By Alex Tarrant
New Zealand’s manufacturers have issued a series of challenges to politicians on both sides of the aisle, saying leadership is needed on tertiary training to close skills shortage gaps, on research and development (R&D) incentives, and on readying the economy for the growth of automation.
In a Double Shot Interview with Interest.co.nz, New Zealand Manufacturers and Exporters Association (NZMEA) CEO Dieter Adam told Alex Tarrant that his organisation’s members were crying out to be heard on issues central to the future of the sector.
The NZMEA on Monday is set to host Finance Minister Steven Joyce, Labour’s finance spokesman Grant Robertson and Green Party co-leader James Shaw for a panel on how the various parties would help sustain and grow New Zealand’s manufacturing base.
From 26% of the country’s gross domestic product (GDP) 40 years ago, the manufacturing sector’s contribution to the overall economy has fallen to 10% of GDP today. Even over the past four years, the trend is evident, falling steadily each year from 10.5% of GDP in 2012 to 10% now despite the sector itself continuing to grow.
It may not seem much but we’re talking in the hundreds of millions of dollars as domestic consumption and the services sector, including services exports like tourism, jump up the list. While that’s all well and good for those industries, Adam argues government needs to focus on policies to allow his sector to flourish. “I’m not aware of any reasonably wealthy country that doesn’t have a strong manufacturing sector.”
Above all, the NZMEA is seeking acknowledgement from government that the sector exists. “When we talk to government, we talk to a lot of people but there’s no coordinated view about manufacturing. There isn’t a single entity anywhere in government that’s got the name manufacturing in it,” he says.
The Greens have an explicit policy for the Cabinet to have a Manufacturing Minister. Whether it’s this or some coordinating agency, Adam says something needs to be in place to help coordinate on issues across the board, from training to infrastructure needs. After all, we have a Ministry for Primary Industries.
If that’s one of the high-level solutions government could bring to the table, what are the more detailed policy changes the NZMEA would like to see?
Skills shortages & training
Manufacturers across the country – particularly in the sector’s Auckland and Christchurch heartlands – tell Adam constantly that the biggest handbrake on growth is skills. “We have a significant skills shortage. It is getting worse all the time,” he says.
NZMEA members overall have somewhat limited expectations of what the government can do for them, Adam says. They’re aware that the success of their business largely depends on what they do, and their own skills. “But we have to recognise that tertiary education and…secondary education, that is the domain of the state and the government spends a lot of money in this area.”
Manufacturing, along with construction and the primary industries, are saying New Zealand’s tertiary education system doesn’t produce the people that these sectors need. I remind him of the OECD recently saying maths tuition should be boosted in secondary schools and that this could lend itself to a greater number of engineering students attending and graduating from university.
But Adam says even though that sounds like a plan – that’s not what manufacturers are calling for. The government a few years ago threw a bunch of money at exactly that – boosting the number of engineering graduates. “We’ve now got engineering students coming out of the system that can’t find a job, because the shortage is not at the graduate engineer level, as much as the levels below,” he says.
What manufacturing businesses need are trained technicians – as in, at polytech level rather than Bachelor. Adam told Tertiary Education and Skills Minister Paul Goldsmith as much in a meeting last week. Not enough has been done to study exactly where the skills gaps are, he says.
Whenever we mention skills shortage gaps, conversation now inevitably drifts to immigration policy. Are the government’s proposals to tweak the skilled visa settings useful? Unsurprisingly, Adam says they were not.
One of the changes will see a proportion of migrant workers being required to leave the country for two years after any three-year stint. “It doesn’t make any sense. You just trained them up and then you have to send them back.”
The NZMEA’s primary interest is changing the skills mix that comes out of New Zealand’s tertiary education system. “But that’s not going to happen overnight. In the meantime, if we want to keep the factories running, we need to fill the gaps with a mix of local – preferred – but also migrant workers.”
“Look, I don’t know anybody who says, ‘I want to employ a migrant [over a local].’ People need skilled workers. It is so desperate. They’ll happily employ a Kiwi, but in most cases there’s no Kiwi available.”
New Zealand needs more targeted training and education policies, Adam says. So, is he more confident after that meeting with Goldsmith? “Yes and no.”
“The problem I have is, I can’t go to the Minister and say, ‘this is exactly what needs changing,’ because we don’t have the analytical power ourselves to say [that definitively]. I couldn’t tell you exactly how many skilled workers are missing in what particular roles.”
