They are young, outward-looking and tech-savvy – could the key to a bright economic future lie in the hands of Generation Y? Shamubeel Eaqub, Principal Economist, New Zealand Institute of Economic Research, examines New Zealand’s current economic state and finds hope for the country in the millennial generation
The economy is recovering gradually from a long recession. The debt-fuelled bubble economy of 2000-2008 means there will be a long period of adjustment, as we pay down debt and live more conservatively.
History here and abroad shows a pattern of long periods of economic feast interrupted by seven years of economic famine. At the heart of this cycle tends to be a build-up of too much debt. This time is no different.
The good – and the bad – news is that we are halfway through the adjustment. In time, the economic recovery will gather pace and it will be more sustainable than the past decade. But the adjustment process is hurting, with patchy sales and razor-thin margins. Some firms will not last the distance.
But let’s not waste a crisis. The current period of slow growth is also an opportunity to invest and prepare for the structural changes on the horizon, which range from technological change to changing consumer preferences.
Ageing Is a Challenge, But Also An Opportunity
The economic fundamentals will move away from debt to more positive things, like innovation, skills and productivity. But underpinning this is the fact that New Zealand and many other countries face an ageing population. It is both a challenge and an opportunity.
The challenges of ageing are well documented. The fiscal cost of health and superannuation will be large. Businesses must contend with the changing makeup of the workforce, succession planning, entrepreneurship, innovation and shifts in consumer demand.
There is a positive in the ageing story. The next generation of workers, managers and leaders are uniquely placed to capitalise upon disruptive change, because they are digital natives and they embrace diversity. We need to harness this to boost New Zealand’s economic prosperity, by overcoming economic distance – a substantial but surmountable barrier.
Reducing Economic Distance
The biggest issue for New Zealand is low productivity across most industries outside of agriculture. We rank highly as one of the easiest places to do business in the world. Yet our small scale, distance from the rest of the world and each other provide considerable barriers.
However, economic distance is shrinking. Communication and travel are cheaper and better than ever before with air travel, the Internet and freely available tools like email and Skype. We trade with our neighbours much more now than we did even 50 years ago.
Economic distance is further reduced by the mobility of people, strengthening personal and economic relationships between countries through migration, trade and investment.
We should be able to adopt and implement the latest innovations in business processes, management and training to be at the frontier of innovation and maintain an edge over the competition.
But in reality, we are not at the frontier of innovation. Productivity in New Zealand lags behind that of Australia by 20 per cent. One explanation for this is that only around half of businesses are up-to-date with the best commonly available technology. (We are not talking about cutting edge and hard-to-source technology here.) It stands to reason that adoption of best practice, or close to it, will yield considerable productivity and income gains to New Zealand.
To truly take advantage of technological advances and increased mobility we need a more outward view of the world. Views on technology, work ethic and cultural diversity need to complement the new phase of globalisation.
There is reason to be optimistic. Gen Y (those born between 1980 and 2000) is different, as was each generation before it.
Two Gen Y characteristics that could be important for New Zealand are that technology is their natural habitat. No adjustment is required. They are also at ease with diversity. These qualities are borne out in surveys like the MYOB Business Monitor. Here, there is a clear difference in attitudes to the Internet, the cloud and diversity. These could be pivotal, if harnessed, in reducing our economic distance and capitalising on our connections with the rest of the world.
Technology could be used to greatly expand our markets beyond our borders to a truly global economy. Technology can tap into talent pools all over the world. And the Gen Y attitude to diversity is the springboard that could greatly strengthen our economic ties with the countries where we have lots of migrants – and where we migrate to. The 2006 Census showed that 22 per cent of New Zealanders were born overseas. At the last estimate in 2000, 15 per cent of Kiwis lived overseas.
My assessment is that these elements can lead to real economic change through adoption of the best technology to stay near the frontier of innovation. Our diversity through migration should be a springboard for stronger trade and financial ties.
The World Is Changing, For The Better
Despite the recent global financial crisis, the rise of middle class consumers in emerging markets and strong global trade are huge opportunities for an open economy like New Zealand.
We must also prepare for further changes. In one of my favourite recent reads, The New Capitalist Manifesto, the author Umair Haque persuasively argues that we are now undergoing disruptive change – a new phase of industrialisation.
Industrialisation was about better ways of doing old things. The New Industrialisation is about creating products for the customer. There is scope for greater customisation and thus specialisation and fragmentation of markets. New innovations like 3D-printing, genome-based medicines and customers who want greater customisation are a threat to traditional supply chains and an opportunity for creative and nimble types. Here, scale and distance are lesser barriers. New Zealand can compete in this space, especially if we can get closer to the world through technology.
Take Action: Engage
Doing nothing is not an option, but the early adopter may be able to lock in some early mover advantage. Generational and other structural changes should challenge orthodoxy in your strategic thinking.
Governance has a huge role to play. At board level, it is about having true diversity of views across age, gender, ethnicity and skills. At the strategic level, it is about preparing the business for generational and structural changes both internally and externally.
The economy is undergoing significant change. We are halfway through the crisis – don’t waste it. Engage with the next generation and make your business a success.
Sources and Further Reading
NZIER (2009). Trade, diaspora and migration to New Zealand http://nzier.org.nz/publications/trade-diaspora-and-migration-to-new-zealand
NZIER (2011). Industry productivity and the Australia-New Zealand income gap http://nzier.org.nz/publications/industry-productivity-and-the-australia-new-zealand-income-gap-nzier-working-paper-2011
NZIER (2012). Demographic change a force that firms ignore at their peril.
Haque, Umair (2011). The new capitalist manifesto: building a disruptively better business. Harvard Business Press. ISBN 978-1-4221-5858-6.
Greg Hamill (Winter/Spring 2003). Mixing and managing four generations
of employees. FDU Magazine Online. http://www.fdu.edu/newspubs/magazine/05ws/generations.htm
Diane Sandahl (2012). Critical Thinking: Spanning the Generations. Kepner-Tregoe Blog. http://blog.kepner-tregoe.com/blog/bid/109147/Critical-Thinking-Spanning-the-Generations (accessed 25/09/12)