Speech To The Plastics Institute Of New Zealand Annual ConferenceEnterprise and Commerce
Moulding the Future
Thank you for the opportunity to speak to you today about the Government's Industry policy.
The theme of your conference is "Don't Stop Now ". I couldn't agree more.
Now is not the time for anyone to stop or grab a cup of tea.
New Zealand has weathered the storm of the Asian Economic Crisis and bounced back strongly.
After two quarters of negative growth, growth is again tracking upwards and predicted to be 3% for the year ended March 2000.
Since 1990, the economy has been creating around 620 jobs a week. Between 1984 and 1990, when Labour was last in power, around 180 jobs a week were destroyed.
Interest rates are at their lowest levels in 30 years and our inflation rate is at a record low.
Our exchange rate has devalued by 16 percent since June 1996, creating new opportunities for exporters, which is needed given our worrying balance of payments position.
This is no time for Government, or manufacturers to sit on their hands.
Now is the time for New Zealand and New Zealand manufacturers to capitalise on our advantages.
I know that recent times have not been easy.
Plastics total sales turnover has been steadily increasing, but greater competition has meant reduced margins and reduced profit.
Overall, manufacturing's share of GDP has been dropping - from 16.2% in 1994 to 15.2% in 1998.
However, this in itself is not cause for alarm.
As economies evolve, they move from primary industry, largely driven by commodity exports, through manufacturing to more service orientated industries.
A change in GDP contribution is therefore to be expected as New Zealand moves to embrace the knowledge age.
What is important, however, is the composition of our manufactured output.
If we are to continue to succeed in today's intensively competitive global markets, we must be producing goods at the cutting edge; things consumers want and are prepared to pay a premium for.
Whether it's toothbrushes or silicon chips, our products must be the best quality and value.
We cannot compete with the cheap labour and mass production facilities of some of our neighbours, nor would we want to.
We must remember that what we can source cheaply elsewhere so can others.
In an industry such as plastics where we are primarily a processor of imported raw materials we have no natural advantage.
Our advantage will come from being small and smart and from being lighter on our feet and having a better understanding of our customers needs than our competitors do.
Smaller production runs, faster turn around and closer relationships with customers will help give us a competitive edge.
Research and Development is crucial. New technologies and innovation are the keys to future growth in all industries.
We can and should be competing with the best in the world.
As Professor Michael Porter said when he was here, what matters is how you compete, not what you compete in.
The Italians get rich by making shoes and they do it well, because they take the premium from the intellectual property (i.e. design and fashion) incorporated into their product.
Other countries also produce shoes by imitating, without much skill or sophistication, and can only support wages of 50 cents an hour.
I know which country I'd rather be in.
The Government's industry policy is based on preparing New Zealand to take advantage of the knowledge age.
I know some people are sceptical about the term "knowledge age"- it feels like a bit of a buzz word, something for academics, but not for ordinary people.
Others just don't quite believe it's happening and won't - until it's too late.
It's easy to be comfortable or myopic about the future.
Just let me give you one or two quotes of people who thought they could foresee the future as well as we can.
In 1876 a Western Union internal memo said:
'This "telephone" has too many shortcomings to be seriously considered as a means of communication'.
Western Union no longer exists
In 1943, the Chairman of IBM, Thomas Watson said:
'I think there is a world market for maybe five computers.'
IBM still exists because they changed the way they do business
More recently , in 1977 Ken Olson said: 'there is no reason for any individuals to have a computer in their home.'
Digital was bought by Compaq.
What these quotes show is that companies and institutions that believe they know the world and the market they are operating in can get it spectacularly wrong.
In New Zealand's case we can and have to get it right.
As a Government we have spent the past few years getting the economic fundamentals right.
We have focused on five key elements:
developing an open, internationally competitive economy. We can't do what we need to do if the economy is not open and internationally competitive.
lowering inflation and interest rates. The rest of the world is doing this - we must remain competitive as well.
reducing tax rates, not increasing them as some political parties would. We need low tax rates and fiscal prudence to get our debt levels lower. At a time when Australia's talking of eliminating its government debt it would be a major folly for NZ to increase ours.
we need an open transparent and timely legal and business system. I think it is fair to say we have some way to go on that.
and lastly, but most importantly in the sort of world we are thinking of for the future, is a flexible labour market
The success of these measures is self-evident.
