Big contrast in parties' views on giving industry a lift

Labour and National are poles apart on the help the state should give manufacturers. Labour says the Crown's involvement is justified by the benefits it gets in return. National encourages private investment.

By Brian Fallow

Nowhere is the ideological difference between the two main political parties starker than in the area of industry policy.

Both National and Labour acknowledge that the sweeping economic reforms of the past 15 years, in which both had a hand, have failed on their own to deliver a flourishing enterprise economy. They differ on what, if anything, the Government should do about it.

Labour, for example, sees a role for the state in providing venture capital and development finance.

Capital for start-up ventures, especially in innovative or high-technology areas, is hard to come by in New Zealand. The market in this area is very thin.

"The economic rationale for state involvement," says Labour industry spokesman Pete Hodgson, "is that it [the Crown] benefits from any new growth in the economy that results through taxes and jobs, whereas the private sector can only get its money back plus a return."

Enterprise and Commerce Minister Max Bradford dismisses such thinking as a "giant leap backwards."

Mr Hodgson sees a role for state money, preferably pooled with private sector funds, at both the venture capital stage and the later development finance stage.

"We would require applicants to have explored and exhausted other avenues of finance and we would not be offering concessionary interest rates," Mr Hodgson said.

"Instead, what we would be offering is a board of directors, not dissimilar to the board of the Technology for Business Fund, who would say whether the development opportunities here are worth putting money into.

"They would be higher-risk than the conservative banks are prepared to take on, but they would not repeat the follies of the DFC in the past, like inappropriate investments in real estate."

New Zealand's bankers, preoccupied with mortgages and seasonal finance for farmers, are by international standards conservative, Mr Hodgson believes.

"They don't seek to understand, except exceptionally, high-tech developments or the technological shifts businesses go through. And they are not prepared to take a risk on export credit. It is those areas where the Government has to step up."

For Mr Bradford, on the other hand, the Government's role is not to provide venture capital but to encourage foreign investors to provide it.

Details of a "more aggressive" approach to attracting foreign investment will be announced after it has been road-tested with the private sector, he says.

Mr Hodgson says Labour will set up a dedicated foreign direct investment division within Trade New Zealand to promote investment in new "green fields" enterprises or expansion of existing enterprises.

Only one of the 117 approvals the Overseas Investment Commission gave for "new" foreign direct investment into New Zealand in the second half of 1998 was for a new enterprise - a submarine telecommunications cable across the Pacific in which Telecom is a partner.

And only one approval was for the expansion of an existing enterprise, Auckland ferry operator Fullers.
The others all related to the sale of existing businesses or land to overseas buyers.

Mr Hodgson says New Zealand is almost unique in the West in having no state involvement in export credit financing despite a demonstrable failure of the banking and insurance industries in this regard.

Trade NZ, he says, should be given the task of investigating the reasons for market failure in this area and then develop an appropriate scheme which the Government would fund - in partnership with financial institutions as far as possible.

Labour also intends to reinstate the business development grants scheme.

Mr Bradford replaced the grants scheme last year with a programme to address what he regards as the more significant shortage - a lack of financial and managerial skills among fledgling enterprises.

New Zealand's research and development spending in relation to GDP is less than half the OECD average, with the shortfall lying mainly in the private sector.

Labour proposes that all R&D spending be counted for tax purposes as an expense in the year of investment. It says it will also accelerate the depreciation for new capital investment in technology. Crown research institutes will be relieved of the need to pay the Government a dividend.

The Government, meanwhile, is seeking ideas from industry on how the $600 million it spends on R&D, mainly through the crown institutes and universities, could better fit the needs of business.