This glossary provides a description of key terms used in the Improving Economic Resilience inquiry reports. They will be updated as the inquiry progresses.
Improving Economic Resilience Inquiry
The ability to bounce back better (adapting to disruption)
Economic resilience is the capacity of industries and associated communities to anticipate, prepare, absorb, recover, and learn from supply chain disruptions. The proactive focus on anticipation, preparation, and learning shapes the capacity of industries and communities to absorb, recover, and adapt to the new normal created by persistent supply chain disruptions. Economic resilience is a response to persistent, medium and long-term disruptions when supply chains do not return to a pre-disruption state for years or decades.
Prevent change, absorb the shock (absorbing disruption)
Economic robustness is the capacity to absorb and recover from supply chain disruptions without major adaptation. Robust industries and communities focus on stability, withstanding disruptions, and returning to the original status quo. Economic robustness is a viable response to temporary/short-term disruptions when supply chains return to the pre-disruption state within several months.
Securing supply and ensuring stable access to economically significant resources
Protecting the national economy from threats, including disruptions to critical infrastructure, supply lines, financial institutions, and foreign economic coercion (Department of the Prime Minister and Cabinet, Aotearoa’s National Security Strategy, 2023). National economic security objectives include increasing self-reliance, derisking and decoupling (Ministry of Foreign Affairs and Trade, 2023).
Business networks to create and distribute goods or services
Supply chains are complex networks that connect suppliers of raw materials, intermediate goods and services to producers, distributors, and end users of final products and services. Supply chains have evolved over preceding decades, becoming progressively more complex and global in their reach. The fragmenting global economy, extreme weather events, lack of competition, protectionist impulses and related factors have heightened the risk of supply chain disruptions. Such disruptions can undermine the wellbeing of New Zealand industries and communities that rely on well-functioning supply chains.
Businesses can’t acquire or distribute as they used to
Supply chain disruptions encompass any price shock or service interruption that affects an industry or associated community and is propagated through international or domestic supply chains. Disruptions can stem from escalating geopolitical, environmental, societal, natural hazards, economic, infrastructural, and health risks. The risk of supply chain disruptions may justify proactive investment in economic resilience, to maintain the performance of industries and the wellbeing of communities.
People relying on an industry for work
An associated community is a regional and/or professional community whose wellbeing relies on a specific industry facing supply chain disruption. The resilience and wellbeing of industries and communities is intertwined.
Unit of analysis for statistical aggregation or designing structural policy
The Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 compiles and analyses industry statistics. A business is normally assigned to an ANZSIC06 category according to the predominant activity it is engaged in. The performance of an industry depends on many factors, including technology, demand for the product or service produced, government regulation, and competition. Non-statistical definitions are usually adopted for policy. For example, industries can be supported by policy strategies such as industry transformation plans (ITPs) that provide policy tools that can enhance economic resilience and pursue other political objectives.
Industry and government working together
Industry-government collaboration refers to strategic and cooperative relationships and networks between government entities (central and local government) and businesses, industry associations, worker organisations and associated communities. Collaborative arrangements can include iwi and Māori, education institutions, research organisations, and other key groups. This collaboration involves joint efforts in coordination, and sharing of resources, information, and expertise to achieve common goals and address specific issues or challenges within a particular sector or the broader economy. Governance arrangements may take several forms.
Doing more with less
Productivity measures illustrate how well an entity uses resources (inputs) to produce goods and services (outputs). It is calculated as the ratio of the quantity of output produced to some measure of the quantity of inputs used (New Zealand Productivity Commission, Productivity by the numbers, 2023).
Wellbeing is more than living standards, but both depend on prosperity
Wellbeing incorporates several domains of living standards including, but not limited to, income, health, work, cultural capability and belonging, and environmental amenity. Productivity contributes to growing income, which contributes to higher living standards measured through indicators of material prosperity such as income and gross domestic product. Importantly the wellbeing of communities and industries is also influenced by their levels of resilience (The Treasury New Zealand, Te Tai Waiora, 2022).
