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BNZ CEO Andrew Thorburn outlines his vision of a NZ economy led by successful SMEs and business people prepared to speak up to create change

BNZ CEO Andrew Thorburn outlines his vision of a NZ economy led by successful SMEs and business people prepared to speak up to create change

By Gareth Vaughan

In what was at times a brave, and certainly an interesting, speech from a bank boss, BNZ CEO and managing director Andrew Thorburn practically called for a capital gains tax and was critical of Prime Minister John Key.

They were just two of many aspects to Thorburn's frank and thought provoking speech to the Trans-Tasman Business Circle in Auckland last month. In it he called for the "perverse signals" current taxation settings send to New Zealanders on savings and investment choices to be tackled given this country's "massive long‐term bias" towards non‐productive investment in residential property.

Thorburn said the only person he knew who believed the retirement age was sustainable at 65 was Key, and suggested the biggest problem in solving housing affordability issues was a lack of leadership.

He also noted New Zealanders "cling to a belief" the value of their homes can only ever go up, when homeowners in other countries have seen this belief  "shattered." And he said it had long concerned him that overall bank lending was weighted towards residential mortgages and away from the productive sector. (See my story on Thorburn's speech here and the full speech itself here).

Basically the gist of the speech was that although New Zealand has a lot going for it, it isn't fulfilling its enormous potential. At the heart of the solution, according to Thorburn, is the business sector.

I decided to explore this further and arranged an interview with Thorburn. In what turned out to be an informal discussion with Thorburn, and BNZ's director of retail banking Andy Symons, Thorburn's message basically boiled down to this: Stop waiting for politicians to get something done and make it happen yourself.

"For a country our size, 4.5 million people, we should be able to get our act together," Thorburn says. "It does become a political issue because the government in New Zealand is so involved in key decisions  - tax, education system, health, and for the size of the economy it's quite dominant."

"(And) what we currently look to is these people called politicians. What I'm saying is there's another group here and it certainly is business leaders and key government figures such as the head of Treasury, Reserve Bank, Ministry of Business, Innovation and Employment, and it's university chancellors. They need to say 'hang on, for our businesses we need better supply of people, we need more planning and we need the tax system changed to encourage it'."

"They need to have more voice within the community."

Part of all this would involve key government officials becoming more directly connected to the business community in a respectful, sustainable and authentic way, rather than a contrived way.

'Leadership is action'

Thorburn says leadership begins with individuals starting to make the decisions they can to change things.

"Leadership is action. It's being driven about what you want your business to be, what you need it to be, what you want New Zealand to be, and starting to have more say in that."

"One conversation doesn't make a difference. Maybe 10, 100, maybe 1,000 don't move the dial. But a few thousand will. At some point you get that tipping point where there's enough people starting to say 'this is crazy,' or 'we need it to be different.' Then things will start to change," says Thorburn.

He reckons more business leaders ought to stand up and say; "We need this system to be able to create long-term jobs and wealth for the country and the government of the day is part of the response to that not  the leader of it."

New Zealand needs more big picture discussions and harder debates led by business people, he argues.

"Because I think they (business leaders) actually have a very, very important role to play because they can see it and feel it. Rather than just business leaders being focused on running their business and tactical decisions for today, because (then) everyone becomes so short-term (focused)," adds Thorburn.

The Titirangi Chamber of Commerce

"The way they'll do it is they'll do it at the Titirangi Chamber of Commerce. Someone will come in who is a successful business leader in that community and say 'this is what I think we need' and that might get picked up by the local paper and the local MP may be present. So when the local MP is sitting in their caucus meeting they'll say 'I'm hearing more and more about this stuff that they're not getting the skills, how do we check that? Where's the Secretary for Education, how do we get them talking about it?' So that's how the change starts."

Asked where he'd like to see New Zealand in 10 years time, Thorburn says businesses would be respected as a generator of wealth and jobs and of New Zealand's economic advantage. He wants to see an environment where small and medium businesses can quickly form, ones that don't make it don't get subsidised, and they're employing many more people.

"Wealth's being passed on to New Zealand, we've got a better health system, a better education system as a result, the tax take's good," says Thorburn.

"So it's building a sustainable economic machine driven by hundreds of thousands of small and medium sized enterprises. And that you have people wanting to go into business, people wanting to start businesses."

The almost non-negotiables

Secondly he suggests some policy settings and structural features of the system are not non-negotiable, but don't change much meaning they're not political tools and whether party A, B or C leads the government, they don't change much.

