Gold medalist Lisa Carrington of New Zealand on the podium after winning the Women's Kayak Single 200m at the Rio 2016 Olympic Games. Photo / Getty Images
Gold medalist Lisa Carrington of New Zealand on the podium after winning the Women's Kayak Single 200m at the Rio 2016 Olympic Games. Photo / Getty Images
OPINION:
To help our businesses reach the productivity frontier and win, New Zealand must focus its investments, much like it does with sports funding.
Remember the golden days of the 1984 Olympics, when Ian Ferguson and co brought home eight golds? After that, New Zealand's Olympic lustre faded. The countryrealised that, like it or not, it was in a global race for medals. A disappointing Sydney Olympics seemed to spur action, especially given the Aussies did really well (which was credited to their Institute of Sport). So High Performance Sport New Zealand funding began.
This new approach seems to have been successful with a rise up the medal charts ever since. It was achieved by targeting investments - New Zealand is a small country and can't expect to excel in everything.
Outstanding sportspeople get some support. Paige Hareb receives funding because she is an amazing surfer. However, more than half of New Zealand's investments go into areas of historic strength – rowing, canoeing, cycling, athletics and yachting.
This makes sense. As we have seen with rugby, New Zealand is more likely to sustain an advantage in a sport where we have led the world in the past. The Government's investment helps those sports create and maintain world class facilities such as Lake Karapiro and the Cambridge velodrome. It also helps them invest in coaching, talent development and research to maintain their edge. New Zealand simply couldn't afford to have world class facilities and coaching in every Olympic sport.
The analogy to our most productive "frontier" firms is clear – the business world is about winning – being the best or among the best in the world. There are no prizes for participating. The real rewards come from businesses being "world class"; at the global, not the domestic productivity frontier.
Markets are increasingly "winner takes all" affairs. Being world leading allows a business to charge a premium, which means it can pay higher wages to workers and higher profits to shareholders. This also produces benefits for the rest of the local economy – for example good ideas filter through to local suppliers.
For the last 30 years, New Zealand has had a fairly "hands-off" approach to supporting our businesses. This approach seems to work okay for big countries, but less so for small ones. Compared to businesses in successful small economies, like Sweden, Belgium or the Netherlands, the top Kiwi businesses are about half as productive. That means they can afford to pay half the wages and have half the profits.
What explains the gap? Successful small advanced economies focus their investments in building world class "innovation ecosystems" in a few areas of existing or emerging strength. Just like we do with sports funding.
What is an innovation ecosystem? Businesses benefit from the same support sportspeople do; infrastructure specific to their industry (like the Cambridge velodrome for cycling), research, coaching and skills development. All this helps businesses to be world class, just like it helps our sportspeople reach the podium.
Of course, this is where the purists start talking about "picking winners". The spectre of "Think Big" still hangs over our economy today. But times have changed. Debt is lower. Our economy is no longer on the brink of collapse.
Geoff Simmons, Principal Advisor, New Zealand Productivity Commission. Photo / Supplied
The challenge nowadays is that New Zealand is still underperforming. Despite having top rating business environments, New Zealand's living standards are not catching up with our peers. In fact, the only reason we are keeping up with other countries is because Kiwis are working harder, not smarter. If we want to lift our living standards and face up to our environmental challenges, we have to lift our woeful productivity.
We've tried for years to help all our businesses get a little bit better, and this approach hasn't delivered. Other successful small countries focus their efforts on getting some businesses world class, and let their learning filter through the rest of the country. Their strategy has worked, ours hasn't. It is time to recognise that and learn from these countries, just as we learned from the Australian Institute of Sport in 2000.
This doesn't mean picking winners. It means focusing investments in a few areas of existing or emerging excellence, as the Productivity Commission's newly released frontier firms report explains. Many of these investments would be made anyway, the goal here is to coordinate that investment so that Kiwi businesses can lead the world in a few areas.
This approach is certainly risky. In business, not every investment pays off. Investments need to be carefully monitored and evaluated – something our public sector has been poor at. Government needs to work in partnership with industry and researchers to create the right innovation ecosystems. Nobody can do this alone – these days innovation is a team game.