Challenges that can be anticipated and prepared for
Known knowns are potential challenges where the timing and impact can be relatively well understood and predicted. For example, the need for infrastructure maintenance or critical medicines. This predictability allows for the development of measures that individuals, businesses and nations can undertake to mitigate the effects of these events.
Known challenges the timing and magnitude of which are difficult to anticipate
Known unknowns are challenges that people know are coming, but for which it is difficult to predict when they will happen, or the extent of their impact. For example, major earthquakes or bushfires. To prepare for such events, a broad approach that encompasses many possible scenarios is more effective than relying on a specific plan.
Speculative or unknown challenges with significant impacts
Unknown unknowns are unforeseen, or highly unlikely, but significant challenges. For example, AI turning against humanity. It is impossible to be fully prepared for unknown unknowns. Resilience against unknown unknown challenges depends on having a robust decision-making framework that can adapt to unexpected situations and a resource buffer (savings or the ability to borrow) that can be repurposed as necessary.
A short storm that can be ridden through without change
Temporary disruptions typically last less than 12 months and do not require major adaptation of impacted industries and communities. The short-term nature of the disruption means that impacts can be mitigated by short-term measures including stockpiles, delaying investments and other business decisions, one-off purchases, or sales to new markets.
The storm lingers and people need to change
Persistent disruptions requires impacted industries and communities to adapt to the new normal over the medium-term. For the purposes of this inquiry, a medium-term or persistent disruption is defined as requiring more than a year but not longer than a decade of absorption and adaptation.
Build infrastructure to reduce impacts of the storm
Long-term disruptions can last decades. Given their decision-making horizons, industries and communities often treat such disruptions as permanent changes in their circumstances. The adaptation to permanent economic disruptions often relies on physical and social infrastructure, from ports to welfare systems and international alliances.
Small changes in demand make big waves throughout a supply chain
The bullwhip effect occurs when the impact of a disruption is amplified as it propagates through a supply chain, resulting in a more-than-proportional increase in demand. Concentrated supply chains (bottlenecks) can generate significant bullwhip effects as firms build up inventories and incur storage and insurance costs.
Reducing economic risk by not having all your eggs in one basket
In a community context, diversification is developed from a local community having their employment or income derived from a range of different industries or firms. In a trade context, diversification is the process of exporting or importing goods or services from several different economies, rather than focusing on one. Diversification is important because it can lead to greater certainty and reduced volatility, therefore improving economic resilience.
Businesses working hard to win and retain customers
Competition creates incentives for businesses to reduce costs and prices, improve the quality of goods and services, and develop and introduce new products, services, and technologies. Competition in markets is a key driver for greater value, innovation, and productivity (Commerce Commission, Competition Assessment Guidelines, 2022). Competition policy is adopted by governments to facilitate market entry or prevent firms from attaining or misusing market power and can contribute to resilience by enabling firms with diverse supply chains and business strategies to improve the collective resilience of industries and associated communities.
Enabling and supporting selected innovative industries
Focused innovation policy is a means for governments to work with industry, knowledge institutions and other stakeholders to realise the potential for productivity growth and export success in chosen areas of the economy (New Zealand Productivity Commission, Focused innovation policy, 2021). Successful focused innovation policy requires effective high-level governance with an emphasis on public-private collaboration, a strong innovation ecosystem and public investment in R&D. Modern approaches to focused innovation policy can safeguard against unproductive industry capture of public resources.
The network of players that shape innovation
An innovation ecosystem is a network of players, including firms, research bodies, education providers, capital providers, and regulatory bodies that work together to shape the rate and direction of innovation (New Zealand Productivity Commission, Frontier Firms Inquiry, 2021). Large anchor firms lead the way, investing in R&D and exporting, and providing a canopy cover to small and medium enterprises and entrepreneurs. The network of relationships between and within firms, international links, and the regulatory framework are all important. Workers move between firms and help diffuse innovation. Together, these factors create an environment that supports risk-taking and the implementation of innovation.
