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Navigation 101

Presentation to the

Leadership New Zealand

Future Thinking Workshop

Rick Boven

28 October 2011

2

Leadership

Setting direction

Aligning

Motivating

Environmental

Social

Economic

LOW PRODUCTIVITY EXPORT SECTORS

Note: Data includes export and domestic. Sources: The Conference Board (2011) Total Economy Database. OECD datasets: Employment; Hours worked. Statistics New Zealand: Tourism Satellite Account; Quarterly Employment Survey; Gross Domestic Product. 3

Size of bubble reflects share of total workers

Australia $71NZ average

$49 OECD $60

20 30 40 50 60 70 80 90 100-2%

-1%

0%

1%

2%

3%

Agriculture, forestry, fishing &

mining

TourismManufacturing

Estimated 2009 output per hour worked, 2010 NZ$

Compound annual growth rate in output,

2000-2009

NEW ZEALAND’S ECONOMIC TRANSITION

TARGET STATE

CURRENT STATE

Commodity goods

Differentiated goods and services

EFFORT

FOCUS

Inte

rnat

ion

al

mar

kets

Do

me

stic

p

rod

uct

ion

5

MANY OPPORTUNITIES TO GROW HIGH VALUE DIFFERENTIATED EXPORTS

Value-added food businesses that are anchored here

Niche manufacturing, including selected clean-tech, where a small exporter can be a world leader, avoiding scale disadvantage

ICT, where distance and scale are less important barriers to success• Lifting capability in these industries helps domestic productivity too

Services sectors where world class technology can be acquired and NZ labour costs are relatively low• Successes in engineering, education, financial, medical etc.• Competitive advantage can be increased by legal innovation

TOP 100 INTERNATIONALLY ORIENTED TECHNOLOGY BUSINESSES EXPORT AROUND $5b pa WITH VERY HIGH PRODUCTIVITY

PLUGGING THE GAP

6Image courtesy of Lee ter Wal Design

TALENT AND CAPITAL VIRTUOUS CIRCLE

7

8

SUMMARY OF NEW ZEALAND YOUTH DISADVANTAGE

BelowLevel 1

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 (Highest)

0

5

10

15

20

25

30

OECD average

New Zealand

9Source: OECD (2010).

PERCENT AT EACH PROFICIENCY LEVEL ACROSS READING, MATHEMATICS AND SCIENCE, 2009

Pacific peoples Māori Asian Pākehā/European400

420

440

460

480

500

520

540

560

09

200003 06

10Source: Education Counts (2000, 2003, 2006, 2009).

MEAN PISA RESULTS ACROSS READING, MATHEMATICS AND SCIENCE BY ETHNICITY

New

Zea

land

Mex

ico

Aus

tralia

Icel

and

Fin

land

Den

mar

kC

anad

aS

witz

erla

ndF

ranc

eP

olan

d

Italy

Est

onia

Spa

inG

reec

eP

ortu

gal

Ger

man

y

0

5

10

15

20

25

30

35

40

45

50

OECD average

11

YOUTH AGED 15-24 AS PERCENT OF TOTAL UNEMPLOYED, 2009

Source: OECD (2010).

12

SHARE OF LABOUR FORCE COMPARED TO SHARE OF UNEMPLOYED, AGED 15-19, 2010

Australia

Austria

Canada

Chile

Denmark

Finland

Germany

Hungary

Ireland

IsraelItaly

Japan

Luxembourg

Netherlands

New Zealand

Sweden

Switzerland

Turkey

UK

USA

0

10

20

30

0 10 20 30

Share of unemployed, %

Share of labour force, %Source: OECD (2011).

13

VICIOUS CYCLE

Many disadvantaged 5

year olds

Disengaged students

Leaving school early with low qualifications

Unsuccessful school to work

transition

Many unemployed

Serious social issues

Poor economic outcomes

TWO PROPOSALS TO REDUCE YOUTH DISADVANTAGE

14

Accelerate roll-out of e-learning

to low decile schools

Improve the school-to-work

transition

15

E-LEARNING DELIVERS ENGAGEMENT, BETTER LEARNING AND LOWER UNEMPLOYMENT

Engagement

Better learning

Staying at school

Better qualifications

Less youth unemployment

E-learning

16

VALUE ADDED SNAPSHOT FOR READING AT PT. ENGLAND SCHOOL

Source: Pt. England School (2010).

1

2

3

4

5

6

7

8

9

0 1 2 3 4 5 6 7

Stanine

School year

201020092008

2007

NZ average

CO2 CONCENTRATION IN ATMOSPHERE, JULY 1990-2011, PPM

17

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

330

340

350

360

370

380

390

400

Source: National Oceanic and Atmospheric Administration (2011) Atmospheric CO2.

AVERAGE OF COMMODITY PRICES, 2000 = 10019

6019

6219

6419

6619

6819

7019

7219

7419

7619

7819

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

10

0

100

200

300

400

500

600

18Note: Commodities include aluminium, copper, crude petroleum, gold, iron ore, maize, rice, silver and wheat.

Source: The World Bank (2011) Commodity Price Data.

THE COBB-DOUGLAS PRODUCTION FUNCTION

Output = TQ Lα Kβ

TQ represents the effectiveness of the technology of production

L and K represent the amounts of input of labour and capital

respectively

The parameters α and β indicate how much the output changes with

changes in the inputs

19

EVERYTHING WE FOCUS ON MEANS WE MISS SOMETHING ELSE

20

PARADIGM CONFLICT

Economic – 20th Century thinking

Economy is small relative to environment

With limited exceptions, resources can be taken from the environment and wastes can be released to the environment without adverse consequences

Environmental issues resolved by substitutes, technologies and market instruments

The future will be an extension of the past

Societal objective should be to maximise GDP

Environmental – 21st Century thinking

Economy is large relative to environment

Resource and waste sink constraints, and accumulated environmental damage threaten output growth and human well-being

Environmental threats increasing and responses are insufficient

The future will be different from the past

Societal objective should be to avoid risk

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WHAT HAPPENS NEXT?

Commodity prices will continue to increase

Countries will manage supply chain risks and become more self-

sufficient

Globalisation may slow or even reverse

Societal management will become more complex and difficult

Power may be more centralised initially and fragmentation may

develop later

22

IMPLICATIONS FOR NEW ZEALAND

Increasing prices for commodity exports

Increasing attractiveness to migrants and investors as a relatively safe

haven

Strategy to grow exports of high value goods and services

Investment in innovation and skills

New performance metrics to emphasise the quality and effects of

economic growth

Risk management will become a more important priority23

WHEN GOVERNMENTS FAIL, WHY DO THEY FAIL?

“In the first stage, mental standstill fixes the principles and boundaries governing a political

problem.

In the second stage, when dissonances and failing function begin to appear, the initial

principles rigidify.

This is a period when, if wisdom were operative, re-examination and rethinking and a change

of course are possible, but they are as rare as rubies in a backyard.

Rigidifying leads to increase of investment and the need to protect egos; policy formed on

error multiplies, never retreats. The greater the investment and the more involved in it the

sponsor’s ego, the more unacceptable is disengagement.

In the third stage, pursuit of failure enlarges the damages until it causes the fall of Troy, the

defection from the Papacy, the loss of a trans-Atlantic empire, the classic humiliation in

Vietnam.

...

Persistence in error is the problem.”

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- Barbara TuchmanThe March of Folly: From Troy to Vietnam (1984)