This ought to include: "This view that small businesses are the future, that the benefits for the country are going to come from that vehicle, and that they invest in the right sort of skills in the education system. That the tax system encourages it, that we're getting long-term savings, that the government keeps its fiscal position strong, that it doesn't become a burden and drag on it, doesn't push tax rates up because they're having to draw more from the system. Broadband - the infrastructure bits, roads, ports, those sort of things which you would say the government has a big role to get the long-term investment programme right."

Symons adds that in 10 years time he'd like to see people coming from overseas to look at "the New Zealand business eco-system" that's producing lots of successful small businesses. To this he adds the old chestnut of lifting the bar in terms of ambition so people aren't getting to the point where they sell their business for NZ$5 million and buy a batch, boat and BMW.

Do we need a population of 15 million?

Thorburn notes a New Zealand Institute of Economic Research (NZIER) report, commissioned by Export New Zealand, suggesting this country would be better off with a population of 15 million. NZIER argues the best way to overcome problems associated with smallness and isolation is to do away with smallness by boosting the population through immigration. (See the NZIER report here).

"It's not the point whether that's right," says Thorburn. "It's just that they're actually saying 'longer-term, we need to look differently and here are some of the drivers.' And then there should be leaders and government responding to that."

One of his building blocks is treating financial literacy as a life‐skill, along with reading writing, and maths. This would include getting people to understand compound interest, understanding the difference between a consumption item and an investment item, and understanding risk. This involves getting more financial literacy taught in schools. But again, we shouldn't rely on the government to drive this.

"If you're on your kids school board you could say 'let's get a financial literacy piece in Year Nine'," says Thorburn. "And if 50 schools did that, all of a sudden you're starting to get a movement of change."

Politicians will then react to that, he suggests.

*Below, the Thorburn-Symons white board diagram covering things to get right to churn out a smorgasbord of successful SMEs.

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Fiunancial literacy in schools?
Great idea, Mr Thorburn.
I'd start with this:
Then this fellow:  (Best explanation re exponential numbers).
Then I'd chuck them this graph:
Then get them to understand fiat finance, it's lack of relativity to the real world, it's need to grow exponentially, and it's entirely predictable demise. The older classes could ascertain 'when'. (I wasn't much older when I worked out 'somewhere between 2000 and 2010', they'll get there).
The essay topic could be 'Design a fair, sustainable,  post-growth fiscal system'.

I can't help but be sceptical of Mr Thorburn in that he can smell the end of his profession. A world without growth is probably a world without bankers. A capital gains tax and a bit of other tweaking might extend his tenure by a few months or years, although I wouldn't bet on that.
At the end of the day interest and banking are parasitic of honest endeavour to manufacture. It would be good to hear from raf at this point.....

Looking about at my fellow citizens it does seem to me that 65 is a good age for retirement.  More or less.
We do have a huge problem with old peoples income though.  And that one won't be solved with a minor jiggle to 67 for national super.
Thorburn is correct if his view is that John Key doesn't get it.  We do need a government that will front foot it with a 30 year changeover plan.  Done right it would be popular.
And as said many times before.  Compulsory universal Kiwsaver.  At a level that will fully fund retirements without government input.  And a stepping down and then complete elimination of National Super.

Mr Thorburn advocates a role for SMEs.  Thats a bit "rich" coming from the BNZ. (pun intended)  What is needed is a massive reduction in the power of the huge enterprises like the BNZ that enables them to suck our SMEs dry.  Both of cash and vitality.

Is the BNZ for sale?

One of the basic tennents of managment is that the only effective way to modify human behaviour is to change the environment.  (basic personalities are set once we reach adult age)  The history of NZ shows us that we are resourceful and very inclined to roll up our sleeves and get stuck in; the sort of stuff that SME's are made of.  I do not think that our natural tendency to do this has been seriously blunted (very frustrated however); it is just that the environment in which we find ourselves is steering us in a direction that is unproductive and damaging to our ecconomy.  I do not think that much is going to change by a brave call from the front to roll up our sleves and ignore the government.  If only it were that simple.  Unfortunatley the government has to do what only the goverment can do; that is change the ecconomic environment so that our natural engenuity and enterprise is channelled in a direction that is positive for the whole ecconomy.  Unfortunately the current lot show no signs of understanding any of this.  Come to think of it, when did we ever have a government that did?

You seem to have some grasp of personalities and psychology. Applying this you must know that the politicians won't change, and that history also demonstrates this very well. Heck they reckon Hitler knew he couldn't win the war in 41 when he failed to secure oil.