The top 10% of firms
Firms at the top of the industry productivity distribution. The 90th percentile (the top 10% of firms) is typically used to define the frontier (New Zealand Productivity Commission, Frontier Firms Inquiry, 2021).
Collaboration of business associations and government agencies
Strategic government efforts to encourage the development, growth and innovative and productive capacities of particular industries or sectors are considered strategically important. Often these policies are aimed at the manufacturing sector and involve some redirection of resources towards focus areas.
Actions taken to prepare for and respond to climate change
Climate adaptation policy refers to the set of measures and actions taken by governments, organisations, and individuals to prepare for and respond to the impacts of climate change. It involves identifying the risks and vulnerabilities associated with climate change and developing strategies to reduce these risks and build resilience. In New Zealand, the Ministry for the Environment has developed a National Adaptation Plan (Ministry For the Environment, 2022) that looks at the impacts of climate change now and into the future and sets out how Aotearoa New Zealand can adapt. The plan covers topics such as the natural environment, homes, buildings, infrastructure, communities, economy and financial system adaptation.
Innovation for non-frontier firms
Diffusion of innovation within industries is how the vast majority of firms – especially those that do not have the scale to operate at the forefront of technology – achieve productivity growth (Australian Productivity Commission, 5-year Productivity Inquiry: Innovation for the 98%, 2023). Diffusion is influenced by factors such as labour mobility; business activity; and investment in equipment, R&D and software. The breadth of factors means that some policies to support diffusion should be cross-sectoral and general. Tools to support diffusion and improve productivity and resilience include R&D tax incentives, Callaghan Innovation programmes, and support for small businesses. Collaboration within an industry can also help with diffusion.
Being ready to adapt to whatever the world throws at NZ
Generic economic resilience refers to the general capacity of industries and associated communities to anticipate, prepare, absorb, recover and learn from supply chain disruptions. It complements specific economic resilience that refers to the capacity to deal with specific disruptions based on proactive preparations for such specific scenarios.
The Terms of Reference for this inquiry asked the Commission to study interventions enhancing economic resilience to medium-term persistent disruptions. This implies a time horizon beyond the predictable disruption that can be addressed by preparations for a specific set of scenarios. The inquiry thus emphasises interventions enhancing generic resilience.
Work smarter, not harder
Labour productivity is the change in the average output per unit of labour input. Labour productivity growth represents the change in the total volume of output (measured in GDP) produced per unit of labour (measured in terms of the number of hours worked, hours paid, or the number of workers) during a given time reference period. (New Zealand Productivity Commission, Productivity by the numbers, 2023)
Rivalry created by the international competition for power, influence, and resources
The internal competition for power, influence, and resources creates rivalries between countries. In the current global context, the pursuit of strategic autonomy or dominance by countries often creates pressure for other countries to pick sides.
Protecting domestic industries from foreign competition
Protectionism refers to governments preferring local industries when limiting or controlling trade; in particular, to reduce the number of imports in the economy. Protectionist measures are designed with the explicit or implicit aim of protecting local industries from external competition and can take different forms; direct taxes, subsidies, or quotas on imported goods or non-tariff barriers such as specific regulatory requirements or different environmental or social standards. Anti-dumping duties and carbon border adjustment measures may also be adopted to correct perceptions of ‘unfair’ trade. Widespread protectionism undermines trade and material prosperity. Sometimes temporary protection may be sought to develop new industries or adapt to shocks.
A perceived slowdown of global integration
“Slowbalisation” is a term that originated in response to trends in globalisation and international trade. It is often used to describe a perceived slowdown or revaluation of rapid globalisation in the aftermath of the global financial crisis.
Nations acting to minimise foreign influence on their decision-making
Strategic autonomy is the ability of a nation to pursue its national interests and adopt its preferred foreign policy without depending heavily on other nations. The United States and European Union are pursuing policies aimed at achieving self-sufficiency in areas such as defence, food, energy, and some digital technologies. China’s policy of dual circulation aims at insulating itself from what it perceived to be an unstable and hostile external environment with the objective of developing a strong domestic market (internal circulation) and reduced reliance on exports (external circulation), while still participating in global trade.
