Why Cluster Development? and Why New Zealand is Underperforming Tony Caughey

30 May 2014

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Australasian ClusterConference

University of Technology, Sydney

Why Cluster Development? and

Why New Zealand is Underperforming

Tony Caughey 30th May 2014

NZ Government’s Four Economic Priorities

1. Responsibly managing the Government’s finances

2. Building a more productive and competitive economy

3. Delivering better public services within tight financial constraints4. Rebuilding Christchurch

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Productivity Goal +2% pa(labour)

Competitiveness Goal Incr GCR RankingsGlobal Competitiveness ReportBase Line: 23/144 countries (2012)Goal: Unquantified

Ministry of Business, Innovation and EmploymentStatement of Intent 2013-2016

May 2013

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Labour Productivity

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Our Productivity Paradox

“The mystery is why a country that seems close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer”

• - OECD 2003

World Economic Forum Global Competitiveness Report

144 countries, 113 variables

Overall Rankings 2012 2013

New Zealand 23rd 18th

Australia 20th 21st

NZ ranks highly in: ease of starting a business (1st)lack of bribes (1st)judicial independence (1st)

NZ ranks poorly in:mobile phone subscriptions (48th)availability of scientists and engineers (69th)cluster development (64th)

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State of Cluster DevelopmentWorld Rankings

Global Competitiveness Reports

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New Zealand 73rd

Australia 37th

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What is Competitiveness?For a Region:1. firms are able to compete successfully in

the global economy 2. while supporting high and rising living standards

HBS US Competitiveness Project

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17 Essential Elements:• MACRO ELEMENTS

– Macroeconomic policy:– Effectiveness of the political system– Protection of physical and intellectual property rights and lack of corruption– Efficiency of legal framework– Complexity of the national tax code– K-12 education system:

• MICRO ELEMENTS– Logistics infrastructure:– Communications infrastructure:– High-quality universities– Context for entrepreneurship:– s with strong linkages to the private sector– Availability of skilled labor– Flexibility in hiring and firing of workers– Innovation infrastructure:– Appropriate regulations– Strength of clusters: – Quality of capital markets:– Sophistication of firm management and operations:

Building a more productive and competitive economy

Business Growth Agenda (BGA)

1. Building innovation2. Building export markets

grow exports from 30% to 40% of GDP by 2025.

3. Building safe and skilled workplaces4. Building infrastructure5. Building resources6. Building capital marketsPlus

Regional Economic Activity Report

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Developing Clusters requires:

1. Recognition in the BGA2. Central government to establish a

contestable fund for industries and regions to apply

3. A 5 year time horizon (review after 3?)4. Teaching in Universities

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Conclusion

• Developing clusters will improve competitiveness• Global Competitiveness Report• HBS Project on US Competitiveness

• New Zealand is the “rock star” economy that is failing to develop its clusters.

• The BGA is necessary but not sufficient to solve our Productivity Paradox and improve CGR rankings to where they could be.

• “Cluster Development” needs to be put on the BGA• With a contestable fund to generate action.