Well that brings it right back firmly into the camp of personalities again :-) 

Getting back to how the national environment affects national behavior, I wondered why a nation of fairly logical people followed Hitler on his crazy adventure.  Below is a brief summary from the net.
"...The war (1) and the treaty were followed by the Great Inflation of the early 1920s that wreaked havoc on Germany's social structure and political stability. During that inflation, the value of the nation's currency, the Reichsmark, collapsed from 8.9 per US$1 in 1918 to 4.2 trillion per US$1 by November 1923. Then, after a brief period of prosperity during the mid-1920s, came the Great Depression, which destroyed what remained of the German middle class and paved the way for the dictatorship of Adolf Hitler."
Reflecting on the current world situation;  we need to be careful.

"If Hitler had left the conduct of the war to Generals like Manstein, Guderian, Rommel and Model he would have won the war."
Respectfully, forget about it......probably would not have got going.

Hard to know how to read this speech. Various options
1 - He is genuinely worried about the direction of the NZ economy and this is compelling him to speak up even if it seems somewhat contrary to the interest and current practice of the banking institution he works for. If this is the case it will be a shame if his ideas and critique of government policy are not aired beyond
2 - He is about to retire from the banking industry and make a run for politics, given his criticism of Key, in the Labour Party. Key has already provided the template for financial market mover and shaker to move rapidly through the ranks of a talentless caucus.
3 - It is a cynical move by a banking insider who has seen the writing on the wall for the banking industry mortgage lending business model and is positioning himself for "I warned you things weren't right but  I was a CEO of a bank that had responsibility to my shareholders. I'm a victim too"
He is certainly correct that we are a nation of SME's. They form the backbone of the economy and will continue to do so. However if I was a bank I would be reluctant to lend unsecured to a new venture. A mortgagee sale on a property generally recovers all or most of the loan. A firesale of business assets recovers almost none. He doesn't explain how he would lend en mass to businesses without securing a loan against property or other strong assets. Or if the loan is unsecured how high the interest rate would need to be to cover inevitable failures. 15%? 20%?
Rather than bank loans would it not be better for the government or other organisations to actively facilitate like minded people to pool their resources and share the risk in new enterprises or the expansion of existing ones. I know there are already angel investors and incubators but it needs to be more widespread and mainstream.

Having interviewed him several times now I certainly believe your No. 1 is correct in that he is generally worried.

Well he has his head screwed on. Too often when I am reading about wealth and equity I find the writer talking like it's a cake that falls from the heavens and the means of production like it's a fun toy -- the main things being to make sure very one gets their piece of cake and turn on the toy.
I do see a couple practical issues with his ideas though:

  • If one is to believe even half of what is said in the media the community at large doesn't have much respect (or time) for business people who are said to be rich b*tards (being one and the same it would seem).
  • Business people like this are often driven and very busy. It's not actually that easy to run a successful business.
    Many I know are used to running their own show and don't take well to consensus politics.

I think many people confuse SME owners with CEO's. Chalk and cheese.
One carries all the financial risk for their enterprise and their income is directly proportionate to their businesses profit.
The other is all compensation, no risk, with only a minor relationship between their salary and their companies profit. Many get "paid out" if they don't perform.
These CEO's on huge salaries have created a bad perception for business in general. Andrew Thorburn and the BNZ are part of this I'm afraid. 

Ralph - I'm not so sure it's the comunity at large who have no respect for business. The media have little respect for small and medium sized business and frequently the only mention small to medium business gets is when some dishonest rogue has ripped someone off and unfortunately this rip-off behaviour has a monetary value attached as a worthy story.


Government and Bureaucrats show no respect for small to medium sized business and this is an enormous problem that will be difficult to overcome.. Too many Politicians and bureaucrats who are wannabe's and couldn't make it on their own merits so they have hijacked the system to get their ill-gotten gains.



When you couple up Thorburn's mainly sensible ideas about the criticality of SME's to wealth generation in general, with:

  • the notion advanced on this fair site re the likelihood that Gumnuts, in their ever-expanding Quest for Cash, will tax anything that moves, and at a higher rate, and
  • with the politics of envy which pollies like Winstone Gander and the entire Labour caucus tend to encourage, and
  • with the fact that in common with Europe, UK and the US, we have locked in expectations about welfare transfer payments whiuch are completely unsustainable

one has a slightly less rosy and more nuanced view of the future.
Which is that the overall Environment (natural, political, social, cultural) is easily poisoned, and our current Climax Community can all too easily slip of its local peak, and back into one of the more sustainable (but far less comfortable) valleys.
After all, as any study of empires will show, it's possible to live in well sub-optimal conditions for centuries at a stretch.  Our recent history is a local aberration in that generally dismal record.  Thorburn rightly points to the business ecosystem as a way out and forward.  But the counter-argument is that this ecosystem can be easily derailed. thwarted, or subverted.....

