Remarkable Ideas

Sustainable Job Creation

February 25th, 2009 | by admin |

My personal view is that when considering job creation we need to prepare for the worst and hope for the best.

So what is the worst…

As far as our New Zealand economy goes I think we are looking at 3-4 very rough years and probably 15%+ unemployment, followed by 10 unsettled years, before we see an overseas market recovery.

For the foreseeable future, the NZ economy will lag because baby boomers have stopped spending and there are relatively speaking fewer younger people to drive innovation.

Complicating things, 75%+ of our public companies are overseas owned, so a large portion of our profits go offshore. This means less retained cash, which means new ventures have to borrow from overseas-owned banks which further dampens the effectiveness of our economic endeavours.

I think we need a cost-effective and sustainable job creation process that benefits primarily New Zealanders.

A cost-effective “top-down, picking winners” strategy is unlikely to be effective. Unfortunately this is the approach that appears to be underway at the moment. (From another perspective, a top down approach may create winners, but at what cost? “Think Big” anyone??)

Proven “economic circuit-breakers” are needed.

So here are two proven parts of the Economic Development puzzle that are sustainable and do work:

“Bottom Up” Regional Economic Development

Development of “local entrepreneurs”

“Bottom Up” Regional Economic Development - In 2002 the South Waikato District was identified by the Ministry of Economic Development as one of the worst performing regions in New Zealand. Our objective was to urgently transform the economy of the South Waikato District so that the region could reduce its reliance on Farming and Forestry. The need to change was urgent - in the years 2000-2007 forestry production in the region dropped by about 60%+.

Over 1200 project ideas were generated as a by-product of the community consultation process driving the Regional Economic Development Strategy.

Ongoing and extensive consultation with the community rendered these 1200 ideas into 45 possible projects that could create 3500+ full-time jobs.

All for a total cost of less than $20m including start-up funding. (Elapsed time was about 24 months in the case of the South Waikato, but this process could be shortened to 9 months or less for the equivalent of 2 full-time people per District).

By comparison, the current NZ Government investment of $500m in infrastructure will save 2000-2500 jobs.

At the risk over oversimplifying things, the top down infrastructure approach cost is $200,000 per job. The bottom up costs per job is $5700 - including new business start-up funding. Put another way, the “bottom up” approach we used in the South Waikato is 35 times more cost-effective than the traditional “top-down” way of doing things.

Extrapolating these numbers… by using a bottom up approach it may be possible to create 250,000 jobs, ready to start within 12 months, for a total investment of about $1.4b

This is less than the Government is thinking of spending on broadband.

In fact, by making full use of our existing broadband we would have the funding in place for two major Economic Development initiatives, not just one (see NZ Broadband Strategy for details).

Business Development - I initially promoted the business facilitation processes of Ernesto Sirolli (www.sirolli.com) to help develop and nurture local entrepreneurs in the South Waikato. As part of this strategy a Business Development Centre was set up in Tokoroa.

Operated by a Trust, this expanded into a “one stop shop” with full time staff that offered a professional service in facilitating, planning and marketing assistance for new and existing businesses - for example Business In The Community (BITC) and Enterprise Training.

Identifying the many opportunities in the South Waikato was easy compared to making things happen.

Management and political changes at the Council after I left the job did not help.

Some of the lessons learned from my South Waikato experience:

1. Keep Economic Development out of the control of Local Government. Councils should facilitate the process but not pick winners (directly, via committees, or via selective and/or politicised funding).

2. Fund Bottom-up Economic Development properly. Not just things like an office and trained staff, but micro-loans for start-ups - ideally via a local community bank.

3. Make it easy for volunteers from the community to assume responsibility. Provide admin support and professional project management. Do not pick winners – grow leaders.

4. Do not make local bottom-up Economic Development contingent on funding from national or regional strategies. The mix of objectives is a quick way to kill local initiatives and enthusiasm. The whole process will then grind to a halt.

So there you have it.

My take on what is in front of us.

And some thoughts on how to generate more than enough jobs to keep every New Zealander who wants to work, employed.

Comments welcome.