Let's Stop Beating Up On Ourselves

Until 8.00 PM Thursday 8 July 2004 Plimmerton Rotary Club Let's Stop Beating Up On Ourselves Roger Kerr Executive Director

Wellington New Zealand Business Roundtable 8 July 2004

Right now, the New Zealand Innovation Festival is running at centres around the country. Its purpose is to showcase our many outstanding examples of entrepreneurship and innovation. As a contribution to the festival, the Business Roundtable repeated last week in Wellington and Hamilton the very successful Triple Bill event on entrepreneurship featuring Bill Foreman (Trigon Industries founder), Bill Gallagher (Gallagher Group) and Bill Day (Seaworks) that we organised last year. My talk today is another contribution on this topic.

Earlier this year, the government-sponsored Growth and Innovation Advisory Board released survey research that it had commissioned to get a better understanding of the attitudes and perceptions of New Zealanders on growth, innovation and business. The Board wanted to identify both positive and negative factors that might be relevant to national efforts to promote economic growth and prosperity.

By way of background, I should explain that the Growth and Innovation Advisory Board was appointed by the government in May 2002. It was promoted as a key player in the government’s growth and innovation strategy. In turn, that strategy was a response to criticism by business and other groups that many of the government’s early policy moves – such as increased government spending and taxation, changes to employment law and ACC, and greater business regulation – were anti-growth and anti-business. The government’s response at the time was to announce that it would make growth its top priority, with the aim of returning average per capita incomes in New Zealand to the top half of the OECD rankings (its initial target was by 2010). As part of this programme, it set up the Growth and Innovation Advisory Board and supported the Knowledge Wave project which had similar aims.

Two years after its establishment, board members are reported to have been expressing disenchantment with the government’s policy directions, and certainly business organisations and business leaders at large believe the government lacks a credible growth strategy. The recent budget was the latest confirmation of this assessment – it was almost entirely about wealth redistribution (cutting the cake in a different way), not wealth creation (making the cake bigger). The budget projections indicated that no acceleration of the economy’s growth rate is in sight.

So I suspect that in part, the research sponsored by the board was aimed at identifying New Zealand attitudes, aspirations and values that should give encouragement to government or opposition parties that want to see the country go forward, while identifying any concerns or reservations that deserve to be sympathetically addressed.

On the whole, I think the results of the research are very positive, but it did throw up some issues. I shall comment in a moment on these findings, and also on some interpretations by the board which I think are a little wide of the mark.

But first let me run through the positive findings of the report.

Essentially, they are that New Zealanders want to get ahead, value quality of life including a good environment, don’t lack ambition and motivation, are pro-growth and pro-business, are generally positive about their workplaces, and hold core values such as practicality, fairness, cooperation and a ‘give it a go’ attitude.

Nothing much wrong with that, you would think. But there is some odd commentary in the early part of the report on attitudes to economic growth.

What the survey found was that 67 percent of respondents said economic growth was very important or important for them, but only 35 percent ranked New Zealand’s performance for economic growth as good. So far, so encouraging: as the report says “New Zealanders would like to see better performance in economic growth”.

But then the board continues rather curiously to ask whether this gap between people’s desire for growth and their assessment of the economy’s performance represented a foundation to build on, a “potential ‘burning platform’ from which to motivate New Zealanders around growth and innovation?” The board was disappointed to find that while few were opposed to growth, many people did not seem to be passionate about it – not enough to make it a ‘burning platform’ issue – and most ranked quality of life much higher.

Here I think the board makes two mistakes.

The first concerns the ‘burning platform’. This was the McKinsey-speak mantra employed by some of the people associated with the Knowledge Wave and the board to try to shock New Zealanders into a crisis mentality about growth. They talked about ongoing economic decline relative to other countries, and falling living standards. But the research found that “many respondents in focus groups reacted adversely to predictions of approaching economic crisis or the threat of falling living standards as a potential motivation”.

I say, good on them. The ‘burning platform’ proposition bore no relation to reality. The time for crisis talk was back in the early 1980s. Today’s economy is far more efficient and resilient, thanks largely to the two waves of reforms of the 1980s and early 1990s. We saw their benefits in the strong growth performance of the 1990s which has continued in recent years. Treasury secretary John Whitehead recently said that “the huge improvement in our growth performance versus the Organisation for Economic Cooperation and Development (OECD) since the early 1990s” was “striking and encouraging”. He also mentioned that our employment growth has been the highest in the OECD and that our unemployment rate is now the fourth lowest.

Talk of ‘burning platforms’ or ‘failed policies’ is rightly unconvincing to New Zealanders. There is no ongoing relative economic decline, and there hasn’t been for over a decade. Even the government no longer talks much about “the failed policies of the past” – facts have simply overtaken the debate. As finance minister Michael Cullen said recently: Despite some electoral posturing, New Zealand enjoys a good measure of political consensus around economic policy. Since the 1980s, governments have worked hard to ensure that core economic policies are internationally competitive, to offset the disadvantages of New Zealand’s small local market and distance from export markets. At first, that required major reform. More recently, the focus has switched to fine-tuning of policies, and the macroeconomic framework has not been subject to major change.

