Summary
At the third Foundation Forum on Tuesday 7th of November, Bill Day gave a stimulating overview of the way entrepreneurs create wealth in the New Zealand economy and the optimum conditions which will enable this activity to increase. Bill Day illustrated his presentation with examples from his own experience as he is the founder and owner of Seaworks, a marine services company based in Wellington. He has an LLB, BA, and MBA and was the winner of Ernst and Young’s New Zealand Entrepreneur of the year in 2000.
Notes from Bill’s presentation
Entrepreneurs create wealth. Our lives become richer because an entrepreneur has an idea and wants to make it happen. Entrepreneurship is a vibrant and healthy process. Entrepreneurs are willing to take risks – entrepreneurs and risk run together – but it is controlled risk. It is something they think they can manage. Entrepreneurs will do things, which will stimulate the economy, but public policy is a risk for them.
New Zealand has a history of entrepreneurship. In other cultures, the need to save face often prevents people from presenting and developing new ideas but this doesn’t happen in our culture. The event of refrigeration was one of the first technology breakthroughs and now the fibre optic cable has broken down the tyranny of distance for us in this country.
Some unlikely entrepreneurs would not have been picked as winners initially. Examples of these are Peter Leech, known as the Mad Butcher, and Bill Buckley, a Westie who invented Aunt Betty’s Chocolate Puddings 8 years ago when he was 67 years of age, broke and living in a bed-sit. Entrepreneurship is the triumph of the human spirit. You can’t stop them and you can’t always pick them. Public policy has to get out of their way. But entrepreneurship is also a destructive process and causes turmoil. It pushes people out of their comfort zone and is not always what we think we want.
The Government has woken up to the fact that these entrepreneurs are wealth creators and has been trying to find ways to get more of them. There are two ways of getting more entrepreneurs – direct and passive.
Entrepreneurs take dollops of labour and capital and combine them in different ways. The Government could make it easier for them to get capital and labour. Recently, the Government has been using the direct method of giving entrepreneurs money – your money. In order to succeed in this initiative, they have to try to pick winners. They are trying to do the right thing but they cock it up. They are risk averse and look for safe places to put the money they have. NZTE does a fantastic job overseas. But here in New Zealand we see the people, who are tasked with giving the money away, putting in place systems and procedures around the process of applying for it. They become like bounty hunters and you see budding entrepreneurs changing from doing what they are best at to doing things that fit with Government criteria. As a result, they become less efficient. If entrepreneurs have a good idea, they will do it anyway and the world is awash with capital. The Government schemes can perhaps assist little start-ups. Some of these will succeed and some will fail.
Instead of the direct method of looking for and supporting winners, the Government should work to improve the business environment. In order to ensure entrepreneurs will flourish, we need to have:
1. A rule of law to ensure the business environment is corruption free and secure.
2. A taxation regime, which is competitive with New Zealand’s neighbours.
3. Private property rights. The recent Government action regarding Telecom saw $2 billion taken from people’s property. Future entrepreneurs and investors will require a higher rate of return to compensate for the risk of possible confiscation.
4. Labour, which is easily obtained. Entrepreneurs need to be able to get labour quickly and get rid of it quickly, if an idea doesn’t work out. Freeing up the labour market would assist entrepreneurs. With the information age, it is just as easy to get capital from Warsaw as from New Zealand, but it has now become increasingly important to attract and retain the best people. The relationship between employer and employee has changed in favour of the employee.
5. A light regulatory environment. It is important for entrepreneurs to make it as easy as possible for them to get an idea off the ground and for the Government to do as little as possible. If a lot of compliance is required, the cost of projects goes up.
6. Infrastructure, which enables the entrepreneur to get products to market and it doesn’t matter who provides this infrastructure.
7. Mechanisms, which enable people to invest capital.
Why don’t we do this in New Zealand? The reason is that in this country it is the philosophy that the Government will look after people. Entrepreneurship exposes people to change and grief. However we will soon not have any choice – we will have to change. There are now low taxing states around us, such as Australia, Singapore and Hong Kong, and capital will flow towards these places. The way of life we have grown up with is going to disappear and we have to find more efficient ways of earning and growing the economy. People with mature ideas will attract capital but incubators will assist some smaller start-ups. However the amount of money, which is being put into these incubators, is quite substantial.
Either you believe in the workings of the market or you don’t. Once you distort these workings you have less efficiency. But the efficient working of the market is about tomorrow being different and being different is painful. Kiwis who export are successful if they find a niche. It is important to get out of the way of these and other entrepreneurs.
© Copyright; Foundation for Economic Growth and various authors. Individual authors retain their own copyright.
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