The Way Forward: NZ Business Into The 21st Century

A Speech to Christchurch Business

Today I want to talk to you about the future. In particular, the future of New Zealand business in a world of huge change in the way business will be done.

The environment for business will be different in the next decade, driven by radical change in the global economic and technological environment we must operate in.

Yesterday 's answers will not work tomorrow.

The broader economic framework that has given New Zealand rich rewards in the last decade or so, will be a part, indeed a crucial part, of the future. But the framework will not of itself be enough.

That is why the Prime Minister signalled in her speech last week that the Government is looking to set some new directions in the partnership. There is little doubt about the gains of the economic reforms

In real terms, the economy is nearly a quarter larger than it was in 1991. The deadweight of debt has shrunk from 52 percent to 26 percent of GDP.

We have saved taxpayers about two billion dollars in interest payments because debt has been paid off.

Domestic interest rates are at the lowest levels in 30 years.

There are now 220,000 more jobs than in 1991.220,000 is the equivalent of nearly all the jobs in Canterbury '

More than twice as many jobs have been created under National as Labour destroyed in the six years they were in office.

In the last 12 months alone, as a result of

the energy reforms lower interest rates, introducing competition into accident compensation the removal of tariffs, and the introduction of parallel importing business and household consumers can look forward to saving hundreds of millions of dollars.

This is real money on business bottom lines, and in the pockets of consumers.

These things haven't floated out of thin air.

They have happened because the Government's broad economic framework has allowed innovation and enterprise to flourish in New Zealand. This has helped our performance in the competitive global marketplace.

The framework comes from good Government policy, and the results come from your effort and initiative.

Five fundamentals will continue to underpin our economic achievement into the future:

An open, internationally competitive economy: continuously adjusting to shifting cost and competitive structures in other countries, and pursuing opportunities to break down trade barriers in the global marketplace.

Low inflation and interest rates: preferably lower than the average of our trading partners to give us a competitive edge.

Low tax rates: broad based to be fair, low enough to attract inward investment and low enough so New Zealand companies aren't compelled to invest elsewhere and skilled New Zealanders to move abroad.

Fiscal prudence is crucial, to ensure the impact of government spending and revenues on capital and other markets is neutral to positive.

Flexible labour markets: to ensure business can adjust to their changing markets at home and abroad.

Open, transparent and predictable legal and business system: Business must operate in an environment that is competitive and attractive compared to other countries.

This fundamental has emerged as a key factor to economic credibility in order to attract investment. Witness the impact in many Asian countries where cronyism rules business relationships rather than the rule of law.

This framework of five fundamentals is the State Highway 1 of economic success for New Zealand.

But like any successful transport system, there are critical arteries.

New Zealand's programme of micro-economic reform is an essential part of making the main highway work.

If people, or business, can't reach SH1 because an economic arterial route is blocked, then it doesn't matter how good the main highway is.

A recent survey (October 1998) prepared for the American Chamber of Commerce in New Zealand by Professor Peter Enderwick of the University of Waikato scored New Zealand highly for :

overall minimal regulation labour supply and skill base, and the value of the exchange rate However, New Zealand scored badly for :

slow growth excessive regulation in some sectors taxation and other compliance costs political stability The Government is concerned about these conclusions. They point to problems that must be solved.

They are on the Government's work programme, and will be resolved.

Even solving them will not let us achieve the Government's vision ' that is to make New Zealand the best place in the world to do business, and the best place for people to live and prosper.

Is the 5-Fundamentals Framework Enough'

In broad terms, the strategic imperative for New Zealand is to lift our sights and our performance, to a new and sustainable level economic growth above three percent.

New Zealanders can work and live anywhere in the world, so our standard of living (qualitative as well as material) here is important.

So is our ability as a country to meet the expectations of our aging population and this will require significantly higher growth rates than we are achieving now.

Jumping up another level of growth performance requires a better approach.

The key to higher growth lies in people; better equipped to meet the paradigm shifts we will see as technology takes us in new and uncertain directions.

Last year, the Prime Minister began to reorganise the structure of the Cabinet to put firm focus and accountability on Ministers for achieving better performance in government and the economy.