There is very little risk of New Zealand falling further down the OECD income rankings in the foreseeable future – we are holding our own – and still less of living standards falling in absolute terms. The proper focus of debate is now between those who believe that the country’s growth performance and living standards could be much higher yet, and those who are content with current trends. The latter group now appear to include the government, which has been implementing too many anti-growth and anti-business policies and which in the recent budget seems to have given up on growth entirely.

So that is what I believe to be the Growth and Innovation Advisory Board’s first mistake – talking the language of ‘burning platforms’ when none exist. The second is its apparent disappointment that ‘quality of life’ ranked well ahead of economic growth in people’s aspirations.

But a moment’s thought surely suggests that ‘quality of life’ or, what is much the same thing, ‘overall standards of living’ obviously rank higher for most New Zealanders than just material incomes. As someone once said, man does not live by bread alone. The same is true of people in other countries. A recent poll in The Economist reported nearly 65 percent of Russians as saying that raising overall standards of living were a priority for them compared with only just 20 percent nominating faster economic growth. And Russia is a much poorer country than New Zealand.

Does this mean that people are saying wages and salaries and other personal incomes, and the economic growth that underpins them, don’t matter? Apart perhaps from some Greens and religious orders – whose preferences should be respected – I don’t think so. Having a decent income is part of the overall quality of life for most people. Most people experiencing poverty or hardship want to escape from it. People generally prefer more money to less, other things being equal. Trade unions don’t usually bargain for lower wages. Every major political party in recent elections has pledged to deliver faster economic growth. They would surely not be singing the same song if they thought their diverse constituencies did not like it. So the problem in my view is not New Zealanders’ lack of aspirations for higher incomes, which depend on improvements in productivity and economic growth. Rather, the problem is the lack of credible growth strategies to back up the pledges: politicians have been committing fraud on the electorate.

I believe there is a much more logical interpretation of the report’s findings.

First, for most people quality of life means a number of things as well as their personal or household income. Obvious ones are leisure and recreation, and living in a decent environment. For many people, family, community and religion also matter. The list could go on. Not many people want to work 60 or 80 hours a week just to boost their incomes – they have other things they want to do with their time.

So few people, sensibly enough, want growth unconditionally. Growth is not an end in itself but a means to desired ends. In general, a more productive, growing economy allows wider choice. Over the past hundred years New Zealanders’ average incomes have risen by more than three and a half times in real terms as our economy has become more productive. But the dividends of higher productivity have not been taken out only in higher incomes – average working hours have fallen from around 60 a week to under 40. With increases in life expectancy – again due in part to economic progress and innovation – most people also enjoy many more years in retirement. Furthermore, as the Growth and Innovation Advisory Board survey shows, nearly three-quarters of respondents considered economic growth meant more opportunities for New Zealanders and greater prosperity for future generations. A somewhat smaller majority recognised growth was the basis of better education and health services. So improvements in productivity and growth are quite widely seen as the means not only to higher incomes but to other ends as well. No doubt some of these connections could be better understood, but New Zealanders at large are not unaware of them.

The same is true of environmental quality, as a general proposition. Clearly some respondents to the survey were concerned about the impact of economic growth on the environment – they cited more traffic and congestion, for example. This is a perfectly reasonable concern – I noted a moment ago that environmental quality is part of the overall quality of life. But here the key point to make is that, more often than not, economic growth and a better environment go hand in hand.

This is not hard to see. Poor countries typically have a poor environment. Richer countries both give more weight to environmental protection and have the wherewithal to achieve it. Low economic growth and environmental problems often have a common cause – poorly specified property rights. The majority of environmental indicators in the richer countries are going in the right direction – which is not to say there are no problems. However, the best chances of dealing with them lie with new technology, innovation and greater prosperity.

To be sure, there are situations where trade-offs between development and the environment are both inevitable and justifiable in the interests of overall quality of life. Even so, we should be careful about assuming simple cause and effect relationships: traffic congestion, for example, is not necessarily a consequence of growth; often it is a consequence of poor planning. For example, road congestion that results from under-investment or under-priced roads pollutes the environment and harms economic growth.

Growth was also seen by some respondents to the survey as widening the gap between rich and poor. Statistically, this has been true of some periods but not of others, and the long-run trend has been a narrowing. A widening in the 1980s was due in considerable part to the Labour government’s failure to free up the labour market. Contrary to the Marxist claim that high unemployment benefits employers, business supported the freeing up of the labour market to reduce unemployment while trade unions resisted it. The rise in unemployment has subsequently been dramatically reversed. Static measures of inequality are also misleading: people move up and down the income brackets. In any case, a more important goal is the reduction of poverty rather than a focus on equalisation or ‘closing the gaps’. Poverty reduction is just the flip side of economic growth: wealth creation, not wealth redistribution, is the only long-run solution to poverty and hardship for most people.