New Zealand currently ranks 4th out of 160 countries in the Wall St Journal index of economic freedom.
And, as I said earlier, inflation is down, interest rates are down, unemployment is down, and growth is on the way up.
The New Zealand economy is poised to take off.
However, to get the lift we need to forge ahead, we all need to do a number of things differently.
While the five fundamentals will continue to underpin New Zealand's economic growth into the future, they won't be enough to raise our growth rate.
We've levelled the playing field, but that doesn't mean that everyone is equipped to play well.
Good teams need good coaches, and the Government's role is to facilitate change, to make sure New Zealand business is ready, willing and able to take on the world.
Unlike the Labour Party we are not offering old solutions to new problems.
There will be no subsidies.
Whether you call them "local assistance funds" or "business development grants", the reality is the same.
Stripped of the Labour Party palaver, their policies are little more than bureaucrats ensconced in cosy offices indulging in gambling with tax payers' money.
Spoon feeding only teaches the shape of the spoon.
Unlike the Labour-Alliance Bloc which wants to hand power back to the unions, we will maintain the Employment Contracts Act and ensure it continues to deliver the labour flexibility you need.
We heard Helen Clark promise last weekend that unions would be put back in the driving seat, and the Employment Contracts Act would be abolished.
What this Government wants to do is encourage self-sufficiency.
We want to give businesses the management skills and information they need to thrive in today's environment.
That is what the new BIZ programme is all about.
Nor will there be an export guarantees.
Overseas experience shows this is risky and expensive for Government.
We also will not set ourselves up as lenders of last resort.
If an idea is not good enough to get funding elsewhere, then the tax payer should not be funding it.
We do, however, acknowledge that some good ideas don't get funding because they are badly presented, or the market is not functioning properly.
The BIZ programme will address the first of these things, while the Government is developing a number of measures to improve the functioning of our capital markets.
We want to improve the workings of the market, not replace it with bureaucracy and politicians.
Most importantly, we are committed to lower taxes.
At a time when many of our competitors - for example Australia - are reducing their tax rates, it is grossly irresponsible to be talking of increasing taxes as the Labour Alliance bloc are.
Michael Cullen has already said he can't guarantee the 39 cent tax rate is the end of their plans to raise tax rates. Certainly the Alliance has said it isn't enough.
We need to keep our best young educated and skilled people in New Zealand, as well as attracting people with skills we require for the knowledge based economy.
They are the very people who will be hit by Labour's tax increases.
Where is the sense in this?
We want to put more of your hard-earned money in your and your employee's pockets, while at the same time ensuring you get good value for money for your tax dollar.
When the millennium kicks off, we want to make sure New Zealand business is in great shape to take on its opposition.
We want New Zealand to be the best place in the world to live and do business.
To provide the leadership needed to build a knowledge-based, innovation-led economy in New Zealand, the Government has embarked on a series of 24 business forums called Five Steps Ahead.
The Five Steps Ahead frame work is :
Lifting New Zealanders' skills and knowledge.
Using both publicly and privately funded research to generate more valuable ideas for New Zealanders to use.
Improving New Zealanders' chances of getting the risk finance they need to turn good ideas into reality.
Ensuring regulations and laws support, not frustrate, innovation.
Promoting success and supporting New Zealanders with creative ideas.
These goals are inter-linked and must be thought of holistically.
They are about getting the best from our people and our resources.
We are looking at how we spend $2.2 billion a year on tertiary education, and establishing greater accountability for educational outcomes from universities and polytechnics.
New Zealand has fewer researchers, scientists and technologists in our workforce per head of population than other OECD countries.
On the other hand, we educate more lawyers and accountants than any other country in the OECD, which is not the way to create wealth.
These are the facts.
Unpleasant as they may be, we have to acknowledge and do something about them.
The Government spends $610 million a year on research and development, but are we spending it in the right strategic areas?
Are industry and research institutions working together to find innovative solutions to today's problems?
A few are, but the vast majority are not.
I know that the CRI, Industrial Research, is working on a number of exciting developments in the plastics area.
