The following is a speech that David Cunliffe has delivered today concerning Labour’s Manufacturing Policy.
“Today I am announcing Labour’s Manufacturing Economic Upgrade.
It’s part of Labour’s strategy to shift an economy that’s merely idling into a higher gear.
To an economy that can support skilled, well paid jobs across the whole country.
We need New Zealanders to be able to know that their kids will be able to grow up near them, to find work, to afford homes, and to raise their children.
Put simply, we need an economy that works for all New Zealanders. Right now that’s not what we’ve got.
In the run up to the Budget it’s tempting to create a fetish about fiscal surpluses. The risk is you lose touch with the real economy.
That’s the economy where Kiwis have jobs and incomes, run businesses, borrow money, and bring up their families. It’s the economy we live in.
That real economy needs both competent economic management and visionary economic leadership.
Managing an economy is about maintaining sound practices in fiscal, monetary and regulatory policy.
Managing is important in its own right – we know this – we delivered nine out of nine fiscal surpluses and reduced sovereign debt to zero last time we were in government.
We didn’t listen to our opponents who wanted high-end tax cuts instead of reducing debt.
We also created the fiscal buffer that enabled New Zealand to make it through the GFC.
So we know how to manage but, unlike the current government, we also know how to lead.
Leading an economy is about clear thinking and decisive action.
Some people like to trot out the analogy of New Zealand as a tiny boat adrift in the turbulent seas.
They say we have no alternative but to passively ride the cycle of global commodity prices.
They say that keeping the ship on an even keel is the best we can hope for.
It’s the ‘Thor Heyerdahl’ approach to economic strategy. It creates a ‘Kontiki economy’ that drifts with the current, without a rudder or an engine.
We reject this entirely.
Sure, a commodity price ‘wave’ is an opportunity to be exploited. But as the 20% drop in dairy prices in the last two months shows, relying on these waves is no substitute for building a powerful engine.
Labour in government will return to active leadership of the economy – to governing with a long-term vision, a clear strategy and a shared sense of direction.
It doesn’t assume all wisdom comes from government. To the contrary, we believe in unlocking the energy of businesses and communities.
Building a shared sense of purpose and direction will both reduce risk and accelerate progress.
We want to get all New Zealanders focused, not on riding waves, but on building a better, stronger, smarter engine.
Manufacturing is and must be a core part of New Zealand’s economic engine. But it is facing serious problems.
For now there is some optimism among construction-based manufacturers, driven by the Christchurch rebuild. And among some manufacturers being supported by high dairy and meat products. But the overall view is much less reassuring.
Eventually the commodity prices will drop, and the rebuild cheques will dry up.
What happens then?
With the current settings, we’re in trouble, because New Zealand manufacturing is in longterm decline.
The facts speak for themselves:
And how many firms have either closed or suffered severe retrenchment in recent years?
These are just a few of the closures. Nearly every day there are manufacturers who are having to make the tough decision to cut a line, shorten a shift, let another one or two skilled workers go. Because there’s just no support.
That’s hundreds of Kiwis who have had their lives turned upside down – many of them will have found no other job, some will have lost their homes, their marriage, left New Zealand and taken their skills with them.
And beyond the personal hardship that these numbers signify is the loss of muscle in an economy which sorely needs it and the loss of brain-power that could have created new and better products. It’s lose, lose, lose.
But manufacturing in New Zealand has huge potential.
We have a sound pedigree with companies like Fisher & Paykel Healthcare, Glidepath and Hamilton Jet.
We have a tech-savvy workforce skilled in engineering and design.
Even so, there are those who ask whether manufacturing really matters, when our primary industries are going great guns.
Truth is, the manufacturing mindset creates value along the whole of the value chain.
They drive the uptake of new technologies and invest heavily in R&D.
Manufacturing companies are also services companies in design, sales, marketing and distribution. The most successful manufacturers get an increasing share of their profits from this bundling of products and services.
And manufacturing drives the creation of jobs.
One job in manufacturing creates between 2 and 5 jobs in the wider economy.
Good jobs – skilled, well-paid and stable jobs.
But through neglect we’re losing the ability to create the kind of elaborately-transformed products that are the backbone of advanced economies and to bundle them with high-value services.
We need to change that. Which is why today, I am announcing our Manufacturing Economic Upgrade.
It’s got three parts.
Changing the Investment Environment
First, Labour will adopt macroeconomic settings that are supportive of manufacturing and exporting.
There is no doubt that the NZ dollar is over-valued. Just this month, the IMF put the figure of between five and 15 percent.
We will make changes to monetary policy to broaden the range of tools available to the Reserve Bank to achieve a more competitive and less volatile exchange rate. My finance spokersperson David Parker will be announcing more detail of this very soon.
We will use a capital gains tax to shift dollars from property speculation to productive investment.
And I am pleased to announce that Labour will introduce accelerated depreciation to reward investment in plant and equipment.
