Economic strategy issues for the New Zealand region in the global economy

Abstract

This report is offered by the AERU at Lincoln University as an issues paper to identify key economic strategy issues for New Zealand, analysed in the context of New Zealand’s position in the global economy. A fundamental ‘New Zealand conundrum’ is that international trends will not allow New Zealand’s economic targets to be met simply by increasing current quantities of primary sector exports and tourism numbers. New Zealand needs to diversify its economy through new knowledge-based enterprises and the use of knowledge intensive services to achieve higher returns for New Zealand traditional export sectors. The report offers this vision for New Zealand’s economic strategy: New Zealand residents through their enterprise and work are all able to enjoy levels of economic well-being that are no lower than enjoyed in other highly developed economies of the world, in the present and in the future. The vision is supported by high level goals under seven headings: • world-class enterprise; • innovation systems; • skills and life-long learning; • public and private investment; • environmental kāwanatanga; • equity and inclusiveness; and • Auckland city. The report argues that economic strategy needs to pay particular attention to the country’s core export sectors on the basis that they are internationally competitive and generate incomes that fuel domestic demand. In order to achieve the above vision, a national economic strategy must guide appropriate investment in physical, financial, human, natural, social and cultural capital that will improve the capability of enterprises to take advantage of New Zealand’s international market opportunities. New Zealand has a high level of physical capital, but low population density means the cost of infrastructure is high and New Zealand does not produce many types of physical capital outside of building and construction. The report recommends policies to address concerns about the way in which public investment is managed at national and regional levels. Examples of this would be reviewing the operation of the Resource Management Act 1991 and creating a robust decision-making process for investments in large-scale infrastructure projects such as water storage. New Zealand’s financial system has been resilient in the current crisis, and the country scores very highly for integrity and low corruption. Nevertheless businesses and observers often identify difficult access to financial capital as a constraint on enterprise expansion. Therefore the report recommends scoping policies for helping small to medium-sized enterprises access working capital such as the United Kingdom Enterprise Finance Guarantee programme. New Zealand has a comprehensive education system, but with a large tail of underachievement and long-standing concerns about weak connections between employers and educators (secondary and tertiary). Appropriately directed investment in human capital can promote inclusiveness of the whole population and address shortages of skills demanded by employers. Life-long learning through adult education is important to encourage participation as skill needs change over time. The report recommends strengthening education directed towards the export-led sectors, including international marketing and other business services. New Zealand has abundant natural resources and a global reputation for clean and green practices, which are attractive to overseas consumers and tourists. The image is under threat in some segments of the market, including for example recent debates about ‘food miles’. The report recommends addressing this by creating a New Zealand eco-label that would tie individual business performance to the overall New Zealand brand that would aim to lead internationally acceptable standards. New Zealand has strong international and domestic networks that aid economic well-being. There is evidence that greater networking of businesses with each other and their communities enhances business development. The report confirms that Māori experience large gaps in basic social security that threatens the sustainability of New Zealand’s economic development. The report supports policies to strengthen international and domestic business networks. It also supports policies to settle historical grievances about Māori property rights and to better position Māori to build and leverage off their collective resources, knowledge, skills and leadership capability. New Zealand has inherited important values from previous generations that are foundational for economic well-being. The fact that English is the country’s dominant language is an international advantage. It has also been stated that New Zealand culture does not acknowledge business success or support community leadership as well as in some countries. The report supports recent proposals that policy should not aim to deny cultural values held by New Zealanders, but to offer strategies for addressing unintended negative consequences for businesses. Because this report is offered as an issues paper, it has necessarily been selective in the issues it has highlighted, but these selections have not been arbitrarily made. Instead, the material presented in this report has drawn on the three authors’ considerable experience in researching strategic economic development issues, summarised in an appendix to this report. That experience led to three major points that frame the report’s contents: 1. A national economic strategy must begin with a credible analysis of the country’s positioning in the global economy. 2. The economy’s capability to respond to international market opportunities is determined by six major types of capital: physical, financial, human, natural, social and cultural. 3. A national economic strategy needs to pay particular attention to the country’s core export sectors on the basis that they are internationally competitive and generate incomes that fuel domestic demand.