One example of this is conducting polymers which can be used for targeted separation.
Possible applications include getting metals out of mining waste and removing unwanted potassium and copper from wines to improve quality and taste.
IRL are also working on intelligent polymers - smart plastics packaging that respond to changes in environment.
For example, you might have a situation where the packaging could respond to changes in the CO2 levels in the storage environment, to maximise storage times and conditions.
If these ideas excite you then I suggest you beat a path to Industrial Research's door and ask them more.
The Government's aim is to ensure that our best ideas do not remain locked up in institutions but are made to work for you.
We are committed to more funding for innovative research and development.
The Government is also serious about increasing inward investment.
New Zealand is an attractive place to invest and we want to ensure that the world's investors know this.
Last week I announced another $3.6 million to promote New Zealand as an inward investment destination.
This represents a 32% increase on current spending.
This funding will be used to attract global partners who can provide development capital, technical expertise and market access to promote innovative New Zealand ideas.
New Zealand's tall poppy syndrome is a major barrier to establishing a culture of innovation, motivation and a forward strategy.
We are also determined to cut compliance costs, red tape and get Government out of the way of business.
We have made progress in this area but it is clear that we still have some way to go to improve taxation regulation and legislation such as the Hazardous Substances and New Organisms Act and the Resource Management Act.
The Government is well aware of the difficulties these create.
This year's Budget will contain a number of measures to improve the operation of regulation.
Bill English, Murray McCully and I are also working with business to iron out difficulties posed by our tax and ACC systems.
We want a system that is simple and fair.
The Government should not be wasting your valuable time on unnecessary bureaucratic form filling.
We also want to ensure that monopolies such as network industries do not stifle innovation by anti-competitive behaviour.
Consumers deserve a better break, as we have seen for example in the electricity industry.
The Commerce Commission will receive an extra $1.3 million a year from 1999/00 onwards to strengthen enforcement of the Commerce Act and the Fair Trading Act.
This is a 20% increase in funding.
Sustainable competition in key network industries such as electricity, is an essential part of our economic success.
We have seen some very unhealthy behaviour in the electricity sector in recent weeks, as the reforms bed down.
Although most companies are embracing the changes willingly and in a spirit of delivering a better deal for consumers, there are some who haven't.
Some lines companies and their (often community or council) owners have taken the opportunity of their monopoly position, and the launch of the reforms, to grab higher profits at the expense of their consumers.
One retail company seems to be hell bent on spooking the electricity market and consumers with a campaign of disinformation regarding future generation capacity and the impact of the reforms.
Most commentators say this is a commercial ploy to justify an announced intention to raise its prices.
There has been a healthy reaction by other companies, who have dismissed the campaign as "mischievous" and "scaremongering".
I suspect we will see more of this in coming months.
My strong advice to consumers is to simply ignore these games.
Shop around for a better deal if you think your power company is giving you a raw deal.
The Government will be dealing with monopoly lines company abuses in a very short while.
As I said last year, there is every confidence that within a year to 18 months of the start of the reforms on April 1, prices to consumers including households, will stabilise, then fall.
Competition amongst generators lowers wholesale prices, and efficiency gains amongst monopoly lines companies will be the major drivers.
The 24 regional 5 Step Ahead forums are a key element in changing this attitude.
They are bringing the business, education and research and development sectors together to learn from each other's experience.
The outcome of this process will announced at a major conference in July or August in Palmerston North.
The key to our future prosperity is forging real working partnerships between sectors that build on each other's strengths.
We all have to take the next critical steps to make the concepts behind the 5 Steps Ahead framework work in practice.
The challenge is to move from a Government-led society to one where the key drivers of success work together much more closely. It needs the business, education and research sectors, together with Government to work in partnership.
We need to take risks and to be prepared to do things differently.
Industries such as yours need to think outside the square.
Industry clusters, using research as a key driver of innovation, and the partnership concept will be keys to success in future.
Yesterday's solutions will not work in tomorrow's world.
I entitled this speech, "moulding the future" and that is what you have to do, literally and figuratively - to reach out and shape your destiny.
We will help this happen.
If we stay still, then the world will leave us behind.
The Government I belong to is not prepared to see this happen.