Guest Opinion: Close which gap?

Close which gap?

Our flagging currency and sagging share market indicate that New Zealand is not an attractive place to invest. The effect is that our net worth in world terms is being eroded.

The current woes of the New Zealand economy seem to be dismissed as a cycle. Sure it’s a bit rough now, but it will be right in a few years - probably coinciding with a change of government.

From my perspective it is a trend, rather than a cycle. Technology and the growing internationalization of business are creating an inevitable trend where our value on a worldwide scale will continue to drop. In the software industry you see this trend all the time. When one company gets strong in a near perfect market it is inevitable that they will grow into a dominant force. Microsoft, Cisco. In the money world (perhaps the most friction free market of all) the US is so strong that the majority of money is trending there. How many New Zealanders now have a large part of their investment portfolios overseas? With online trading products like eTrade and Datec, anyone in the world can move money to a US bank account and start trading.

New Zealanders are moving themselves and their money overseas, because that’s where the money is and grows. The opportunity costs of staying are increasing and friction to move is decreasing.

The tax base must be decreasing at an alarming rate. With the brain drain meaning that those most likely to be earning the money to pay for the education of the young and care of the elderly are not here to pay tax in their most productive years, compounded by the inverted bell curve of resident population by age, we are in scary shape.

For New Zealand to improve we need to think what scenarios will change the trend. If they are hard to see then its even harder to see how New Zealand can do any more than be a nice place to live for a few million lucky people. But for the majority of those people, forget traveling elsewhere and look for your cost of living to increase and quality of services to erode as resources head offshore and costs climb.

Because it is a trend rather than a cycle, action needs to happen to arrest the trend. Waiting for a return of fortune while being distracted by important internal issues is a waste of time. ‘Closing the Gap’ between New Zealand’s rich and poor may be an important goal, but allowing the gap between New Zealand and the Rest of the World to widen gives no one in New Zealand any sustainable benefit.

My fear is that no one in government or opposition articulates an understanding of the problem. It’s a big ship to turn around and we are arguing over who is captain and crew and equality between the passengers rather than steering away from the rocks.

Earning overseas revenue and bringing it back to New Zealand has to improve the situation. The New Zealand government’s responsibility must be to create an environment where it is desirable for New Zealanders to do this. The government can assist by building New Zealand into a brand of hardworking business experts that add value. India has developed a brand of low cost workers. Surely we can develop a niche brand of analysts and developers that don’t require a cast of thousands. Ireland has developed a brand and policies that encourage investment.

There needs to be investment in people. That means education and not loading our young people up with so much debt that they have to leave. Tau Henare’s idea of graduates’ entire tax contribution being applied to their loans makes perfect sense. The alternative is they leave and New Zealand gets nothing. Under Tau’s scheme we get the benefit of the young doctors and engineers we have trained.

There should be incentives to encourage New Zealanders to find ways to earn global and spend local. If the incentives are there then New Zealanders will find a way to make it happen. Kiwi’s earning money overseas provide little benefit to the rest of New Zealand until they bring it back.

High progressive tax is just silly. It’s like a retailer saying they will raise prices to make more profit. Allow people to make money and they will pay more tax.

We must make it easy for companies to invest in infrastructure so that New Zealand has the platforms to communicate and service international customers.

We need a culture and policies that encourage Research and Development. Cisco and Microsoft do a large portion of their R&D by acquisition. The multiples on taking new technology to world markets are almost unbelievable. Without R&D investment we never have an opportunity to play in this space.

New Zealand companies should cluster together, keeping their specialties but partnering with others who have complimentary skills.

Our internal-looking policy of closing the gap is distracting us. It’s not a cycle it’s a trend. It’s time for action.

About the Author

Rod Drury founded Glazier Systems, was Chief Technology Officer at Advantage Group and recently co-foundered a US based technology company in the telecommunications industry. He can be contacted at Rod@Drury.net.nz

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