The lucky country that found its own way
New Zealand's rapid rise up the World Economic Forum's Global Competitiveness Rankings over the past decade is rare for a developed country.
In our Forum's 40-years of rankings, the US, Switzerland and a few other developed countries have long dominated the top places.
On occasions, a country fighting back from a crisis, such as Finland in the early-1990s, has also figured prominently. And over recent decades, fast-developing countries such as China, India and Brazil have progressed steadily into the top 10.
New Zealand, however, is doubly unusual. It has risen from 20th in 2009 to fourth in this, our 2019 rankings; and it has done so without trauma. Its last major economic crisis was in the mid-1980s, which triggered its first wave of economic transformation.
The small South Pacific nation of 4.75 million people did come close to crisis again during the great global contraction of 2008-10 when its net international liabilities became the third highest in the OECD after Iceland and Hungary.
But it has turned adversity to advantage through good luck, in terms of favourable global trends, and good judgement by business and government to capitalise on them. The resulting self-confidence in country and companies is obvious.
We do not explicitly assess confidence in our analysis of 12 pillars of competitiveness encompassing 110 measures of economic, business, government, environmental, educational, health and social progress. However, our survey, which contributes to many of the measures, gives ample evidence of Kiwis' newfound optimism and ambition.
Historically, this was not the case. New Zealanders long considered their Australian neighbours the lucky country for their mineral wealth and societal energy. But trends over the past decade, such as the rise of Asian societies and accelerating climate change, have made life harder for Australia.
For example, Australia has struggled to deepen its economic relationship with rapidly developing Asian nations much beyond being a mineral seller. Likewise, its political relationship with them is not yet as collaborative as it needs to be to engage more deeply with Asian cultures.
Thus, New Zealand has turned out to be the lucky country, thanks to its advantages of abundant natural resources including water; a small, open economy; and a diverse, often cohesive society. The latter has been enhanced, for example, by strong immigration from Asian nations since the late-1980s. These new New Zealanders are often found at the forefront of the country's rich, new Asian relationships.
More than a dozen Asian nations have become major sources of customers, collaborators and capital for New Zealand businesses.
Initially, Kiwi companies saw these deals as opportunities to sell more of their existing commodity exports. But understanding of the deeper potential developed rapidly, thanks to global trends in business, economics and resource use.
Brisk global growth in the late-1990s and early 2000s created unprecedented demand for oil, minerals, food and water. This triggered escalating prices, worsening shortages and deepening environmental damage.
These drove the urgent search for technologies and products delivering far more efficient and sustainable use of resources. They also opened up the likes of affordable sources of non-hydrocarbon energy, bio-plastics, food and other renewable resources.
My colleagues and I captured the revolution's early days in a series of seminal articles in the Harvard Business Review 2007-2009.
Initially, corporate and political New Zealand were slow to respond. They were locked into their 1980s strategies. They believed their continuing exploitation of primary sector commodities and mineral resources would revive the country's fortunes.
Looking back. we can see the turning point came in Copenhagen in 2009. The government of Prime Minister John Key had taken two proposals, initiated by the predecessor Labour government, to the global climate-change negotiations.
Both proposals proved critical to involving developing countries in the fight against climate change. They were also critical to launching New Zealand's renaissance in science and business.
The first proposal was a set of new international rules on de- and re-forestation and on accounting for carbon locked-up post-harvest in timber products. All forested countries benefited from the first part. But New Zealand was particularly adept at the second. Its science, R&D and commercialisation has given risen to advanced, valuable new building materials and liquid fuels from its forestry resources.
The second proposal was to establish a New Zealand-led global research consortium for ruminant animals. Its goal was to improve the animals' conversion of their forage into milk and meat, thereby increasing food supplies while drastically reducing the animals' methane and nitrate waste products, which contribute to global warming. Again, this benefited all countries with ruminant livestock but it also fast-forwarded New Zealand's development.
Although the broad outline of a global climate treaty achieved at Copenhagen was not developed into a complete agreement until late 2011, the benefits of both proposals began flowing immediately for New Zealand and its partners.
This flood of international collaboration and funding in two of the country's most important sectors revolutionised the way the country did science, commercialisation and international business.
New Zealand became truly a citizen of the global economy rather than simply an exporter to it. Part of its genius is its ability to develop those relationships and to use very high speed broadband to turn its businesses and science teams into virtual mini-multinationals capable of fast growth, strong profitability and strategic resilience.
As a result, New Zealand has built on its first wave of reform. Those actions in the 1980s had earned the country some high places in our rankings. For example, in our 2009 report its institutions were fifth in the world, its health sector, primary and tertiary education enrolment eighth and its labour market flexibility ninth.
The rise of Kiwi mini-multinationals has since transformed the economy. It has grown two percentage points a year faster than Australia's for the past seven years. The country is well on its way to its goal of catching up with Australian GDP per capita by 2025.
We do not use such a crude measure at the World Economic Forum. Our 110-measure competitiveness rankings tell the full picture. On this analysis in 2009, Australia ranked 15th and New Zealand 20th . In this 2019 ranking, Australia is 10th and New Zealand fourth. And on our quality of life index Australia has fallen from sixth to ninth over the past decade while New Zealand has risen from 12th to third.
On a personal note, New Zealand's achievements to date and its prospects for the future give me great professional pleasure. Following the 1990 publication of my book The Competitive Advantage of Nations, some New Zealand business leaders invited me to help them achieve the power of business clusters I had demonstrated in my research.
But we failed. New Zealand, gripped by free market reforms, was not ready for such collaborative business activity. Similarly, my speech to the 2001 Knowledge Wave Conference in Auckland passed largely unnoticed.
In retrospect, though, there was a much deeper problem. The economy was far too small to achieve the critical mass required for physical clusters dominating at the time. Instead, Kiwis have found their own unique solution: creating virtual global clusters.
Of all New Zealand's achievements in the past three decades, it is this pioneering work on new science and business models which is the most critical. It has enabled small, highly entrepreneurial companies and organisations to thrive in the global economy. This is the true strength of its renaissance. This is the big lesson New Zealand offers to the world.
* Michael E. Porter is the Bishop William Lawrence University Professor at the Harvard Business School. A leading authority on corporate competitive strategy and the competitiveness of nations for more than four decades, he was a founder of the World Economic Forum's Global Competitiveness Report in 1979.
Rod Oram notes: All information up to December 11, 2009, is factual; anything after is achievable.
Sunday Star Times