By Michael Enright*
Today’s headlines are filled with stories of collapsing public finances in Europe, concerns about the euro, public and private sector layoffs around the world, dauntingly persistent unemployment in the US, stagnation in Japan, slower growth in China.
Next are the stories of political paralysis, new governments in Greece and Italy, a European Union unable to work out its difficulties, a United States in which partisanship has replaced public interest, and a Japan with a revolving-door premiership unable to get its footing.
Next are stories on the spreading sense of deep unfairness, people losing pensions and jobs due to bureaucratic blunders or dishonesty, inside traders who made huge sums from shady deals, CEOs making millions while laying off thousands, and bankers and financiers who nearly brought down the world economy granting themselves salaries and bonuses that the rest of us can only dream of. “Occupy Wall Street” and similar movements elsewhere are the result of a situation in which the many appear to be paying for the folly of the few.
Despite many analyses of today’s issues, some simple facts seem to be overlooked.
In a nutshell, many of the problems have arisen because individuals, companies, and even nations have tried to borrow, rather than earn, their prosperity.
The simple fact is that individuals, companies, and nations have to improve their competitiveness if they are to achieve a prosperity that is sustainable.
In the eurozone, the ease of using a single currency masked the fact that the less competitive euro economies had only maintained their positions in international markets by depreciating their currencies against those of more competitive neighbors. When the weaker economies used mispriced borrowing for consumption rather than investments to improve competitiveness, and could no longer devalue, it was only a matter of time before the lack of competitiveness would come home to roost.
In the US, cheap money, feel-good policies, and financial engineering masked the failure to make the investments in the workforce and in core infrastructure needed to maintain competitiveness.
In Japan, stagnation was obvious, but an ossified political system could not make the internal reforms necessary to improve competitiveness.
On the other hand, it has been Northern European countries with their fiscal stability, China with its emphasis on investing in infrastructure and people, and India with its newfound focus on development even in the midst of systemic corruption that have done well among the large economies.
Lessons for New Zealand
What are the lessons for a country like New Zealand, that has avoided the worst of the excesses, more or less kept its house in order, and has benefited from growing demand for its products and services?
The lessons must be that avoiding the excesses is essential, that resource demand and prices can help but are uncertain, and that the only way to improve prosperity in a sustainable manner is to improve competitiveness.
To improve its competitiveness, New Zealand will need to understand three tectonic shifts in the global competitive landscape and leverage these to its advantage.
The first is the rise of the markets of Asia, particularly China, India, and Southeast Asia. These nations have accounted for the lion’s share of global growth over the last few years and are likely to continue to do so in the medium term.
The key thing here is that instead of these markets being half a world away, as are many of New Zealand’s traditional markets, these are much close in distance and time zone, and while some New Zealand companies and industries are focused in on these markets, the vast majority that could be are not.
The second tectonic shift is the combination of globalisation and modern information technology. Today, globalisation and modern IT allows small companies from small countries to harness the same productive forces as anyone else, to plug into foreign markets, to develop and deliver messages, and to manage global businesses as never before. New Zealand companies can set up manufacturing in China and back offices in India.
They can use the internet for their marketing and sales, international logistics firms as their distribution system, and access global capital for finance. While some New Zealand companies and industries are taking advantage of this combination, far too few have realised its potential.
The third tectonic shift is the emergence of a new paradigm for fostering national and regional competitiveness through the development and nurturing of regional clusters, groups of firms in the same or similar industries that can improve their competitiveness through collective action and focused investment. Cluster-based development has become the prevailing paradigm in many nations around the world, particularly the small northern European economies that continue to outstrip New Zealand in technological development and in various competitiveness measures. Again, while New Zealand is making progress on cluster development, it has a great deal to learn from leading practice abroad.
Understand and leverage
New Zealand’s ability to understand and leverage these tectonic shifts will have an enormous influence in its future prosperity.
