Fresh thinking needed in the face of global megatrends

New Zealand directors have stated that lifting firm productivity is one of their top five issues for 2024. And rightly so. New Zealand’s productivity performance has been dire since the 1970s and has hampered improvements in our living standards.

The reasons for our productivity woes are well known. They include a lack of scale, distance to markets, infrastructure challenges, shortages of skilled workers and managers, and slow uptake of new technologies.

New Zealand is now staring down the barrel of megatrends that could make the business environment even more complex in coming decades. Issues include the social and economic impacts of artificial intelligence (AI), a return to more power-based global politics, the damaging effects of climate change and a shrinking labour force (and big fiscal costs) due to demographic shifts.

These immense structural forces will complicate the business environment and should be hot topics around the boardroom table.

The current political environment rewards short-termism and business has a role to play in helping politicians overcome their natural tendency for short-term political point-scoring.

In a recent discussion paper for Business New Zealand – ‘We’re all in this together: How can business and government collaborate to address shared challenges out to 2050?’ – Sense Partners suggested these challenges are too immense and far-reaching to be subjected to short-term political point-scoring and bickering between politicians and the business community. They require a coordinated New Zealand Inc response.

The chances of success will improve if government and businesses can agree on some long-term priorities – such as a common purpose – and who is best placed to do what, and then stick to the plan.

This allows policies to endure and means institutions and businesses can adapt to structural forces irrespective of electoral cycles. Businesses seeking to invest to boost their productivity need regulatory stability so they can plan and invest with confidence.

Regulatory stability requires greater bipartisanship from our politicians. Continual policy flip-flops across election cycles – for example biofuels, agricultural emissions pricing, immigration and tax settings – work against regulatory certainty, curtailing investors’ confidence and harming productivity.

New Zealand’s history shows sustained progress on important economic and social issues has occurred when political parties have found consensus. Examples include foreign policy, trade policy, monetary policy, paid parental leave and KiwiSaver.

Politicians have made choices in the past to effectively depoliticise efforts to make progress in these critical areas, in the interests of the greater good.

New Zealand needs more of this bipartisanship around the megatrends we now face. On issues as monumental as climate change and AI, we don’t have the luxury of waiting for political parties to stop bickering and overturning each other’s policy settings every time there’s a change on the ninth floor of the Beehive.

A question then is what can businesses do now to try to encourage such policy stability and bipartisanship? And what might businesses be prepared to offer in exchange for it? We can’t assume politicians will get there themselves without support from the private sector – their incentives aren’t well designed to focus on long-term issues.

This isn’t to say that all politicians are incapable of thinking about the big issues beyond the next election. There are notable exceptions who concern themselves with boosting productivity and positioning New Zealand well for an uncertain future. It’s just that realpolitik always tends to win in the short term.

Some possibilities canvassed in the paper are:

• Demographic change: If there were to be more political consensus over migration policy to provide a larger pool of workers, could more businesses commit to invest in labour and capital to boost productivity and pay wages that were more competitive with (say) Australia? Would the short-term cost to the wage bill be worth it if it secures access to workers?
• Infractruture gap: If there is an agreed infrastructure plan that was less subject to political whims, might businesses be prepared to pay infrastructure levies, build more worker accommodation, promote congestion charging and support toll roads?    
• Technology and the rise of AI: To avoid politicians making knee-jerk changes in areas such as technology regulation, might business champion distributional tools – such as a greater use of the welfare system and active labour market policies – to mitigate harmful economic impacts for households from technological change? Or might our tech firms take the lead on implementing socially responsible use of AI?
• Climate policy: If politicians from both sides of the House could agree on a gradual lowering of the Emissions Trading Scheme cap over time (and hence gradually higher carbon prices) and avoid flip-flopping over things such as biofuels and the clean car rebate, would businesses be more willing to invest in emissions-reducing technologies?

New Zealand politicians and businesses cannot sit idly by as these megatrends hit us, gazing at our own navels and expect everything to work out.

Productivity and living standards will suffer and New Zealand will fall further behind our peers. It will become even harder to keep New Zealand’s best and brightest on our shores.

This isn’t the future we want, but it might be the future we get unless governments of all political persuasions and business can start working better together. Directors have a key role in exercising strategic leadership and offering a long-term vision for New Zealand that politicians can support through sensible, stable regulatory settings. 

John Ballingall CMInstD is an economist at Sense Partners, a consultancy dealing in modelling, public policy, regulatory affairs and economic assessments.