Dialogue: Honesty needed in facing the challenges before us

ANDREW GRANT* says New Zealand has the potential to be extraordinary, but we must set targets that are tough
and will take real effort and commitment.

The great English columnist G.K. Chesterton once defined a true patriot as someone who reflects honestly on the nation's shortcomings and where it is, yet deeply believes in the potential of its people, and where it could be.

This is the stance that we, as New Zealanders, need to adopt.

New Zealand does have the potential to be extraordinary. We have the people, the natural environment and the heritage to become one of the most exciting places on Earth. But if we truly believe in New Zealand's potential, then we also need to reflect honestly on the challenges facing us.

In economic terms, we are insignificant players on the global stage. Taking GDP as a measure of size, we find our economy is now about a seventh the size of Australia's, roughly the size of Western Australia's. Microsoft has 20 times the market capitalisation of our stock exchange. By this measure, New Zealand is no more than an internet start-up, little more valuable than e-Bay but half the value of Yahoo!

Furthermore, a lot of water separates us from the rest of the world.

Our economic health and stability holds no interest for the rest of the world. We are not an Israel or a Yugoslavia. No foreign countries will really care if we go slowly and surely down the economic plughole.

Perhaps a few Australians would rue the loss of a prime target for their sheep jokes, but even then Tasmania would rapidly fill the gap.

If we are to fulfil our potential, our destiny is well and truly in our own hands. We have to get out there and perform. That is, we have to learn how to bring the best of the world to New Zealand, and take the best of New Zealand to the rest of the world.

But we can't just talk about it. In business, there's an old adage: what gets measured gets done. We have to create a shared vision of success and that vision should include some hard measures and targets to help us to to define what we mean by success.

But what are the measures that mark out a prosperous society, which is rich in knowledge? And what targets should we set ourselves?

First, the ultimate measure of a nation's prosperity is GDP a head. We should set ourselves a bold target over the next 10 years. We should aim to outperform Britain and Australia by 2 per cent a year. This means we should make our economy grow 2 per cent more quickly than the economies of both these countries. If we do this we will be richer than Britain in five years and Australia in 10 years.

That's our goal. If we want to make it happen, we need to succeed in four key areas - we need to invest in knowledge, win the war for talent, create a truly entrepreneurial culture and nurture vibrant communities.

Let me set out what I mean by each of these ideas and, at the same time, how we can measure our progress.

First, we need to invest in knowledge. If we are to create a more prosperous and environmentally sustainable economy, we must make genuine progress towards creating a knowledge economy. And what can we use to measure our progress, if we are to pursue this in truth, and not just in theory?

An economist named Tobin created a way to measure how much of a nation's wealth comes from knowledge-intensive industries. The measure is named Tobin's Q. If a nation's Tobin's Q is 1, then no wealth is being created in this way. If it is 3, then two-thirds of the economy's wealth is being created in this way. Today, New Zealand's Tobin's Q is a little over 1.1, while the United States has a Tobin's Q of more than 3.

We can double our Tobin's Q within five years. But to do so we must win the war for talent. This brings me to my second point: New Zealand must be able to attract, keep and develop exceptional people.

In today's world, exceptional people create jobs. If we don't attract these people, we don't have a future. We need to welcome talented immigrants, and we need to bring talented New Zealanders home.

If we commit to this idea, I believe we can create a net inflow of 50, 000 qualified people a year.

Third, we need to create a genuinely entrepreneurial culture, a culture that celebrates and rewards individual initiative. We should regard the people who create innovative businesses as heroes and should offer them recognition. We should also measure entrepreneurial activity by marking the number of new businesses that are launched each year as public companies.

Right now there are just a handful of these IPOs (initial public offerings) in New Zealand. A good international venture capital firm will launch some 15 new public companies every year. New Zealand should target a 50 per cent a year growth rate in the number of companies IPOed each year for the next five years.

Fourth, we need to reinvigorate our communities. Over the past few days, the US presidential debate has focused on how government can help to create a vibrant community by supporting a vibrant voluntary sector.

New Zealand has a great heritage as a nation of passionate and committed volunteers. Now we need to rediscover the pleasure of volunteering - of contributing purely because we want to make a difference to our communities. After all, what made the Sydney Olympics so special? Many would say it was the 45,000-plus volunteers, who were determined to show Australia off in the best possible light.

The best measure we can use here is the amount of money a head that individuals and companies give to voluntary organisations. Money is not the best measure of participation but it is a pretty good start. If we could grow this contribution by 15 per cent a year for the next five years, we would transform our society more effectively than any social welfare programme alone.

These targets are not a perfect set, but they are clear and measurable, and a commitment to such clear and measurable targets could be one of the most useful results of the business leaders' forum with Government today.

With real targets, we can hold ourselves mutually accountable for making New Zealand one of the most exciting places on Earth. We must be honest - the targets proposed are tough and will take real effort and commitment. But there is no doubt that as a nation, we have what it takes to make these targets real.

* Andrew Grant is a principal of the Auckland management consultancy McKinsey and Co.

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