A quickening pace of change is the new normal
New Zealand is acknowledged as having good macroeconomic policy settings. We have low inflation and an independent central bank. Fiscal policy and the government accounts are strong. New Zealand promotes free trade. The labour market is flexible. The currency floats and acts as a shock absorber.
New Zealand ranks highly across the World Bank Governance indicators. New Zealand ranked top in the World Bank Doing Business 2018 report for ease of doing business. New Zealand is the 13th most competitive nation in the world out of 137 countries ranked according to the 2017-2018 World Economic Forum Global Competitiveness Report. We tick many of the big-picture boxes.
Yet, gross domestic product per capita is in the bottom half of the OECD. Incomes are sub-par too. Another wave of economic reform or change is needed, but it’s a collection of little things and not big ones.
That requires change. Change is also occurring on numerous other levels.
The economy is going through several secular shocks. Some traditional sources of growth such as dairying, non-renewable resources and turbo-charged house price movements (which helped drive spending) are not going to provide the impetus they used to. The realities of income inequality (with housing affordability a key driver), climate change, taking better care of the environment and our natural resources demand modification.
The population is ageing, and with that, we are seeing shifts in growth patterns. Succession is a huge issue for many businesses. We have the millennials versus the baby boomers. Regulators are taming leverage and credit facilitation. Firms now must deal with the realities of social media. Tweet risk is real. Politics is squaring off with economics locally and overseas. We have a government policy shock as the missing middle of society pushes back. Global growth patterns are shifting. China is projected to overtake the United States economy in size in 15 years.
We also have the trials associated with technological driven disruption.
That’s non-exhaustive but still a big list of changes. It presents both challenge and opportunity.
How New Zealand navigates, these changes will come down to microeconomics. How policy settings, firms and individuals evolve and adapt in the “new” normal.
According to Suncorp’s Business Success Index, forty-three percent of firms have seen a lot/fair amount of change over the past two to five years. That’s almost half of businesses. Only fourteen percent have seen no change. A lot are seeing not much change but “not much” is still some change to manage.
Key areas of disruption include natural disasters, staffing, government policy and technology.
Firms are responding to change. Of those firms that have seen a lot or a fair amount of change, seventy percent have made changes to their offering in response to disruption. However, the flip-side is that thirty percent have not or are unsure if they have.
Firms expect the degree of disruption to lessen rather than quicken. Forty-three percent of firms have experienced a lot or a fair amount of disruption over the past two to five years. Looking forward, thirty-six percent of firms expect to be disrupted by a lot or a fair amount. Of those that are expecting change, fewer are currently planning or expect to respond to it.
That is a surprise and worrying. It’s not where technology, the policy agenda or secular challenges such as climate change are taking us. People are wanting to see change before they respond.
Climate change is real. Droughts and floods are becoming more common. Rising sea levels are a threat to some coastal areas.
The Government is trying to unlock a different economic prescription. Affordable housing is a priority.
Technology is advancing at high velocity. The fourth industrial revolution is unlike the first three. The first three were linear in nature. The first mechanised production. The second drove mass production. The third automated production. The fourth is about the fusion of multiple technologies across digital, physical and biological spheres. It is exponential. That is what makes the fourth so exciting and challenging.
This is an environment where firms and individuals are going to have to be innovative, flexible and adaptive. Responding to change ex-post might be the safe option. The flip-side is that successful firms are going to need to innovate before the technology disruptors get distribution capability. And innovation involves risk. Taking risk can involve mistakes.
The economy and businesses are at a delicate juncture where taking risk is needed to handle the changes coming down the pipeline. For a lot of businesses, taking such risk is not going to be natural.