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Opinion: Why Wellington needs more Icebreakers and Wetas, not more bureaucrats
By Infometrics economist Andrew Whiteford
Those of us that live in Wellington like to think of it as the creative and innovative hub of New Zealand with the highest qualified workforce and highest incomes. But it appears that Auckland can increasingly lay claim to that mantle.
Wellingtonians have historically enjoyed the highest average weekly wages in New Zealand largely due to its concentration of high paying industries such as financial and business services and of course government. But the gap between average earnings in Wellington and its northern neighbour has been gradually closing and in early 2008 Auckland surpassed the capital for the first time.
Wellington has in recent quarters regained its top spot as it has ridden out the recession better than Auckland. While the northern city is more heavily exposed to hard hit sectors such as manufacturing, construction and retail, Wellington has had the moderating effect of government. And this is the bottom line. For all the talk about innovation and creativity Wellington is still a city built around government.
Government has been by far the largest contributor to employment growth in Wellington since the beginning of the decade. The public sector has accounted for almost 30% of new positions and if we include the positions in the private sector that depend indirectly on government spending (and I would include a sizeable component of my own job in that) then the figure is probably closer to half.
If we delve down into the details of where employment growth in Wellington has come from and rank the 500 industry categories according to their contribution to employment growth in Wellington, the list is topped by Central Government Administration. The category ominously titled "˜Regulatory Services' ranks number eight. Almost a thousand of the 33,000 net jobs created in Wellington over the last nine years were for people who "˜enforce regulations, licensing and inspection activities'. This does not sound like the types of activity that one might describe as innovative and creative.
Auckland on the other hand is showing the hallmarks of a city of knowledge and innovation. The sector that contributed by far the most number of new jobs over the past nine years was the knowledge intensive "˜Professional, Scientific and Technical Services' which includes information technology, corporate management services, engineers and architects. These professional services together with Education and Training accounted for about 40% of the 100,000 new jobs created.
With its critical mass of businesses and proximity to the largest market in New Zealand, Auckland has a huge advantage over the capital for attracting new enterprises and luring head offices northwards. Auckland's critical mass also entices the majority of new migrants to New Zealand to make the northern city their first stop. Wellington largely misses out on this significant source of growth.
Wellington is looking particularly vulnerable as Labour government largesse gives over to public sector belt tightening. The city's major source of growth over the past decade may even turn into a source of decline as government departments are downsized. Wellington will increasingly need to rely on its innovative niche sectors to drive growth.
In the shadow of the expansive public sector are plenty of examples of highly innovative and creative industries in Wellington. The film industry is probably the best known. From humble beginnings to being world renowned Weta Digital and Weta Workshop are today probably among the largest non-government employers in Wellington.
Wellington has also spawned Icebreaker which crafts top quality merino wool from the South Island into fashion items which are marketed around the world. It is an outstanding New Zealand business model. Icebreaker uses a natural resource which we have in abundance. They outsource the low value adding production process to Asia but keep the high value adding functions of design and marketing in Wellington. And they have built their brand image around our pristine and spectacular environment. One could say similar things about other successful companies based in the Wellington region, like the office furniture company, Formway.
In a speech to Hong Kong's film industry earlier this year, Wellington's mayor spoke proudly of the success of Wellington's film industry. She spoke of how the Wellington City Council had cut red tape and sped up the consent process for the film industry. An environment had been created in which the film industry could take decisions quickly, be nimble and change direction at a moment's notice.
This is the type of environment we need to grow more Weta's and Icebreakers. We live in hope that the next decade will not foster another 1,000 enforcers of regulations, licenses and inspection activities.
________________
* Infometrics is an economic information and forecasting company based in Wellington. To find out more, see its website here. This piece first appeared in the Dominion Post.
23 Comments
<i>For all the talk about
For all the talk about innovation and creativity Wellington is still a city built around government.
If only the aim of all the korero was about innovative and creative government!
