Monday, March 06, 2006

Dr David Skilling: Aggressive planning the key to economic success

Economic policy in New Zealand needs to increasingly focus on identifying desired economic outcomes - like having world-class investment in R&D and ensuring that New Zealand firms are participating fully in the globalisation process - and then deliberately configuring policy to achieve these outcomes ... In a world in which agglomeration pressures are strong, and in which labour, capital and companies are increasingly mobile across borders, we need to be very thoughtful about what it takes to generate a growth-friendly environment in New Zealand. Boilerplate solutions are unlikely to be appropriate to encourage growth in a small, remote economy like ours. New Zealand's economic performance has been strong over the past 15 years relative to previous decades. This has halted the relative income decline. But a substantial challenge lies ahead. New Zealand is well placed in terms of the quality of its policy foundations, and has an educated population, a valuable resource endowment, and so on. But these advantages do not automatically convert into strong future economic performance.

The task now is to build on these foundations and deliberately focus on positioning New Zealand for international success over the coming decades.

A new generation of policy will be required to make this happen, which will be far more deliberate and strategic, focused on achieving progress in key areas like strengthening the productive base, investing in knowledge, and taking the economy global. Policy should be deliberately configured towards achieving these goals.

This task needs to be approached with real seriousness of purpose and aggression given the size of the income gaps between New Zealand and other developed countries, and the increasing international intensity of competition for talent, companies, and capital.

Achieving much higher rates of productivity growth is a demanding task, but it can be done. There are many economic success stories that provide confidence that much improved economic performance is possible for New Zealand. But this goal is very unlikely to be achieved on New Zealand's current course and speed ... In most of the key areas, we are lagging behind our competitors and these countries are not standing still but are ramping up their commitments in areas like education and knowledge. New Zealand will need to engage in some sustained sprinting to begin to make headway.

So when I consider the economic prospects of the New Zealand economy over the next 20 years, I am a conditional optimist. I am optimistic that we can build a much better and more prosperous New Zealand, and that we have what it takes. But this optimism is conditional because it will not happen on current course and speed. It will require a commitment to deliberate, sustained, aggressive effort.

This will require leadership and the creative and disciplined execution of deliberate policies to generate strength in the economy.

Much improved economic performance will not occur spontaneously. Claims are often made about the significant benefits New Zealand will enjoy from a successful WTO round, by growing demand from the Chinese market, and from the collapse of distance brought about by technology.

While luck and positive external developments are part of most economic success stories, these benefits are unlikely to fall into our lap. Serendipity is not a substitute for a growth strategy.

* An abridged version of a lecture by New Zealand Institute chief executive Dr David Skilling to the University of Auckland Distinguished Alumni seminar on Saturday. The full lecture is available at the link below.

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