Background – The Process of Economic Transformation
8. In March 2006, Cabinet agreed that ET would be one of the government's three priorities for the next decade (CAB Min (06) 7/22). Economic Transformation is fundamentally about changing a country's product (goods and services) mix towards those that provide higher value and higher returns – products which differentiate on the basis of quality and innovation rather than cost.
9. Usually countries make this move by developing higher value products which build on their existing capabilities, including skills, infrastructure and institutions. And there is still significant opportunity for New Zealand to develop higher value products from its existing base of capabilities. However, because New Zealand has a reasonably specialised range of products requiring quite specific capabilities (such as those based on natural resources, including many agricultural products), it is likely to be harder to move to a broader range of higher value products unless we also enhance and upgrade our existing capabilities. To achieve this will require clear direction and joint public and private sector effort to coordinate investments and improve our innovation system, including regulatory settings, international linkages, research, workforce skills, and infrastructure.
10. Other small, open, advanced economies of the world with similar characteristics to New Zealand, such as Finland, Sweden, Norway, Denmark and Iceland, have been successful in persistently upgrading their capabilities and leveraging off their natural resource bases to move into higher value products through joint and collaborative efforts from the private and public sectors. There is no reason why New Zealand cannot enjoy the same level of success.
11. The ET agenda continues the Government's long term commitment to improving income per capita through innovation and raising productivity in an environmentally sustainable way. In doing so it builds on the direction of the Government's Growth and Innovation Framework (GIF). Both GIF and the ET agenda have encouraged innovation and productivity gains while also helping develop New Zealand's economic foundations: a stable macroeconomic framework, an open and competitive micro-economy, sound infrastructure, a cohesive and socially inclusive society, a healthy and relatively skilled population, a strong innovation system and sound environmental management.
12. Ministers agreed that ET work should be advanced within five sub-themes: World Class Infrastructure, Environmental Sustainability, Innovative and Productive Workplaces underpinned by high standards in education, skills and research, Globally Competitive Firms, and Auckland – An Internationally Competitive City. Two Cabinet papers in August 2006 detailed the overall vision underlying the ET agenda and a suite of action plans for each sub-theme. This paper reports on progress on those action plans.
13. This paper also responds to a Ministerial decision in March 2007 that the first ET update should be considered by Cabinet in September 2007 and that the update should provide a strategic review of the ET agenda and outline proposals to focus effort.
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