<blockquote> In a speech to
Why did the Wellington City Council stop with the film industry?
I expect the focus will shift to enforcers of tax collection.
Great to see a post
Great to see a post for the smaller State.
Yes , Mark . And
Yes , Mark . And if the author had slipped " housing " into the title of this piece , it wouldn't have been a smaller response from the bloggy team ! Vis a vie : " Why Wellington needs more Icebreakers and Wetas , not more Bureaucrats bidding up house prices . " . And isn't that indicative of the Kiwi mindset . Even the financially enlightened souls on this website flock to articles on houses . Anything to do with residential property . Post an article about productivity , and nary a response . Next time , Andrew , include the picture of a dead bobby calf near the title , for extra pizzazz .
Weta yes, we do need
Weta yes, we do need more that that, but currently it is nearly impossible to borrow money to startup a new company from the bank. Sure you can startup a new company from your garage, or get family investing, but only a very few of those companies end up becoming a huge success. You are really only guaranteed bank lending, if you are wanting to buy a house. Perhaps the government should be underwriting company expansion lending.
I am not a huge icebreaker fan, because they contract out their manufacturing to china, but charge the prices of a NZ made product. Surely NZ wages are now low enough to support NZ manufacturing. However at least icebreaker are a NZ success, and it is still a NZ owned company designing things in NZ.
You forgot to mention Swazzi, who do actually make things in NZ, however they are struggling, not in part due government departments choosing offshore owned companies to supply their apparel
Average monthly salaries per person
Average monthly salaries per person in Switzerland = Sfr. 5'823.-
17.11.2009 1.33180
http://www.thinkswiss.org/events-calendar/icalrepeat.detail/2009/10/27/5...
In Switzerland, 75% of young people participate in apprenticeship programs within 200 career areas.
Walter
Although raw materials are very
Although raw materials are very limited in Switzerland, the country has a world-class manufacturing economy fabricating raw material imports into high-value added exports. The engineering industry, together with metals and electronics, employs about 9 percent of the country's workforce and contributes around 40 percent to Swiss export revenues. Leading areas in the sector include precision engineering, in particular the world-renowned Swiss clocks and watches (accounting for 8 percent of export revenues in the early 1990s); scientific instruments; heavy engineering and machine building, including specialized, custom-built equipment such as generators and turbines; food products, particularly specialized luxury goods such as chocolate and cheese; textiles; chemicals; quality pharmaceuticals; and fine handicrafts.....
....The strong tradition for creativity and innovation demonstrated by the Swiss industry in the past continues to thrive, particularly in new materials technology, micromechanics, and microelectronics, and other research and development-based products. Environmental technologies are expected to have a very good growth potential.......
Read more: http://www.nationsencyclopedia.com/economies/Europe/Switzerland-INDUSTRY...
Walter
Although raw materials are very
Although raw materials are very limited in Switzerland, the country has a world-class manufacturing economy fabricating raw material imports into high-value added exports. The engineering industry, ....
..together with metals and electronics, employs about.. 9 PERCENT.. of the country's workforce and contributes around.. 40 PERCENT.. to Swiss export revenues.
Walter
It's about developing a new
It's about developing a new Culture - away from Consumption / Real Estate to make Kiwis wealthier in many ways.
Average monthly salaries per person in Switzerland = Sfr. 5'823.-
17.11.2009 1.33180
Walter
Thankyou , Walter . There
Thankyou , Walter . There is much for us to learn , from what you have told us . I shall follow those links later ( need a snooze , been on night-shift ) . Cheers : Rogie .
In contrast to what Walter
In contrast to what Walter has been saying the article says that Icebreaker get the high value raw material from NZ ... pardon? Sheep numbers have declined about 30% of what they were at their peak because the farmers can't get enough money for their wool. Merino is different but it's still not a high margin generating industry when compared to the value added by the manufacturing component of almost anything you like to think of.
