Shortage of skills cramping growth

By ALASDAIR THOMPSON

New Zealand's rate of economic growth is hitting a brick wall, not because of falling world commodity prices but because we're running out of people with urgently needed skills.

Yet those with the knowledge of the skills needed to overcome the barrier, small and medium business owners, are being starved of access to the programmes that would assist their growth.

The Labour Department Survey in May reported that 39 per cent of businesses are finding it hard to secure the skills they need to expand. And 12 per cent of all businesses rate their inability to find labour as their biggest constraint to boosting output.

"Investment in education, said a recent OECD report, is one of the recognised means of achieving high rates of employment, economic growth and social progress."

The study said the improvement in human knowledge was a common factor behind economic growth in all OECD countries in recent decades.

It estimated human knowledge accounted for over 0.5 per cent more annual growth in the 1990s than in the 1980s (OECD Education Statistics at a Glance, 2001). The Government is on the right track by emphasising education as the foundation for building a sustainable level of economic expansion.

The objective of both the Government and New Zealand business is a skills-driven economy to lift the nation back into the top half of OECD countries. The question is, how can we accelerate the development of the necessary skills?

There's no doubt education doubles the thrust on economic productivity. It generates knowledge, which translates into technological improvements and aggregates productivity gains.

At the same time, it increases the skills and knowledge of individuals who are then equipped to do more, and adapt more easily to changing job conditions.

The ability to learn, innovate, adapt and exercise judgment along with communication, analysis, management and leadership are all key skills for business success.

In addition, we've found basic communication and numeracy skills are often a better route to higher productivity ... everything from safety to quality standards depend upon empowered staff reading and understanding what they need to know to do their work better.

Although it's a cliche, 85 per cent of our growth potential is tied to the growth rate of our small and medium enterprises (SMEs employ six or fewer staff).

Our SMEs need to grow an average rate of 1 percentage point faster than at present if we're to get back into the top half of the OECD.

And SMEs account for productivity growth rates twice as large as companies employing 500 staff or more.

The National Bank noted in its latest report on SMEs that their GDP growth was 3.7 per cent for the first six months of this year compared with 2.7 per cent for the economy overall. SMEs are signalling they're the nation's powerhouse.

Which brings us to the crunch: The Labour Department's survey shows that 42 per cent of SMEs say their major constraint to growth is skills-related.

SMEs, the economy's growth engine, are racing under a handicap. The faster they grow, the heavier the handicap from the skills shortfall.

Many Government programmes are starting to recognise the handicap. One is the modern apprenticeships scheme, which has been a resounding success.

Another is our immigration points system, which is beginning to respond to the type of skills in demand.

But New Zealand is part of the international war for talent.

Along with most other developed countries we are in a global competition to attract suitably qualified migrants. We cannot afford to think immigration will solve all our skills shortages.

We owe it to our own children and community to ensure we have the best courses at the best schools available. No one should leave school without the ability to read, write and do basic sums.

Unemployment is low at 5.1per cent, but even that encouraging figure represents a huge waste of resource. Basic literacy programmes could lower it further.

The owners and managers of SMEs are the best source of knowledge on the type of skills and training their staff need.

SMEs recognise skills development is a critical investment decision. It creates knowledge capital and enhances staff self-confidence.

SMEs' practical knowledge must be introduced to designing skills development programmes.

They're hungry for new ideas to stimulate business growth and boost employee productivity. But most don't know which training programmes deliver the best return, and they don't know where to go for reliable advice on them.

The Government says it wants to make funding skills support available to SMEs to stimulate and assist their growth. But a bewildering labyrinth of compliance and documentation to access these programmes is discouraging use.

The basis of our standard of living, and the main hope for accelerating our rate of growth, are being turned into spectators of the education system, not participants.

We need to put funding and development support in the hands of those who know best about their own needs: small business owners.

* Alasdair Thompson is chief executive of the Employers & Manufacturers Association (Northern).