The government is in the best position to conduct such research, which would help it to make intelligent policy decisions. “That needs to be the first step.”
Guys in white coats govt’s typical R&D target, but process innovation just as important
Another key election issue for the sector is how to better incentivise business to risk extra spending on research and development. This seems to be more favourite of the Left, although the current government has made changes since coming to power, away from Labour’s R&D tax credit stance.
The ‘new’ current system isn’t working for all companies, Adam says. Larger companies can tap a ‘Callaghan Growth Grant’, which is just an R&D tax credit in drag, he says. But, while they’re happy, smaller companies – the majority – aren’t eligible. They have to try and tap ‘project grants’; a lot have just given up on them because they are so administratively cumbersome.
A bigger problem is that the government appears to have quite a narrow view of what innovation is. “Innovation [to government] is a guy with a PhD and a white coat, developing some fancy new product,” Adam says.
But in “real business,” innovation comes in different forms – process innovation is just as important as product innovation. NZMEA and its members have held discussions with the Callaghan Institute in the past where they were told process innovation wasn’t a focus. It should be, Adam argues.
“It really comes down…to an understanding and interpretation of innovation that’s very much driven by the fancy TV programmes, rather than really understanding what innovation means for business.”
“Innovation is a means to an end,” Adam says. “We talk about globally competitive companies, because that’s what our manufacturers need to be, and they innovate to stay globally competitive; they don’t innovate because they like innovating.”
The rise of automation
On the subject of innovation, automation is an increasingly important topic not just for the owners of manufacturing companies, but their employees as well. Interest.co.nz has looked at the topic here. Read economist Matt Nolan’s ‘Top 10’ on the economics of automation here.
Yes, it certainly is a critical issue for the industry and our political leaders to understand, Adam says. Automation is part of the story of manufacturers trying to find which innovative technologies and processes will help them stay globally competitive.
A message for Joyce, Robertson and Shaw: “In terms of the political debate, I can’t really see any good evidence of us having an intelligent debate about the future of work and the future of the economy,” he says. “Changes are going to happen, and if we’re not prepared for them then we’re going to be worse off.”
“Manufacturing will look quite different in ten years’ time, I’m sure of that.” What will it look like? We’re still not sure. Some studies suggest it could lead to job growth, while others suggest heading towards an employee-free industry as robots take over.
New Zealand has a productivity problem. We’re told that constantly, most recently by the OECD. Adam says this could partly be down to activity turning towards less productive industries like tourism.
That’s where automation should come in to help drive manufacturing growth. Adam says innovative technologies have allowed companies to become more productive and grow, giving them the ability to keep hold of their workers and even employ them more gainfully.
“If we want to become a wealthier country, we need to increase productivity in terms of GDP per hour worked. But if we create jobs that are lowly paid, like on the minimum wage, we’re going to go down rather than up.”
10 Comments
“We’ve now got engineering students coming out of the system that can’t find a job, because the shortage is not at the graduate engineer level, as much as the levels below,”
This is the crux of the immigration debate. In general NZ is a highly skilled country. So when employers ask for 'skills' they are usually asking for 'low wages'. Our culture emphasises academic skills which is OK but then looks down on practical work however important it is. I belonged to the office brigade of IT, accounts, marketing, etc and we all made mistakes. But we look down on plumbers and electricians and gas fitters and car mechanics who cannot make a mistake without risking lives.
To the office brigade making mistakes add politicians and journalists.
It is morally wrong to bring in foreigners to do work that we look down on. Every society should do its own dirty work: cleaners, care-givers, take away food, massage parlours, etc and only bring in immigrants for work needing exceptional skills (professors, surgeons, etc).
We've also in the last 20-30 years abandoned the efforts made through most of the 20th century to encourage building of affordable houses (e.g. public-private partnerships) that were part of what made these lower-skilled, lower-wage jobs tenable in New Zealand.
At the moment, we're seeing a massive number of large, unaffordable houses built because that's what makes sense for developers - but this has always been what makes sense for developers, hence the use of such public-private partnerships in the past.
It's a critical problem we're creating in the elimination of a viable lifestyle and future opportunities for many workers we need in society, from school teachers (why would they ever live and work in Auckland?) to electricians and gas fitters.
“We have a significant skills shortage. It is getting worse all the time,”
Yet he can't provide figures.
“We’ve now got engineering students coming out of the system that can’t find a job, because the shortage is not at the graduate engineer level, as much as the levels below,”
So we've got Kiwi's who can't find jobs...