De-risking relates to actions to reduce a country’s economic vulnerability within its domestic system to a defined external risk (Ministry of Foreign Affairs and Trade, 2023 Strategic Foreign Policy Assessment , 2023). It is aimed to protect sectors and technologies that are of national security interest.
Decoupling is where a country disconnects, separates, terminates or severely restricts its economic ties with another (Ministry of Foreign Affairs and Trade, 2023 Strategic Foreign Policy Assessment, 2023). It is large-scale economic and supply chain fragmentation along geopolitical lines.
Developing domestic sources of supply
Sourcing inputs from the domestic economy rather than international markets. Also known as import substitution.
Bringing economic activity back on-shore after previous off-shoring
The practice of transferring a business operation that was moved overseas back to the country from which it was originally relocated. Instigated by the desire to future-proof critical supply chains due to ongoing pandemic-induced disruptions, re-shoring has been a growing trend among Australian manufacturers including an increased interest in re-shoring battery manufacturing.
Sourcing from close countries
The practice of encouraging businesses to engage in operations with suppliers, manufacturers, and other entities based in countries in close proximity. Near-shoring can be appealing to businesses due to reduced freight and transportation costs, shorter lead times, and less complex supply chains creating faster and more efficient processes for bringing goods and services to market.
Sourcing from politically aligned countries
The practice of encouraging companies to spread their business operations to countries that share “similar values” to prevent other countries outside the “friendly” block from leveraging their market position in key industries, technologies, or products. The use of the term friend-shoring emerged after USAID Deputy Administrator Bonnie Glick referred to the concept as “ally-shoring”, a term which then appeared alongside “friend-shoring” in a White House Report on building resilient supply chains.
Trading with few alternatives
Refers to a market in which a small number of firms or countries dominate the trade of a particular good or service. Within the Issues Paper, concentrated imports are defined as those HS10 goods where more than half of New Zealand’s imports come from a country that controls more than half of the global market for a given good. Concentrated exports are defined as those HS10 goods where over 80 percent of New Zealand exports are sold to a market that buys more than half of the global production of these goods.
Trade agreements with various number of partners
Multilateral agreements require all World Trade Organisation members to be party to the agreement, while plurilateral agreements are agreements that members agree to on a voluntary basis. Bilateral agreements are agreements between two countries.
Ongoing economic damage created by shocks
Scarring is the medium-long-term damage to individuals, firms, and the economy following a severe economic shock (e.g., Global Financial Crisis, Covid-19). The idea is that these shocks leave ‘scars’ which lower performance over time. In the labour market a “scarring effect” refers to the link between unemployment and negative future experiences in the labour market. The scarring effect can have broader implications for the economy contributing to reduced prosperity or economic inclusion.
Public interventions to achieve specific goals
Policies, strategies, initiatives, instruments, or tools are often used interchangeably by public agencies labelling their activities. The inquiry aims to build on established activities and complement them. It will focus on economic resilience, where private and public stakeholders conclude that a proactive approach to supply chain risks is appropriate.
The specific focus of the inquiry is on medium-term resilience-enhancing strategies that bring together private and public actors to proactively anticipate, prepare, and learn from past disruptions to be better able to absorb and recover from future disruptions. Firms typically focus on risk monitoring, building partnerships to reduce risks, diversifying suppliers and buyers, or implementing new technologies to substitute for vulnerable imports or exports. Public policy can support such medium-term adaptations through policies that foster risk identification, information sharing, collaboration on resilience-enhancing measures, supporting competition in concentrated supply chains, providing regulatory and financial incentives for investments in resilience, and supporting trade partnerships, including re-shoring and friend-shoring.
Medium-term policies overlap with those with shorter and longer time horizons. Policy tools aimed at short-term disruptions often include building redundancy into supply chains by stockpiling or long-term agreements (focusing on capacity or ‘take-or-pay’). Policy tools that look at long-term structural changes often focus on building social and physical infrastructure, including transport, welfare, and international and trade relationships.