While vote buying welfare transfers, including WFF might have got a bit out of control, what is better for society. To pay out a subsistence unemployment benefit with supplements or provide government funded work on minimum wage. To provide low cost housing, schooling and medical care for their kids.
We are reaping the results of throwing an entire generation of low income people on the scrap heap in the name of efficiency and cost savings. The private sector could not employ all these people and make a profit. How many fast food outlets can NZ absorb. Add declining rural headcount and industrial workforce due to labour saving technologies.
Railways, Ministry of Works etc were the buffers in the economy but it was decided structural unemployment of 4% was "economically" better as it kept downward pressure on wages and full employment might mean horror of horrors, inflation. 4% doesn't sound much but its 180,000 people plus their families. That's a lot of disaffected people stuffed away in suburbia and rural towns. These generally aren't the people who start SME's. They rely like most people on others to provide employment. If there's no employment what are they to do?
Is it a surprise that those chucked on the scrap heap and benefits raised another two generations with low expectations? Is it a surprise envy rears its head when their faces are rubbed in it everyday with advertising for consumer goods they can never afford?
In the absence of the Government acting as employer of last resort, a taxpayer funded welfare state is the only thing preventing widespread abject poverty and violence

Well said Waymad !  I hope the people who receive the endless rounds of Government agency handouts realise they are receiving stolen goods.


Financial literacy is imperative for NZ but NZ also needs to close the gap in understanding human behaviour.

The Thorburn whiteboard diagram above lists the catagories of equity as 'Angel' and 'Venture' but curiously misses off 'Long term ownership'.  Which is where the real benefits come from
Repeats the big common problem where New Zealand and New Zealanders shoot themselves in the foot.  Work hard, struggle through the hard stuff and just as the fledging enterprise is about to blossom - sell it off to somebody smarter at a reduced rate.
Latest example is at Fronterra.

Well spoken.
By far the most important issue that needs to be resolved is Leadership because without that these are all just words. Let's keep up this momentum. We need a light at the end of the tunnel otherwise it's all just too depressing. Without leadership we only have moaning and you get sick of that.
Bernard, you can play a role here. Instead of having email alerts following us around, depressing us everywhere we go about this crisis and that crisis. How about email alerts informing us of how people like Thorburn are making a difference and how we can join in.
One thing needs to be sorted. There is no point in redirecting investment from houses to shops selling overseas made goods. There is no point in that.
As regards pensions at age 65, well nothing is affordable under the present  leadership and economic direction. At present we can't aford our justice system, our health system, we are closing schools and so on. We are running out of wealth. We need action and we need it NOW.

silly me, thought the place was already controlled and run by the round table...
wonder why the archive has been modified to cut mention of the deliberate 15% unemployment strategy .. (guess thats what Oz is for...)

Probably the best documentary made on the economy in NZ. What was being said by Douglas et al in 1984-1987 mirrors the current government. More impotant to pay down debt than own income producing assets. So too Maori Council legal action against asset sales etc.
Classic cameos from Olly Newland and Bob Jones in part two; Jones boasting just prior to the 1987 crash about owning much of Sydney and about to buy up Manhattan

This too, today - in respect of HSBC @ Guardian
This two-tiered justice system was the subject of my last book, "With Liberty and Justice for Some", and what was most striking to me as I traced the recent history of this phenomenon is how explicit it has become. Obviously, those with money and power always enjoyed substantial advantages in the US justice system, but lip service was at least always paid to the core precept of the rule of law: that - regardless of power, position and prestige - all stand equal before the blindness of Lady Justice.
It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear US elites unblinkingly insisting that those who become sufficiently important and influential are - and should be - immunized from the system of criminal punishment to which everyone else is subjected.
Worse, we are constantly told that immunizing those with the greatest power is not for their good, but for our good, for our collective good: because it's better for all of us if society is free of the disruptions that come from trying to punish the most powerful, if we're free of the deprivations that we would collectively experience if we lose their extraordinary value and contributions by prosecuting them.
Thorburn will not revoke this outrageous insult to society.

Thorburn for PM, I say