“Look, I don’t know anybody who says, ‘I want to employ a migrant [over a local].’ People need skilled workers. It is so desperate. They’ll happily employ a Kiwi, but in most cases there’s no Kiwi available.”
Huh? But the graduate engineers who can't find jobs are available, are they not?
One of the changes will see a proportion of migrant workers being required to leave the country for two years after any three-year stint. “It doesn’t make any sense. You just trained them up and then you have to send them back.”
So, the government needs to do more to supply business with the right human resources, and if they don't, then they expect to import and train foreign human resources?
My understanding, or take away, from this article is that "skills shortage" doesn't actually refer to the skills needed to do the jobs they're talking about, but rather the shortage of kiwis who are skilled in living on a low-wage income. Foreigners from poorer countries are obviously more skilled at this, so in that context the argument is valid - New Zealand has a skills shortage.
""One of the changes will see a proportion of migrant workers being required to leave the country for two years after any three-year stint. “It doesn’t make any sense. You just trained them up and then you have to send them back.”""
It depends on the family they bring with them. A few years ago I was chatting to a bus driver from Fiji; when he completed working for five years he, his wife and a couple of children would apply for citizenship. Note a really nice guy and I expect he has a great family but it does make NZ citizenship an ill considered lottery.
The solution would be to treat singles and couples differently from families. Allow the latter for 3 years and the former for say 5 years?
From the article: “I’m not aware of any reasonably wealthy country that doesn’t have a strong manufacturing sector.”
Above all, the NZMEA is seeking acknowledgement from government that the sector exists. “When we talk to government, we talk to a lot of people but there’s no coordinated view about manufacturing. There isn’t a single entity anywhere in government that’s got the name manufacturing in it,” he says.
Our economy is becoming dangerously imbalanced while the clueless see our future wealth based on tourism and a "mowing each others lawns" service economy.
Modern niche manufacturing is a world away from the "moron pulling on a lever" impression some have and needs urgent help - training the right people is just the start. Our high technology and highly regarded super yacht and race boat industry, once a huge employer is in trouble and once it's gone it's gone. You can't replace something that took hundreds of years to develop, building these things needs a vast range of people and facilities using the best of mans skills, knowledge and processes. BTW the recent demise of the Thames foundry is a real blow, the only outfit able to produce large and exotic alloy castings (eg. high tensile keels) as required for the industry. They would still be operating if they had received a few railways orders now they risk contributing to the collapse of an entire industry. Real dumb.
Unfortunately for the Thames foundry the ideology of those in charge doesn't mesh with what they need. Aversion to rail and infatuation with roads, with a side serving of funding irrigation for farmers producing commodities.
Still, if the NZMEA finds that when talking to government about manufacturing the government doesn't perceive the importance of it, that would seem to fall back on the NZ Empowers and Manufacturers Association to perform its role of advocacy more strongly.
I do agree this seems to be a pretty critical issue. We can't afford to be just banking our economic wellbeing on farming, selling houses to each other, and importing as many people as possible as fast as possible so we can say "Look! GDP!"
Continuing on the above, posted without comment:
"America and Western Europe exported almost their entire manufacturing capacity to China etc. And how can you be productive if you don’t manufacture anything? Yeah, I know, ‘knowledge economy’ and ‘service economy’ and all that, but does anyone still really believe those terms? Sure, that may have worked for a while as others were still actually making stuff (and nobody really understood the idea anyway), but it’s a sliding scale. As productivity plunged, so did GDP per capita. We can all wrap our heads around that."
"We’ve used all those trillions in new debt to, as far as productivity is concerned, run to not even stand still: productivity (GDP per capita) continues to decline despite all the debt. Why is that? Well, Bohm-Bawerk answers that question earlier: “.. consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.” In other words, as I said before, if you don’t use it to actually make things, you’re basically just burning it. Plus, in the process, as we see ever clearer in the effects of QE, you can grossly distort an economy, by blowing bubbles, propping up zombies etc.
Things would look different if we used the “zero cost money” for production instead of consumption. But that’s not what the central bank money is used for at all. The net effect of all that debt, be it QE or new mortgage debt, is less than zero. Quite a bit less, actually. How do we solve that problem? The answer is deadly simple, though not easy to put into practice: start making stuff again! Or put it this way: debt must be used to raise production, not consumption."
https://www.theautomaticearth.com/2017/08/productivity-and-debt/
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