New Zealanders have a unique opportunity to plug into these shifts later this month. The annual conference of The Competitiveness Institute, a global professional body with more than 2,000 members in more than 100 countries, will be held in Auckland November 28 to December 2. The conference will focus on the shifts identified above and will bring experts from Asia, leading practitioners from Europe, and people engaged in linking clusters to markets around the world to New Zealand.
It will be a unique opportunity to focus in on what New Zealand needs to do to ensure its future prosperity in an ever more difficult global environment.
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Michael J. Enright is a professor at the University of Hong Kong, director of Asia-Pacific Competitiveness Programs at the Hong Kong Institute of Economics and Business Strategy, director of Enright, Scott & Associates consultancy, and a founder of The Competitiveness Institute. He is a keynote speaker at global The Competitiveness Institute conference in Auckland on 30th November for more information see www.tci2011.com.
23 Comments
"On the other hand, it has been Northern European countries with their fiscal stability, China with its emphasis on investing in infrastructure and people, and India with its newfound focus on development even in the midst of systemic corruption that have done well among the large economies."
Say what....the Germans and the frogs lent the loot to the Greeks so the Greeks could buy German and French goods....France is a fiscal failure waiting to be exposed by the bond markets and the Germans have debts caused by one Hitler that if they were forced to pay for the damage would leave them worse off than Greece. China owes its stupendous rise from the filth of Mao and the communist orgy of waste and greater stupidity to having a cheap as chips labour force that a bunch of treasonable western corporates found hard to resist in their greedy grab for bloated salaries and fat profits...a labour force under the heel of red jackboots...in a land where some shites in Beijing or lesser shites related to those in Beijing, rule like feudal lords, thieving what they want and making up the law as they go along.
But gee Michael, don't let me stop you....!
@Julienz - right you are - furthermore I live in HK and there are a lot of cultural and language barriers to setting up a successful factory in China. You need to grease a lot of palms. Too risky IMO
OTOH, will those attending the Competitiveness talkfest stay in up market hotels or humble B&B's ?
"tectonic shifts" and "CLUSTERS"....garrrrrrrrrrrrrrrrrrrhhhhhhhhhhhhh.... sickening....maybe the gargantuan mountains of stinking filthy debt can all be swept under a CLUSTER....along with the lying scam politicians and utterly useless bureaucrats who we were told were policing the thieving corporates and scumbag bankers....!
Crikey! You'll be deported for making comments like that! There are a lot of pension bludging oldies about nowadays, and almost all of them vote National. And when you think that most of the Nat MPs are counting down the days until they retire on big fat pensions, your comment would probably be classified as "terrorism".
Useless frothing Rabid Right Nat-lurvin' waste-of-space bene bludgers such as Wolly would think so, anyway.
Michael Enright - comments? Hot off the NZMEA presses:
NZ Dollar costs exporters $6.6 billion
Rises in the New Zealand dollar have cost exporters approximately $6.6 billion over two and a half years according to the New Zealand Manufacturers and Exporters Association (NZMEA). In February 2009 the NZ Dollar bottomed out at 52.3 on the Trade Weighted Index (TWI), but since then currency manipulation overseas and inaction in New Zealand have seen the NZ Dollar TWI rise to 72.1 in August.
NZMEA Chief Executive John Walley says, “For every one percent the currency rises it costs New Zealand exporters approximately $200 million on an annual basis. Between February 2009 and August this year the NZ Dollar rose by 38 percent and it has averaged 13 percent above the February level over the last two and a half years. That has come at significant cost to the exporters that earn New Zealand’s living.”
“We have seen the impact with exporters such as Rakon announcing the negative impact of currency volatility - and these are the larger companies with an international footprint who are able to hedge more effectively to mitigate exchange rate problems – what chance do smaller players have?”
“We have heard from the Government and the Reserve Bank that it is too hard to make policy changes in this area, but a $6.6 billion impact shows that intransigence comes at a massive cost. To put a scale on this, the sale of Air New Zealand and the energy State Owned Enterprises is projected to raise $7 billion as a one off. For a Government that claims to champion the tradable economy it is unfathomable that they would standby and see the export sector taxed to death by a high currency.”