The formation of the Enterprise and Innovation Team of key economic and business cabinet ministers is a major step to providing focus.

The appointment of a Minister for Enterprise and Development joined together key business portfolios of Commerce, Industry, Labour and Energy. I now run a 'virtual department' of the relevant ministries, which seems to be working.

The recent Cabinet reshuffle by the Prime Minister has also taken the focus of the Enterprise and Innovation Team another step forward.

Establishing the tertiary education sector under a Minister of Tertiary Education who also has the Enterprise and Commerce portfolio is a clear statement that the Government wishes to see the partnership between tertiary institutions, Crown Research Institutes, industry and the R&D arm of Government considerably strengthened.

Furthermore, the appointment of an associate Minister of Tertiary Education who is also Minister of Research, Science and Technology reinforces that commitment. The Government invests some $600 million a year in R&D for New Zealand industry, agriculture and other bodies through CRIs, MORST, universities, polytechs, and the like.

The question is whether this R&D expenditure is sufficiently focussed to significantly increase our growth rate.

The country's ability to grow faster will come from increasing our intellectual knowledge base, and being able to attract or retain the best people and the investment capital that can harness intellectual knowledge.

The World Bank describes it well in its 1998 World Development Report'.

'for countries in the vanguard of the world economy, the balance between knowledge and resources has shifted so far towards the former that knowledge has become perhaps the most important factor determining the standard of living'.today's most technologically advanced economies are truly knowledge based.'

It is against this background that the Government is developing a five point plan to help New Zealand become a knowledge based economy.I will be seeking your help soon, and that of other business and educational organisations, to fill out an action plan for business and government.

The five point plan is shaped around the vision of making New Zealand the best place to do business, and will promote innovation and create internationally competitive products and services by:

lifting New Zealanders' skills and New Zealand's intellectual knowledge base, and leveraging off the success of the winners better focussing and directing the Government's effort in research and development improving access to capital (and especially international finance) by the knowledge based economy ensuring regulations and laws support, and not frustrate, innovation and the knowledge based economy actively promote success and help build a culture supportive of innovation and enterprise. Let me evaluate each of these five points.

Lifting Skills and Leveraging Winners

The Government is the prime investor in skills and innovation through the education system, the CRIs, immigration policy, industry training bodies, and the R&D budget.

In a knowledge-based society it is crucial that we have an education system that is high quality, relevant and responsive to the needs of a dynamic society.

We have moved in a number of areas already:

the small business programme has moved away from primarily being a small grants scheme, to become one to increase the management and financial skills of SMEs, as well as providing a SME information network (BIZ) business immigration policies were relaxed last year, having been designed around the needs of business the Tertiary Review is an important step towards establishing a more responsive tertiary sector. We are also looking at how we can facilitate and foster change by:

reviewing of the present industry training schemes establishing how the Porter concept of 'industry clustering' can leverage the winners and high growth-potential knowledge sectors in New Zealand, including aggressively pursuing opportunities for introducing new capital through a new FDI policy building on work already done in the Foresight Project so that opportunities for fruitful partnerships between Government, users and RS&T (research, science and technology providers) are developed establishing better and faster ways of ensuring tertiary institutions can meet and anticipate the skill needs of business and society reviewing whether there are any impediments to training, educating and retaining tertiary students Future-Focussed Research & Development and Assistance

We will be reviewing Government-funded research to ensure it is aligned to the needs of knowledge-based businesses.

The Crown Research Institutes contain a wealth of intellectual capital and good commercially developable ideas, and we must ensure there are no impediments to New Zealand's ability to use this resource.

Maurice Williamson, Simon Upton and I will be seeking ideas from industry soon to add to our own on how the government's R&D programme can better fit the needs of business.

Improved Access to Capital

This is often a real barrier to growth.Good ideas can stumble because nobody is prepared to provide finance or venture capital.

The Government does not believe politicians or bureaucrats are the right people to judge what is, or isn't, a good idea.

We tried that with the DFC and the taxpayer lost a bundle.

Many in Canterbury will recall Matai Industries as an example of how not to make good investment decisions.

