Saturday, 26 October 2013 10:18
New Zealand’s former Finance Minister in keynote at CA Sri Lanka 34th National Conference says engine of economic growth is not the government but people.By Cheranka Mendis
Bringing experience from her five-year term as a politician who believed and worked hard to put in place high quality public policy which boosted her country's economy, New Zealand's former Minister of Finance Ruth Richardson on Thursday noted that the engine of growth in an economy is not the government, but instead are the people of a particular country.
Speaking at the inauguration of the two-day National Conference of the Institute of Chartered Accountants Sri Lanka (CA Sri Lanka), which will conclude today, Richardson noted that what is needed to power up the modern world is innovation backed by sound and ‘smart’ policies by the governments which would create an environment that harnesses and empowers its citizens.
Held for the 34th consecutive year, the conference focused its attention on innovation in action, leading innovation, conquering new markets, creative social networking, managing risks in innovation and service innovation.
Opening a world of opportunity
“Making innovation a commercial success is therefore vital for the development of an economy, while sound public policy also plays a large role in facilitating this.”
Richardson acknowledged innovation as a wonderful opportunity for small countries. “It is the size of the opportunity and the idea that matters. That is the new currency. Innovation knows no bounds. It’s hard to imagine the world without smart phones and tabs. For me the issue is what’s coming next.”
Innovation represents a big opportunity for a small economy to grow. While there are various aspects that are needed in this regard, for her what counts is ‘creative capital.’ There are three essential elements of creative capital – smart policy, smart business environment and smart people.
Richardson listed key public policy essentials required for smart policies. What is now required is a major shift from state and bureaucratic dominance to market dominance, she said. Businesses must stop turning to governments for extra tax concessions and other subsidiaries. “That is not the way of the future. It is a big cultural shift which could come as a shock for some that is needed in the transition.”
Free trade must be embraced. “I was thrilled to arrive on the eve of Sri Lanka signing an FTA with China, which is a major trading partner. New Zealand was the first to sign a FTA with China. You are very smart to want to sign up with them.” Today, all governments are understanding the importance of free trade with other countries.
Smart policies also include a guarantee of the rule of law. Courts cannot be weak and be a political plaything. The destruction of intellectual rights and property rights is the destruction of innovation. There must be a welcoming and conducive business environment that enables innovation.
Smart business environment
In transforming business policies, one must understand that resources are allocated by the market and not by central planning. Bureaucracy is looked down upon and it must be ensured that resources are allocated with markets, she said.
“Competitiveness and innovation determines success, not protectionism – you want a world where it’s your ability that determines what is successful. Innovate and penetrate the international market.”
Ease of Doing Business is also a key factor which counts. The World Bank ranking shows New Zealand is at No. 3 while Sri Lanka is at 81 out of 185 countries. However the Ease of Doing Business must reflect on what you feel and experience every day. “It is what’s in the air and water that matters. Are you in an environment where you are energised to face the risks or is it the old lethargic attitude?” If it is the latter, chances are you will end in tears.
A smart business environment means a revolution of the mind. It is a cultural shift as much as it is a business shift. “Your cricketers aspire to be world class and it must be the same way with your businesses and its standards.”
Fostering and liberating talent is vital for innovation. It is individuals who invent, not governments. All this starts with the quality of education. In most countries education tends to be state-dominated. Technology is revolutionising world class learning. Its ability to reform itself is a priority in instilling and furthering innovation.
The trick is to make the home base as attractive to talent as migrating to live their business dream. A particular challenge for smaller countries is to retain world class young people. “Make the local environment welcoming for talent. For the youth to believe they can live their dreams from their home environment is what is important.” For this too, a big social shift is in order.
Capturing the prize
Commercialising smarts is exacting. For every individual that think his or her idea is a good idea, 9/10 the idea isn’t scalable. “It is not enough to be in love with science and innovation; you must also be in love with sales. Science and innovation matter, but sales matters even more.”
The prize and its size are a function of customer relevance – this must be the starting point. Is the customer willing to buy the product? While CHOGM talks of the big idea, “we know what’s important is the execution”.
Execution is everything, Richardson said. A healthy dose of courage and commitment won’t hurt either. “Don’t get carried away by the hype; keep your eyes on the execution,” she advised.
Seeing is believing
In this era of dynamic change, there will be winners as well as losers. Countries can fail, as can companies. “Greece is a failed nation. You have the USA that cannot write a budget. Many countries across Europe are in chaos and in Spain there is 60% unemployment,” she said, citing examples.
However, business innovation can come from anywhere – the case of Skype from Estonia and Zero from New Zealand bear witness to this. “Innovation can indeed be a Sri Lankan game changer,” Richardson acknowledged.
The price of failure to act
Lack of reform and innovation is the modern enemy of growth. “You’ve heard of the process of ‘creative destruction’ and this is speeding up – don’t be left behind. The hot thing from yesterday is not the hot thing tomorrow,” Richardson said. There are opportunities and risks. It is now a matter of urgency for nations to see the public policy and forums to innovate and grow.
Capital and citizens have choices as well. People have choices but it means you must work to stay competitive. She noted that while Sri Lanka has good FDI, it is also about getting the good people back and generating a fantastic business from the home page.
Corruption, collusion and cronyism are certain to defeat sustainable development – “crony capitalism, government, banks and businesses are all in bed with each other.” Countries such as Russia and China will not go far if they don’t address it now. It is a cancer, she said. “In the age of transparency and an open world there is a perfect antidote for corruption. When this is done you can get away from the glass ceiling of middle income and grow faster.”
Reform is the new normal
New growth will require sweeping changes in education, a very different approach to research and management. Modern management must be proactive and have a sense of urgency and understand the powering up of the value chain. “The easy sources of growth are exhausted,” Richardson said. “There must be radical changes in the traditional way of doing business. Make business leaders bigger heroes than cricketers.”
The job for governments worldwide is to balance stability with the need for change and to attend the basic fundamentals of growth – good budget controls, opening up the market, etc. “The only way to stability is through growth; and for growth, things must change. Governments have a hard task to play a balancing act. There is a need to change and the next generation of reforms is hard. It is now even more urgent to undertake these reforms than before.”
KPIs for innovation and growth
Richardson listed three universal factors that need to happen in this context.
The rule of law and civic society – ability for everyone to play and for the people who have the confidence of a good idea to know they have property and intellectual rights that will not be undermined. “Open the club up,” she said.
Open competition between and freedom of entry into and out of economic and political systems. “China and Russia have big problems,” she reiterated. “There is no open entry into economic and politics in these countries.”
Individual freedom to create and innovate. “It is an optimistic age to live in. In the end, it is the genius that lives in you that will determine if a country is going to be great or greater.”
Pix by Upul Abayasekara