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From surviving to thriving post COVID-19

Frontier firms inquiry
6 May 2020

In 1975, as New Zealand was reeling from an energy shortage and Britain’s entry into the European Economic Community, Fred Dagg pulled on his black woollen singlet and told the country “we don’t know how lucky we are.”

With COVID-19, New Zealand is facing the prospect of an economic shock as serious as anything seen since 1975. Over the last month the number of people on the Jobseekers Benefit has increased by 30 000. Some researchers have estimated that by the time the crisis has passed, 100 000 jobs will be lost in the tourism sector alone.

Recovering from an economic shock of this magnitude won’t be easy or quick. But there is every reason to believe that not only will New Zealand bounce back, it will thrive in a post-COVID-19 world. 

New Zealand went into the crisis with a low level of government debt, which gives the government scope to help cushion the blow without attracting concern of rating agencies.

We also have digital infrastructure that is the envy of many other countries, with 79% of Kiwis having access to ultra-fast broadband.

And New Zealanders are resilient and willing to give new things a go. Rather than pining for the way that things were, we get on and look for opportunities.

Take the example of Village Kitchen, a daily fresh meal delivery service in Auckland. As Rebecca Jones, their director, noted, in the face of Level 4 restrictions in 24 hours they pivoted their business to a whole new model delivering frozen meals and baking supplies.

But not every firm will be able to do this. For some, new opportunities will be hard to find, or they may not be able to make changes on the scale required. Many firms won’t survive, which will come as a real blow to large numbers of hard-working Kiwis.

The disruption of COVID-19 can thus be expected to have wide ranging economic and social effects. But there are ways of softening the blow.

Government transfers that help protect workers from a loss of income are important. Yet, while transfers are an essential part of any response, they cannot be the full picture. They are like the ambulance at the bottom of the cliff.

There may also be a temptation to try and rebuild the economy to look just as it did before the crisis, no matter how markets have changed. But a lesson from the 1970s is that an approach like this cannot last and failing to make timely adjustments will make future decisions harder.

Another approach is to encourage those firms that can grow to do so as fast as possible, creating new jobs and opportunities that help offset the pain when other firms shrink or close.

This process of resources moving between growing and shrinking firms is one of the most important drivers of an economy’s productivity performance, which is in turn the key driver of improving long-term living standards. Yet, Productivity Commission research has shown that in New Zealand this process does not work as well as it should.

To get under the hood of this, the Commission is undertaking an inquiry into the lessons that can be learnt from New Zealand’s most productive firms. This includes any innovative new technologies and business practices they use, and how these ideas could be spread more widely throughout the economy.

As an early step in this inquiry, the Commission has released an issues paper that lays out what we’ve been asked to do and how we are thinking about the issues. This also provides an opportunity for the public to help us develop practical recommendations for change.

The Commission encourages anybody with an interest to read through the issues paper, think about the questions and participate by making a submission or getting in touch. We are particularly keen to hear from Kiwi firms about the barriers and opportunities they face to improving their productivity.

Overall, our goal is to understand the challenges faced by Kiwi firms who are striving to be world class, and how these can be overcome. This will play a role in helping to restore the economy to full health once the immediate effects of COVID-19 have passed and supporting long-term gains in social and economic wellbeing.

Dr Patrick Nolan, Inquiry Director


About the frontier firms inquiry.

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