Key could take leaf from Sweden's book
The government needs to be much more strategic and bold in its economic transformation agenda.
Monday, November 28 2011 || Comment || BY Rod Oram, Sunday Star Times
If National is to deliver, leader John Key will have to change his ways. He will need to think more deeply about New Zealand's opportunities in the world and what government and business need to do to make them happen, articulate the challenges more persuasively and act more courageously.
If he doesn't, he will have squandered his political capital. He will have put his popularity ahead of our progress.
Should Key want some guidance, he could learn a lot from Fredrik Reinfeldt, the leader of a very effective centre-right coalition government in Sweden since 2006.
The Swedish economy was hit hard by the global crisis, contracting 6 per cent in 2008-09. But it will grow about 10 per cent 2010-11, thanks to the government's ambitious reforms and the corporate sector's sophistication and capability in global markets.
Fiscal prudence was vital too, achieved by the government's strategic approach to revenue and spending under Finance Minister Anders Borg. On Thursday, the Financial Times declared him Europe's best finance minister in 2011, ranking him first in all three categories – economics, politics and credibility.
In contrast, our economy contracted by only 2 per cent in 2008-09 and has grown barely 4 per cent 2010-11, even though we're enjoying our best terms of trade in 37 years and our two largest trading partners, Australia and China, are performing strongly.
Our slow growth malaise is the result of National being busy, but tactical, in its first term. It believes incremental improvement in existing government and business practices will double our rate of growth and enable us to catch up with Australia by 2025.
But Treasury projections out to 2016 show the long-term growth rate won't change.
Clearly, the government needs to be much more strategic and bolder in three broad areas: its own activities; the economic transformation agenda it and business have yet to devise; and the help government gives business to turn the strategy into reality.
On the first, Finance Minister Bill English talks often about reinventing the way government delivers its services. Yet, so far, he has only tinkered with costs and staff, rather than restored our civil service to the world's leading edge of government innovation, as it was in the decade to the mid-1990s.
So, for example, National is fobbing us off with school standards, work tests and rejigged health boards rather than beneficial reforms of education, welfare and health.
Key could borrow liberally from Reinfeldt. His centre-right government remains committed to Sweden's strong social welfare system, but is devising modern ways to make it work. Of course, anything Key adopts needs to be adapted and improved to make it uniquely right for us.
On the second area, economic transformation, the government believes its 120-point Economic Development Action Plan will do the job. But the plan "is simply a grab-bag of obvious initiatives grouped under cute headings".
Actually, Key said that of the Labour government's economic strategy in November 2006. His verdict, though, applies in spades to his plans today because of National's failure to develop any strategic insight.
Take, for example, the primary sector, by far our largest source of foreign earnings. The government's goal is to treble the value of food and beverage exports to $58 billion a year by 2025. It believes incremental gains in productivity, volume and prices will do the job. But even the simple maths of that shows the goal is impossible.
Agriculture could achieve that, and lead the transformation to a high-value economy, if it pulled off a big strategic shift from the dead-end of low-cost, low-value commodity production. To do that, it must switch some of its scientific research and commercial development into functional foods, those with bioactive, nutraceutical and other health benefits.
Then dairy farmers would earn, say, a steady $17 or even $27 a kilogram of milk solids, rather than the paltry, volatile $7 or so they do now. The Key government has no concept of this. For example, it is putting $70m of research money a year into the Primary Growth Partnership, with industry matching the money for projects aimed at incremental progress of existing science and business models.
National revealed its ignorance during the election campaign when it announced it would spend $60m over four years on four to eight "national science challenges". The examples it gave were: intensifying farming in environmentally sustainable ways; generating energy from biomass and geothermal sources; and producing foods with demonstrable health benefits.
Astonishingly, these goals are not already at the very heart of science strategy in the primary sector, or properly funded.
After all, Nestle announced last year a US$500m incremental increase in its R&D spend on functional foods, which it has long pursued with impressive commercial success.
Meanwhile, over in Sweden, R&D expenditure is 3.6 per cent of GDP, the second highest rate in the OECD after Israel. Companies contribute 65 per cent because they have the skills and business models to make money from it in global markets. The government contributes 35 per cent. It helps in other ways, such as very effective state agencies like Vinnova for innovation, and Innovationsbron for incubators.
Our R&D spend is 1.1 per cent of GDP, with government contributing 55 per cent and business the rest. Those are two of the many reasons why many New Zealanders are stuck in low wage, unsophisticated and insecure jobs.
Many New Zealand businesses could begin to emulate the Swedes if they learnt how to be strategic, invest in their technology and people, and build relationships around the world. They could also learn a lot from deep Swedish commitments to sustainability, clean technology and all-society collaboration on national goals, such as strong environmental standards.
Sweden is not the be-all and end-all. But it is an excellent example of how an ambitious centre-right coalition government performs. So far, we've only had promises from Key and his colleagues.
Brilliant article. New Zealanders are thirsting for Key and his colleagues to do something bold and strategic. We should be setting the pace for others to follow. are there any thought leaders left in the civil service who could help Key define some new thinking?
Rgds
Howard
Posted by Howard Moore at 03:16 on November 28, 2011
Rod - a very good article.
Whilst bemoaning National's failure to make significant changes to economic and social policy we all forget that any attempt to make changes is greeted with howls of outrage from all those who have a vested interest in the status quo.
Recipients of middle class welfare shrieking in combination with the large number of people who'd prefer not to see or make any tough calls make a hell of a noise.
The need for consensus (ie ducking tough issues) overrides everything else. Even in your article you say "Of course, anything Key adopts needs to be adapted and improved to make it uniquely right for us". I haven't read much about Sweden but this might well mean ruling out most of the policies that actually worked!
The issue is then compounded by the media who don't care about healthy, rational debate but would rather go for cheap shots and eye-catching headlines.
Posted by A N On at 03:29 on December 2, 2011
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