The survey also posed a number of questions about attitudes to business. Pleasingly, it found 91 percent of New Zealanders were positive about business; they saw it as “cool”, and as the primary vehicle for national economic success. I have long viewed complaints about anti-business attitudes among the general public in New Zealand sceptically. More than 80 percent of employees work in the private sector: would they generally be anti-business? Equally, I never took much notice of an earlier survey that found people saying business is a “necessary evil”. Many of us could say light-heartedly that work is a necessary evil – something we do at least in part to earn money and afford leisure. But does that mean that New Zealanders don’t like their job or the work they do? Not according to most research: a recent National Business Review survey found nearly 85 percent of respondents were happy with their job or work. I suspect most anti-business attitudes are equally superficial.

It is true that the research found that attitudes to large businesses were more ambivalent, although there was recognition of the contribution large enterprises make to growth and the economy. Half to three-quarters of respondents, for example, agreed large businesses were important for exports, jobs, developing new ideas and innovation, and for their contributions to community activities. I also wonder how likely it is that negative attitudes to large business would be pervasive when nearly a third of the workforce is employed in firms of 50 or more people. It is worth remembering too that large firms are typically small ones that have grown: do New Zealanders really want to see firms’ growth stunted? Not according to 72 percent of respondents who said, “We need more … businesses to grow into larger businesses so they can export successfully.”

An element of concern related to large businesses was foreign ownership. However, New Zealand was built on foreign investment: do we really want to choke it off and be poorer? There are elements of xenophobia about overseas ownership and control in most countries, and New Zealand is no exception. Such prejudices make little sense in an era of ever-expanding global economic integration. But politicians and business people should be sensitive to them and promote public understanding of the gains from foreign investment. The task is not a difficult one: most political parties have liberal policies on foreign investment, which suggests to me that they are reflecting the fact that most people understand its benefits.

From a business perspective, a final encouraging insight from the research worth mentioning was the answers to the question which asked about the most trusted sources of information on economic growth. Academics topped the list with a 47 percent level of trust. However, business leaders were not far behind at 43 percent – and were positively distrusted by only 13 percent of respondents. Central and local government politicians, union leaders and the media come well down the rankings, all scoring less than 25 percent on trust. This should give some comfort to those of us in the business community who spend a lot of time making the case for policies aimed at faster economic growth.

Overall, therefore, my sense is that the Growth and Innovation Advisory Board research is very encouraging for New Zealand’s future – the positives far outweigh the negatives. I think some of the results – such as the board’s disappointment at finding no ‘burning platform’, and its apparent failure to recognise that decent incomes are an integral part of the quality of life for most people – are a reflection of the commonsense of New Zealanders and a rejection of the distorting lens used by the board.

Indeed, I believe there were other instances of viewing the results through a distorting lens.

In relation to growth, for example, the report said that “Economic reforms of past decades have turned a lot of people off”. There was no evidence for this claim in the survey: this is the commentariat speaking. True, the reforms were painful, due largely to previous years of mismanagement, and there is still criticism and even resentment of them in some quarters. However, governments that endorsed their broad directions were elected and re-elected; Michael Cullen referred to the general consensus around the reforms in the speech I quoted earlier; and how many people today really want to turn them back? The board’s comment, in my view, is overstated.

So too is the observation in the concluding section of the report that we need to tap into distinctive Kiwi values and character if we want to make the case for economic growth. I have no problem with the proposition, but I think it is a trite one.

My first reason for saying this is that New Zealanders at large have shown over the past 20 years that they support the pro-growth policies that turned the country around. Also, the National Business Review poll I mentioned earlier found that most New Zealanders – 85-95 percent – were happy with most aspects of their lives. The aspect they were least happy about was their financial situation. This suggests to me that arguments for credible policies to lift wages, salaries and other incomes in this country through more rapid economic growth will not fall on deaf ears. And the policies that brought about the improvements are the same ones needed to sustain and extend them. People are capable of understanding these points: our values supported the earlier reform efforts and I see no reason why they would not support similar efforts in the future.

My second comment on the board’s focus on values is that, while there are many things that are special about New Zealand, I doubt whether values that are relevant to the topic we are discussing – economic growth – vary much around the world. I have worked or travelled in 50-60 countries and my observation is that there are more similarities than differences in people’s values and aspirations. Most people strive to achieve a better life for themselves and their families. The research found that New Zealanders are resourceful, ambitious, practical people, prepared to study and work hard, willing to make short-term sacrifices for longer-run gains, and not lacking in personal responsibility. At least in other democratic societies that are free and open to opportunity, most people I have met around the world are much the same.

So my conclusion is that we should stop beating up on ourselves. Kiwis are OK. New Zealand workers and managers can foot it with those in comparable firms abroad. We have transformed our economy in the last 20 years and the achievements are admired around the world. There is no doubt we could do better yet, and only an unwillingness to strive for continuous improvements in public institutions and policies, which in turn would help promote improvements in workplace skills and management, will hold us back. We must hope that the government takes up the challenge again, and if it doesn’t, that other political parties will do so instead. On the whole, the Growth and Innovation Advisory Board research suggests that New Zealand attitudes are not a problem. There is no reason why New Zealand cannot become an even more successful, productive, high income economy.

ENDS