Innovating with the private sector

Embedded in Prime Minister Helen Clark’s annual statement to Parliament on February 12 fleshing out her ambition to “transform” the economy will be lashings of private sector thinking.

This itself represents a transformation — of government-business relations. Two years ago ministers scandalised business with policies friendly to their core supporters but hostile to business. After the smoke cleared from that battlefield the government and some in business began gingerly to explore paths across no-man’s-land.

The result will be partly in evidence on February 12. This statement will be a government strategy, not a business wishlist — Business New Zealand’s denunciation of the holidays act proposals on February 1 shows there remain large areas of deep disagreement.

But the Prime Minister’s statement will draw heavily on work by private consultants that itself grew out of initiatives by some Auckland business leaders. Prominent among them in various ways have been Andrew Grant of McKinsey and Co, Theresa Gattung of Telecom, Chris Liddell of Carter Holt Harvey, Craig Norgate of Fonterra, Scott Perkins of Deutschebank and Stephen Tindall of the Warehouse.

Ms Clark’s statement to Parliament will, as last year, focus heavily on the economy. The social programme is now largely under way. But there is not enough money to pay for it. For that, Ms Clark says, “we have to outperform our trading partners.”

“The macroeconomic settings are pretty much right,” Ms Clark asserted to the Business Herald. “But to lift growth up a notch we have to have more focus on innovation”. The codeword for the project within the bureaucracy has been “Innovate New Zealand”; Ms Clark more prosaically talks of an “innovation framework”.

A private sector board, code-named Gainz (for “Growing Innovative New Zealand”) — which some ministers want toned down to simply the Innovation Framework Advisory Board — will monitor the government’s implementation of the policies.

On innovation, the government has over the past two years:

* increased spending on research and widened scope for the private sector to write off research and development against tax;

* sank up to $1.6 million from its major investors fund into a joint venture between the Swedish telecommunications giant Ericsson and local IT company Synergy;

* developed some small carrots and sticks to get “centres of excellence” established, mainly in universities and polytechnics, and incubators to commercialise bright ideas;

* set up a seed capital fund aiming to combine public and private funds to take startups from the incubator to the marketplace;

* set about finding out how best to foster “clusters” of small companies to increase critical mass — around $1million is due in the coming Budget to develop a pilot initiative.

Now, having “started balls rolling last year”, Ms Clark says — mixing figures of speech in a mind-bogging fashion — “we are building on that”.

Starring role in her statement will be stimulation of “horizontally enabling sectors”. Hiding behind this eye-glazing jargon is the notion that, as railways were vital to the development of the nineteenth-century economy, ICT (information and communications technology) systems, biotechnology and the creative industries are vital to this century’s economy.

The rationale is that these sectors don’t just represent high-value-added activities in themselves but can catalyse other industries. In particular, Ms Clark has her sights on “third tier” high-growth and/or high-valued-added export industries, such as leisure marine (including superyachts), aquaculture, wine, film, racing, niche manufacturing and education.

Ms Clark believes — and some in business agree — that not enough investors have come to play on the level playing field. This is where the private sector input comes in.

Two of the four major reports that have fed into this year’s statement stem from ideas from the private sector initiators of post-ERA warfare contact. They noted that modern firms have found they can no longer expect employees and investors to line up to invest their labour and capital but must actively pursue both. And they figured the same for the modern economy as a whole.

These private sector thinkers were looking for a way to take the Prime Minister’s post-Employment Relations Act forums in late 2000 beyond tentative bridge-building to positive policy contributions. This was not altruism: they figured that if business remained sour and policy didn’t develop, it would not be worth doing business here.

So they set aside the fact that some of what the government was and is doing was and is anathema and that a fair amount of business’s policy agenda was off the government’s agenda. Instead, they looked for items on which they and the government could agree to work on and into which they could provide input.

Hence two government-commissioned reports, still under heavy wraps, which will be made public along with Ms Clark’s statement next week.

One, by LEK consultants, focuses on “talent”. A first fruit of that report was the announcement late last year of a fast-track “talent visa”, foreshadowed by the Business Herald on 5 November.

This allows businesses to bring in employees with certain skills with a minimum of red tape. Almost as important, it represents a 180-degree turnround in immigration officials’ approach from a traditional obsession with keeping people out to an active search for people who contribute to upskilling the economy.

The talent dimension to the government’s developing economic strategy reaches across a number of portfolio areas, notably Steve Maharey’s employment and post-compulsory education responsibilities.

Allied with the LEK report is the KEA project, sponsored by Mr Tindall, Professor David Teece of the University of California at Berkeley and the Law and Economics Consulting Group, headed in this country by former Treasury Secretary Graham Scott and George Barker. Privately funded, this aims to draw on expatriate New Zealanders’ networks and skills to enhance local firms’ productivity, international linkages and marketing contacts abroad.

The second report is by Boston Consulting Group (BCG) on attracting foreign direct investment.

Ms Clark has actively pursued foreign investment on her trips abroad — though so far without fruit. In Japan, for example, she tried to prod Juken Nissho into expanding its forestry industry investments and in Korea she plied big manufacturing firms with enticements to exploit bright New Zealand ideas.

Ms Clark also recognises that without foreign investment she won’t get the extra “notch” of economic performance she needs. But she is wary of following BCG too far down the Irish route of extreme reliance for its exports on foreign investment, which can upsticks to other countries with good education and low wages, such as in eastern Europe.

The focus will be on getting more greenfields investment — a failing in the 1990s — and joint ventures. And Ms Clark wants to lever off foreign investment to grow New Zealand’s own capacity.

Whereas Ireland imported whole industries — for example, pharmaceuticals — her strategy will aim to develop industries already in business here. The Ericsson/Synergy deal fitted this because it grafts on to an indigenous ICT shrub;, which looked at coming here, didn’t because it would have been a transplant, roots and all.

Two other, also still secret, major reports have fed into the February 12 statement. One is by Ms Clark’s Science and Innovation Advisory Council, headed by Rick Christie. The other is by the Treasury into the effects of our geography as a small society distant from our markets.

All four reports were drawn on by a team headed by Mary Anne Thompson, deputy head of the Department of Prime Minister and Cabinet, to produce the basis for Ms Clark’s statement. Science Minister Pete Hodgson was the key portfolio minister. But, while the LEK and BCG reports were fine-tuned in discussion with officials to recognise “political realities”, they remain the work of those consultancies, not a joint effort.

All of this medium- and high-tech stuff is supposed to mesh with Jim Anderton’s hyperactive spawning of industry, regional and trade assistance programmes — and particularly his wood processing strategy group which brings officials and industry executives together to remove barriers to development and identify the best contributions the government can make.

Will February 12 be the last word? No. Ms Clark warns against “overplaying” it. It is work in progress. Which leaves room for more private sector initiatives.