The article goes on to say that the low value added part of the garment is the manufacturing part....it's only a low value add presently because the other places that do it are more efficient due mainly to the fact that we can't match their low labour costs with highly productive machinery systems. This due to the fact our whole ecnomic model is skewed to punish the manufacturing sector. Unlike the Swiss model evidently.
Finally the Icebreaker model is doomed to failure in the future. All we are seeing now is the point on the curve where the manufacturers offshore haven't yet developed the design and branding skills. What we have here in NZ is NOT a special breed of people that are better at innovative thinking than the Asians. That thinking is pure arrogance, and we have mede the fundamental mistake of separating the design and namufacturing aspects of value added industry. Make no mistake there is the garment industry 'Toyota equivalent' growing somewhere in Asia and it hasn't even got Icebreaker in its sights as a target because its too small and will just get rolled over on the way to world domination in value added garment manufacture by companies with a better understanding of how you really add value.
Brian W -- I think
Brian W -- I think you are mixing your argument some what. I understand what you are saying about the separation of manufacturing and design. You are probably right about the Asian company(s) that are growing thinking Icebreaker is too small. But Icebreaker has niche in the market based on the use of limited raw material. So its growth is limited to some extent by that and it could be argued that is a business advantage it has. ( ie. the growing Asian business will not be interested in "attacking" it because of the limits of its size.)
Rob is right about the banks. There was an article in the Dom. Post a few weeks ago about the Stansborough company that weaves cloth from their own breed of sheep and was used in Lord of the Rings etc ---high profile , great product , small company niche market etc etc ( just like Walter talks about ) But they can't raise money to expand to the next level.
If I had a product
If I had a product that used local stuff and I was small production selling to the tourists and making a profit...why would I want to expand? All I would be doing is feeding the banks and the beaurocrats and the middlemen who wormed their way into the chain.
I was once told that
I was once told that the guy that started Icebreaker was denied bank finance to start the company. Instead (or so I was told) he went back to the bank and said he wanted the money to re-model his kitchen and funds were duly forthcoming.
I agree re the manufacturing. My first ever Icebreaker (was a present) was purchased in 2001 and still looks good. It looks a lot better than my most recent, purchased in 2008, which has pilled terribly.
A Swiss with an average
A Swiss with an average of a monthly salary of more then NZ$ 7'000.- saves around 2-3 months for his 3 weeks holiday in NZ. I'm wonder how long an "average Kiwi" saves for 3 weeks holiday in Switzerland ?
In Switzerland, 75% of young people participate in apprenticeship programs within 200 career areas.
..together with metals and electronics, employs about.. 9 PERCENT.. of the country's workforce and contributes around.. 40 PERCENT.. to Swiss export revenues.
Walter
W.Kunz : This is of
W.Kunz : This is of more relevance to us , than the Singapore model . We have > 20 % unemployment in teenagers ( ex-school ) . This is such a waste of energy and talent ! And we do have smart industries in NZ ( Rakon , Tait Electronics , etc ) . Where are those scoundrels at the NZMEA at this time , when action is needed . Blowing hot air guys , all piss and wind ?
Hiisssss, whiizzzzzz: http://www.interest.co.nz/ratesblog/index.
Hiisssss, whiizzzzzz:
http://www.interest.co.nz/ratesblog/index.php/2009/11/18/opinion-how-the...
The kind of banks and system I'm describing there would more supportive of the productive sector - including the Green Light Infantry and Wellington!
Suck those gummies!
Must go, have to get back to m' lathe and crack on with the widgets.
Cheers, Les.
It's fishing season , Les
It's fishing season , Les . I biff out the bait , and ka-powie ! Landed the big one . Been sucking gummies down at Mainpower Oval . Shane Bond and Chris Martin bowling at either end . No entrance fee . ........ Ahhhhh , one of the joys of our fair land , girt by sea . ( whattya tip the scales at , any under 300 lb gets thrown back . Not after any more bait ! )
Ha, ha, all good fun,
Ha, ha, all good fun, and that stuff fits on this thread as a potential solutions to a few problems mentioned. Will not give anything away about my weight and personal appearance, but can tell you I am very, very good looking. Cheers, Les.