“There is no easy fix to an overvalued currency, but there are options available and they must be considered if New Zealand is to earn its way out of debt.”
“Further views on how exporters would like to see economic policy move are available at www.changenz.co.nz.”
http://www.realeconomy.co.nz/222-nz_dollar_costs_exporters_66_b.aspx
The only way to improve prosperity in NZ and the world is to provide true wealth for those whose intelligence and manual dexterity is outpaced by technology. In less than 50 years, that will mean almost all of us. Technology and innovation are not stymied by depression, they are enhanced by it. That's good news in a caring society backed up by complemetary economics, very bad news in ours.
That means letting go of capitalist ideology of 'efficiency', which broadly translated means less labour units and more profit. NZ's dairy industry is a great example. Rod Oram was praising its productivity on RNZN a couple of weeks ago precisely because technology has driven up output whilst reducing labour costs.
Yes, Dairy is saving our ass. But it's saving our fiscal ass not flesh and bone, families, our diseased environment. There is a huge disconnect between numbers on a screen and true prosperity. And, as Ireland's recent 'prosperity' proved so emphatically, a beautiful fiscal ass is covered by a G-String only.
Does anyone truly believe that jobs will come back if we allow a profit driven world to continue? They will not. Anyone else see that Japanese robot the other day? Bit like a Model T Ford, compared to a human wasn't it? Who in their right mind would employ human flesh and bone with all it's limitations when a 1 time investment will give an astronomical lift in productivity.
This whole farce has been going on ever since some prat said 3 percent unemployment is laudable. Uh Huh. That 3 percent were being superceded by technology, but did the rest of us (only a little further on up the chain) really give a rat's arse? No we did not. The literate didn't really start to think about the future implications of that until it started affecting our own financial situation. Well that day is here. We keep saying dumb things that indicate fear rather than vision. For example, the retirement age should be 67 because we can't afford to provide Super in perpetuity at current levels. WE CAN'T AFFORD IT NOW. The only reason it gets paid out now is that the future of our country, the young, are getting shafted: By us. Technology will either shaft us all in the end and be the root cause of regional and world conflict, or it will allow a new age of enlightnment and true prosperity. Politicians need to start saying stuff like: Actually, the retirement age should reduce by 1 year every decade because we believe that technology is a gift from past human generations to all off us and the benefits of that should be shared by all of their DNA and not just some lucky prats who believe good fortune is a synonym for good management.
If we keep missing the big picture and spend our time attending to trivialities we deserve all we get.
This article in the Guardian rings true for New Zealand as well and is relevant to this discussion.
http://www.guardian.co.uk/business/2011/nov/16/why-britain-doesnt-make-things-manufacturing
A few salient quotes:
- "Or you hear American economists arguing that free trade may have reduced salaries for blue collar workers in the west, but they can now buy cheaper Chinese imports. In other words, you may have lost your factory workshop – but at least you've got a pound shop."
- "And yet many of the arguments that preoccupy the British are haunted by the spectre of manufacturing. Angry at the overweening power of banks? Then you want a more mixed economy. Distressed at the gap between the rich and the rest of society? In the end, that will require jobs with decent wages and skill-levels, like the old manufacturing jobs.
- This applies to non-economic debates, too. Politicians go on about localism, without discussing what de-industrialisation has done to local economies. Pundits bemoan the loss of community spirit without considering the wrecking ball that has been put through many communities.
- In Walker, on the Tyne, the workers at Pearson Engineering are recalling when their firm employed 1,000, rather than a couple of hundred. Clark, the apprentice who worked his way up to company director, sketches out his retirement plans. Then he pauses. "I'm beginning to worry about what my grandkids are going to do," he says."
And likewise in New Zealand I worry about what my grandkids are going to do.
Let me worry you some more....there are 7billion ppl in the world but the world can probably only feed 2 billion without oil.....without oil you wont be doing much manufacturing.....study the Amish can consider this lifestyle (OK remove the kooky religious part) as your childrens and grandchildrens future.....its going to be very local and very non-energy intensive.....
regards
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