
I have just returned to NZ after six months in Oz.
Auckland looks poor and shabby, lacking the gleaming spires of Sydney, Brisbane, Melbourne, Perth and even Adelaide.
I have often said to people, what happened to the Knowledge wave.
I'm glad someone else has noted and realised that Labour has done stuff all.
Eight wasted years.
Thankfully, they will be out next year, but will Key do any better?

an example (admittedly small but after all national wealth and growth is merely an aggregate of micro growth and wealth) is discussed here

It's a good example of the creative economy being innovative to develop new revenue models and business methodologies

You might recall, Vincent, because you were part of it, the annual series of 2 day SmartNet workshops, plus a Working Smarter Expo, that we ran in the Christchurch Convention Centre 1997-2001.
This was the first time people across the private and public sectors articulated some of the opportunities and issues for New Zealand organisations as we moved into the 21st century.(Teamwork&Technology, Knowledge, Innovation, Partnerships etc.)
In 1999 a large contingent of Aucklanders came down to experience SmartNet. Imitation is the most sincere form of flattery, but they got the formula wrong by trying to whip up the Knowledge Wave around one university. Like HMS Hood it had serious design faults and sank spectacularly, its mortal wounds largely self-inflicted.
SmartNet took-and still takes- a wider and deeper view of New Zealand organisations collaborating at home to better compete off-shore by learning faster and working smarter.

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