Les, why not write a
Les, why not write a few sentences about my articles, but without beating the old drum, but some new ideas?
When does the NZMEA start engaging the government for some long term strategic economic plans ?
..In Switzerland, 75% of young people participate in apprenticeship programs within 200 career areas.
"¦although raw materials are very limited in Switzerland, the country has a world-class manufacturing economy fabricating raw material imports into high-value added exports. The engineering industry, "¦.
..together with metals and electronics, employs about.. 9 PERCENT.. of the country's workforce and contributes around.. 40 PERCENT.. to Swiss export revenues.
Walter
Les : Was in CHCH
Les : Was in CHCH today . At Lane Walker Rudkin ( closing down sale , rugger tops for $ 10 ! ) , quality products produced here . But no more . All the machinery , the skill set of the employees , all to be lost to cheaper products from off-shore . Until the peg holding the yuan to the $US is eased off , we're screwed , in manufacturing . Yell at John Key et al to stir up our free-trade friends , to play ball !
Ross - your points support
Ross - your points support what I'm saying, except you say perhaps that Merino is a limited supply raw material so IceBreaker has an edge, or barrier to entry for a competitor. You may be right and I guess if someone wanted to compete directly with them they would have to wait maybe five years to grow some decent raw material perhaps in the country where Merino is a native animal.
However I was really commenting on the IceBreaker model where manuacturing and design are seen as separate tasks. This is something we don't need any more of and it shouldn't be grouped with Weta. The skills are different with different tarining systems, but they can no more be separated in application than making stuff and accounting the financial performance of making stuff.
To keep going with W.Kunz comments. Where do the Swiss do their design, and where do they do their manufacture? Likewise the Germans and Japanese. I know there are bits around the edges where companies get some models of their products done offshore, but they are always the old models with the old technology in them. The latest madels with the latest designs are done at home. We have bought both types of products for our plant and the differences are obvious.
Until we have an environment that encourages intergenerational growth in the whole design/manufacture/market and distribute model for companies we will not grow apprenticeships and we will not grow a society that values work ethic and pride in it's productive industry.
Governments set the environment. They need to focus on that and get out of the detail. They need to tell the population what a mess the accounts are in and why we have borrowed so much over tyhe last 50 years, and they then need to do everything they can to show us what we need to do to fix it. It could all come come right in ten years if everyone got focused - but sadly it won't.
Roger - good point: 'A
Roger - good point:
'A yuan-sided argument'
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14901...
"PRESIDENT Barack Obama, on his first visit to China this week, urged the government to allow its currency to rise. President Hu Jintao politely chose to ignore him."
Free trade, wot free trade? Anyway maybe now we on an 'equal' footing with China via our FTA JK might get on better than Obama, and many, many before him.
So what's the solution? It comes from the same stable that says NZ being on the back-side of the world is not the problem we have conned ourselves into believing - essentially, ditch the 'let's play cricket nicely' orthdoxy and do some common sense stuff, recognising, we ain't gonna influence the Chinese any more than we influence anyone else. We do what we can at our end, that is, 1) solve our monetary policy weaknesses, properly, 2) rebalance the taxation structure. The more important is 1) and I've got to a point where I more clearly see that controlling debt and inflation isn't just about controlling credit once it's been issued, that is, with OCR, a volume measure/core funding ratio - it's actually better controlled by having more control over issuance, hence my deeper conversion toward utilising 'public credit':
http://www.interest.co.nz/ratesblog/index.php/2009/11/18/opinion-how-the...
Walter - you make some good points, as always, but:
http://www.interest.co.nz/ratesblog/index.php/2009/11/06/opinion-how-neo...
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