This will start with advanced manufacturing, which delivers the greatest spill-over benefits to the rest of the economy.
It will cost $30 million in the first year. We envisage extending it to all manufacturers over time.
We will not ‘pick winners’ at the individual firm level.
Our aim is to influence investment policy overall. To change the culture of investment in New Zealand so that firms, entrepreneurs, researchers and investors feel confident in developing world-beating ideas here.
A number of other policies will dovetail into these measures.
Investment needs to drive innovation. We’ll respark New Zealand’s innovation system.
Innovation and manufacturing go together. Manufacturing is the biggest investor in research and innovation in modern economies.
In manufacturing, each new order is an opportunity to innovate, to customise, to add services to products and control more of the value chain.
That drives productivity improvement, innovations in work organisation and the application of technology, ahead of any other sector.
What’s more, small innovative manufacturers tend to create an eco-system around them of specialised suppliers, designers, and distributors. It’s how they achieve scale without needing to become vertically integrated.
As a result, the R&D and productivity advantages in manufacturing spill over into the wider economy.
Just yesterday the New Zealand Productivity Commission concluded that we are falling behind the rest of the world and that R&D is a big part of that problem.
The Productivity Commission found that our GDP per capita lags 27% behind the OECD average. We get a staggering 40% less GDP per hour worked than the average developed nation. We’re working harder and getting less for it.
The Productivity Commission laid a large portion of the blame for that on our underinvestment in innovation. It found that if we’d invested properly in R&D, the income gap would be a third smaller than it is today.
For too long, we have chosen volume over value – the easy route of producing more raw commodities. Because we haven’t invested enough in innovation we’re missing out on reaping the rewards that come from having high value goods to export to the world.
That adds up to fewer jobs, lower wages, less money for the government to invest in public services and infrastructure.
So one of the first things Labour will do in government is to reintroduce a Research and Development tax credit at the rate of 12.5%. This is vital.
Alongside that we will better integrate manufacturing R&D requirements with research-based institutions.
And we will support manufacturers to meet skill shortages, with improving apprenticeship training, and support for better management of skilled workforces.
The third part of the policy is unashamedly pro-Kiwi industry and Kiwi communities.
It’s possible to be so obsessed with level playing fields that you forget to cheer for your own team.
Labour will unashamedly back New Zealand manufacturing.
That’s why we have committed to a national procurement policy that favours Kiwi-made, so New Zealand manufacturers enjoy the same advantages as their international competitors.
Today I am announcing we will adopt a target of keeping another $200 million a year at home, rather than sending that work overseas.
This measure alone will create around 2,000 jobs.
Australia, Canada and the United States have all enacted similar policies – it just makes sense.
It will, of course, be done in a way that is WTO-compliant.
We will also give manufacturers a stronger voice in trade negotiations, and make it a priority for negotiating teams to keep the sector informed.
New Zealand manufacturers have legitimate concerns that New Zealand’s trade agenda is too dominated by opening markets for commodities.
That exposes us to the risk that FTAs allow into NZ overseas-made products that are below NZ standards.
It’s also too easy for the interests of regional economies to be sidelined in the event of major closures. These can end up becoming a gladiatorial contest between receivers, unions and creditors.
Experience shows that, with quick action on the part of local government, businesses, and unions, the failure of one business need not mean a complete loss of skills and employment to the region.
Such events can be turned into useful catalysts for finding new opportunities and unleashing initiative and drive.
But that requires a rapid response in terms of establish taskforces and given them the necessary mandate. Labour in government will ensure that regions have the resources to do that quickly and effectively.
We recognise that different regions have strengths that map to specific industry sectors. In Rotorua it is forestry and tourism. In Nelson it’s horticulture, viticulture and fisheries. In Auckland, manufacturing is crucial.
Labour will back our regions to excel in what they do best.
Nearly all companies have to make the crucial decision whether to be low-cost operators or differentiators.
The choice between low margin high volume production typically requiring low skilled workers with similar low wages, or focusing on developing high value products with strong margins that require skilled, well paid, workers.
It will come as no surprise to you that Labour believes New Zealand will be best served if our economy, on the whole, is tilted to high-value strategies.
To get there it’s not enough to simply manage the status quo – to mind the shop.
We need leadership. We need a government that employs good governance, and that doesn’t settle for drifting on the currents of commodity price cycles.
We need a deliberate strategy to build a state-of-the-art, high-spec engine for New Zealand’s economy.
The kind of manufacturing New Zealand needs to bring value, skilled jobs, and decent wages into our economy is struggling because we are not seeing this kind of political leadership.
That’s a lost opportunity now and for our future.
But we will turn it around through shared leadership, clear thinking and decisive action. We have to if we are to improve New Zealand’s economy and the lives of our people.
It’s my vision and it’s Labour’s vision.
Making it real is a task Labour is ready to embrace.
Update: A short video from David