The New Zealand Institute is probably the only really serious thinktank we have in New Zealand (as opposed to the handful of right-wing advocacy groups that style themselves as such). Its current focus is on how the New Zealand economy can be more prosperous and effective, which is also a topic that I’ve been looking at here at Policy Progress in the ‘Progressive Path to Prosperity’ workstream.
So, when the Institute last week released its report A goal is not a strategy: Focusing efforts to improve New Zealand’s prosperity, I was keen to take a look, especially since I knew its director Rick Boven would be speaking at the Fabians seminar What Will Fix New Zealand’s Economy? (held last night).
I’m glad I did. It’s a useful report, with some interesting facts and figures scattered throughout, and a proposal that I think is definite worthy of debate.
But I’m also a bit frustrated. There’s some important gaps and a lot of the really crunchy issues and difficulty decisions have been pushed out to the next report in this series.
In essence, what A goal is not a strategy is advocating is that New Zealand make a definitive choice to back information and communications technology (ICT) and niche manufacturing as the crucial sectors that we need to grow.
This, of course, is ‘picking winners’ and for a generation we’ve been told by ’serious’ people that doing that was economic lunacy. But the policy cycle seems to have swung around again, and a lot of heavy-hitters now seem to be open to at least a cautious version of the ‘picking winners’ approach.
I don’t have a problem with that. And the report makes a good argument that the more even-handed open-to-all-players approach has resulted in ‘insufficient aspiration and lack of a sufficient focus’:
Aspiration is missing partly because there is not yet sufficient agreement that ICT and niche manufacturing should be the priority sectors. As yet there is no consensus that agriculture and natural resource development will be insufficient, nor that New Zealand can build a prosperous economy based on innovation and exporting value-added goods and services. (p. 33)
The other thing I like about this report is its insistence that an economic strategy has to have some real consequences if it’s to make a difference:
A strategy is a reallocation of resources to achieve a valued goal. If the goal is important and the strategy is sound then the reallocation should be material; sufficient to change the outcome. A few tens of millions of dollars is not material. Competing small countries are committing hundreds of millions of dollars to efforts they regard as strategically important. (p. 3)
Their critique of the failings of government efforts to support cluster development (p. 46) illustrates this point well. An evaluation of New Zealand Trade and Enterprise (NZTE) programme four years on found it to be “too small, too thinly spread and its objectives and outcomes were insufficiently defined to support true cluster development”. So was the response to put more money in and tighten its focus? No, the programme was abandoned as it was felt “that regions were in a better position to prioritise and make decisions that suit their needs which may include cluster funding.” (There may be another side to this story, but on the face of it that seems an illogical response to those findings.)
But I have some misgivings, too. Firstly, it’s not clear to me that picking “ICT and niche manufacturing” really narrows things down that much. It represents a clear choice not to rely on agriculture as our engine of growth (while preserving our existing strength there). But there isn’t really a definition of what that does and doesn’t include, and why.
Nor is it conclusively demonstrated that things like, for instance, the previous government’s focus on the development of the food and beverage sector were a misjudgment. The report makes much of the low productivity rate of the agriculture sector overall, but surely this masks quite a range (as with manufacturing) and there are high-tech high-productivity pockets in agriculture and affiliated industries.
Secondly, while some of this is yet to be unpacked, it reads like what the report is advocating is pouring an awful lot of money into business assistance. Maybe that is what we need to do, but I’d like to have seen a bit or evidence about that sort of thing being a good spend.
Personally, I’m still cautious that throwing contestable grants (or loans) at individual business who meet the right tests and are in the right industry is the most important thing we need to do. I’m inclined to feel that more cross-cutting issues like our low rate of savings and (related) the capital shallowness of New Zealand business are more the sort of things we need to address, and that implies rather different policy levers. (These issues are touched on in the report, but aren’t its main focus.)
One of the general problems that the report does have a bit of a focus on is our weak management capability, and I’d tend to agree that this seems to be a problem. But I’m a bit perturbed by the lack of evidence of our weakness that they’ve actually assembled here. I think the report does a good job reconciling some of the areas where we are reported to be strong — we score well on measures of entrepeneurship and on ease of starting a business — with our overall weakness: we end up with a lot of SMEs satisfying people’s desire for independence but not really building up the kind of skilled entrepreneurship that’s needed to break through into successful exporting.
But there really isn’t anything beyond assertion to show that we really do have weaker levels of management capability than our competitors. The MED report Management Matters is cited but its findings aren’t really presented.
That means that report doesn’t really offer us any insights about why or in what ways our management capability is weak, and what structural factors might be responsible and need addressing. That gap results in some rather out-of-left-field solutions: is ensuring one of our ten MBA providers offers a “full-time world class” programme focused on international entrepreneurship really a transformative difference??
This all leads the report to the conclusion that supporting success at ‘internationalisation’ in ICT and niche manufacturing should be New Zealand’s economic strategy priority. But exactly what ‘internationalisation’ entails isn’t spelled out and “[t]he specific actions, resource reallocations, and policies required to lift internationalisation performance remain to be identified and agreed” (p. 51).
I guess we have to accept that this report is one step in a wider work programme, and only takes us so far. And despite the limitations I’ve outlined, I think it does provide a good conversation-starter for a debate on which winners to pick and how best to help them. But we need to have that debate, and argue back and forth about the evidence — we can’t take it that the New Zealand Institute has made a settled case for anything, as yet.
Postscript: I drafted this post before going to the Fabians seminar last night. I took the opportunity at that event to ask Rick Boven whether the significant sums he envisaged this emerging strategy as requiring were actually to be spent primarily on business assistance programmes, as the report seemed to suggest (and as I mentioned above). Surprisingly, he said no — he felt the priority spend was on various innovation-friendly tax-breaks in areas such as depreciation.
I thought that was pretty interesting as in some ways it chimes in more with my mention of cross-cutting obstacles (above) than with needing to pick winning sectors (although the tax-breaks could be restricted to certain sectors). It’s also an idea that’s entirely absent from the report except in a ‘case study’ on South Korea (pp. 40-41). That case study felt somewhat superfluous when I first read it, but it may turn out to be an important pointer to the New Zealand Institute’s further work in this area.