Global crisis, tectonic shifts and New Zealand’s prosperity

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 neighbours. 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.

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.

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.

Michael Enright is 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 30^th November for more information see www.tci2011.com.