The Government's approach is to facilitate access to private sources of risk capital, and not have taxpayers assume risk.

Recently, significant proposals were announced to encourage FDI:

exploration of the Swedish innovation market; The development of a "New Zealand Inc" prospectus; A "red-carpet" visitor programme; and Funding for MFAT to improve market access; and Funding to promote the sale of education and New Zealand in key markets, including South America and China. The new business immigration policies are also designed to attract new risk capital.

Lockwood Smith and I are working on ways to attract further foreign direct investment, with particular emphasis on knowledge based industries.

A Supportive Regulatory and Legal Framework

I have outlined some of the work already under way in this area, but it is clear that we have some way to go to improve taxation regulation, some labour market legislation (HSE and Employment Contracts Act), and compliance costs.

The Ministry of Commerce calculates around 20 percent of its regulations are redundant.

With this in mind, I have asked the ministries I have responsibility for, to review all the regulations they administer and 'zero base' their relevance ' in other words, start from scratch.

The Enterprise and Innovation Team of Ministers will be asked to apply this approach to all their ministries.

We will also be announcing a number of changes to the Commerce Act penalties and remedies regime in the very near future. We are also committed to ensuring we have an effective intellectual property rights regime.

One absolutely crucial area is E-Commerce. The Government has work under way in this area, mainly in ensuring there aren't any roadblocks to making E-Commerce work for business.

We have an opportunity to be ahead of the pack, as New Zealand is more integrated into the Internet than any other country. Wellington has more Internet-connected computers than anywhere on the planet. New Zealand has 4,702 Internet-connected computers per 100,000 people, while Silicon Valley has only 3,555. Being able to connect is one thing. Being able to use it to our national advantage is another. Further initiatives will flow from APEC this year as we assume the chair, and push for further tariff and market de-regulation in the region.

As you will be aware the APEC SME Business Forum and Ministerial meeting is being held in Christchurch in April.

The meeting is a very much welcomed opportunity for Ministers and business people from around the Asia-Pacific region to discuss what can be done to enhance SME growth in the APEC region.

Later this morning I will be announcing the major sponsorship partner for the April meeting

Building the Culture and Celebrating Success

As someone who is close to the business sector, I feel proud when I hear of the successes of our innovative and creative companies.

Not enough New Zealanders get to hear about those successes, nor see them as important.

We rarely celebrate them like we do our sporting heroes, yet they make just as important contribution to the life of this country.

I intend to actively promote success, particularly where it is based on new knowledge based companies.

Where to From Here?

While I have expressed these ideas as a 'Government plan' they are deliberately embryonic.

We cannot achieve them alone.

The Enterprise and Innovation Team is developing the focus badly needed to get Government's policies in line with the expectations and needs of business.

In March I will be announcing details of a Nation-wide Road Show to outline the fleshed out 5-point plan, and to ensure we have identified the roadblocks and creative ideas to double our growth rate.

Conclusion

The approach I have outlined today is quite different from the policy announced by the Labour/Alliance bloc.

They propose a new bureaucracy called Industry New Zealand with unions on the board to drive industry policy.

The $100 million of taxpayers' dollars they propose to spend will put politicians, bureaucrats and union secretaries in the business of deciding what and where to invest. The Alliance would start a bank.

Are they the right people to take risk decisions'

The National-led Government believes government's role should be to strengthen, not undermine industry associations and like-minded businesses that come together in clusters to confront common problems and opportunities.

As we have shown in the restructuring of the Business Development Programme, we intend to work through private sector organisations to deliver our objectives.

We don't see that being the role of government agencies.

The partnership role we see with business is forward looking, recognising that the government can do more to help you by getting out of your way, but being there to create the best business environment in the world based on the super SH1.

We have built a world class environment in New Zealand for doing business, by getting the fundamentals right.

But we can do better.

The Government is committed to continuously improve the environment you operate in.

The Government has adopted a broad 5-point plan to meet this challenge but we can't do it alone.

Today I am inviting the business and education sectors to become our partners in this endeavour.

The way ahead is for us to create and foster together.