Let's Not Lose Sight of the Big Picture

Last year was a challenging one around the world, and nowhere more so than in New Zealand. We experienced not one but three major events, two of them catastrophic. The Christchurch earthquake and the Rena shipwreck on Astrolabe Reef tested the resources and the collective will of a country still recovering from earlier quakes and from a heart-rending mining tragedy.

The third event – Rugby World Cup 2011 – was a rare chance for celebration, both on and off the pitch. New Zealand won the tournament, but more importantly, succeeded where it really mattered – in demonstrating organisational capabilities and business opportunities to a global audience.

Undoubtedly, 2012 will be equally challenging – and in ways we cannot predict. But five areas of fundamental importance to our economic wellbeing stand out:

Leveraging overseas investment
As a nation we have a history of reacting emotionally to foreign investment, whether in farm paddocks or airport tarmac. This is understandable – we feel a strong connection with the land. It helps define who we are. But allowing – even encouraging – foreign investment does not equate with eroding our identity or surrendering control of our destiny. Mechanisms already exist to ensure we are not compromised, and they should be rigorously applied.

The real issue is how we can capture the economic benefits of such investments. If we are smart, we will leverage them to gain access to important overseas markets. To do otherwise puts at risk the ability of our companies – both fledgling and established – to grow internationally in ways we rather desperately need them to do.

Unlocking mineral wealth
Providing high-quality health, education and other social benefits makes great demands on any modern state and we are no exception. It will take all of our ingenuity to pay our way and lay the foundations of care for future generations.

Fortunately, new emerging technologies and greater awareness of the need for environmental stewardship mean that rightly managed, our mineral and energy resources can make a significant contribution to our prosperity. I am not suggesting that getting the balance right will be easy, but get it right we must.

Exploiting niches
New Zealand has one economic sea anchor – Australia – and the tether is agricultural commodities. China lies a distant, but growing, second. Yet as a country we have huge capability in areas likely to be in high demand in coming years, including food and food security, energy – especially renewable – and certain kinds of science. We need to be more active in carving out niches for these, focused on global markets.

Adding value
We are rightly proud of the natural inventiveness of fellow New Zealanders and look to them to help forge a vibrant economy through the creation of novel technologies. It is true that many impressive hi-tech products – from jetpacks to advanced software – were born here and that science and technology increasingly will enhance competitiveness.

But we mustn’t neglect what we already have. We are likely to get at least as much bang for our dollar by adding value to existing sectors in which we have a comparative advantage. There is, for example, enormous potential in doing so with our less glamorous, though essential, food and agricultural commodities – and not just dairy.

Working smarter
New Zealand scores highly on creativity and innovation, ease of doing business and lifestyle attributes, but poorly on measures such as productivity. In other words, we are not good at capturing the benefits of our position. And that failure, really, is about management.

Studies show that even small improvements in individual management capabilities have a significant material impact on productivity. Indeed, these studies also suggest that the impact from doing so is far more significant than any gains we might expect from far more challenging problems such as improving access to capital for small and medium-sized enterprises. New models for building this capacity, and incentives for using it, are needed.

Effectively responding to these concerns will necessitate improving our ability to innovate and create value, and our capacity to succeed in international markets, lifting our productivity, profitability and sustainability, and developing more effective leadership and governance within enterprises and organisations.

To the five areas already discussed, I would add a sixth, which casts its shadow over all the others:

Closing the income gap
There will always be some in society who have more than others. But the widening gulf between the wealthiest and poorest citizens in countries throughout the developed world is increasingly worrisome.

In the United States, the share of income for the top one per cent has doubled from 10% to 20% since 1980. A recent OECD report shows that New Zealand has not escaped the trend – indeed, the data suggests that over the past 20 years the gap has widened more here than in any other OECD country. And this has serious economic implications.

World Bank economist Branko Milanovic argues that widespread education, which is the lynchpin of economic growth, is hard to achieve unless a society has a relatively even income distribution. The claim is supported by IMF research showing that countries with a narrower income gap enjoy longer periods of economic expansion and are less vulnerable to financial crises and political instability.

Sustained economic growth is a desired social goal and a powerful individual motivator. But we need to be concerned about the likely economic damage and loss of social cohesion caused when the fruits of that growth are distributed unevenly.

As this year unfolds – with all its unexpected challenges, and against a backdrop of global financial uncertainty – we mustn’t lose sight of that goal: a prosperous, fulfilling life for all New Zealanders.

And this, in turn, means developing effective long-term strategies to enhance our economy. In other words, paying attention to the big picture.

Professor Greg Whittred is the Dean of The University of Auckland Business School (NZ Herald, February 13, 2012)