The Porter Project

Listener 3 June, 1991.

Keywords: Business & Finance; Globalisation & Trade;

Flavour of the moment is Upgrading New Zealand’s Competitive Advantage, the report of the so-called Porter Project. Its 178 pages (plus appendices) are riddled with badly labelled graphs; portentous diagrams which, on reflection, say nothing; chummy references to “our country”, when two of the three authors are Americans; and platitudes dressed up as ‘deep and meaningful sentiments.

This is unfair to Michael Porter, the Harvard economist, on whose work the study is based. Though his international reputation is less grand than his visiting guru status would imply, he is one of a number of economists who are making useful attempts to bring the theory of international trade more in line with actual practice. We are taught that trade is about comparative advantage -how England traded its cloth for Portugal’s wine. But what goes on is much more complex and such simple stories hold little value.

Porter is no pathbreaker. Many of his insights were already in the standard literature a couple of decades ago. His strength has been communicating these ideas to ‘businessmen and women in their own language. He sounds exciting because of his communication skills, rather than because he has anything new to say.

That may be why much of the book repeats what has been said ad nauseam already. On page 53 (over a quarter of the way through) we are told: “New Zealand exports in a range of structurally unattractive, and therefore low profit industries.” The first economics lecture I ever attended, 30 years ago, was told that. The difference was Dr W B Sutch spoke in plain English, rather than business jargon.

And the book has no sense of history. Take the treatment of why New Zealand has a competitive advantage in international rugby. Yes, I saw it as a po-faced send-up of Porterism -I wished I had thought of the joke first. But they are serious. Complete with a deep and meaningful diagram, they offer an explanation of why we are good at rugby. Read it. Then, try to use the same analysis to explain why we are not as good at cricket, and even less so at soccer . In the end the nonsense reduces to: we are good at rugby, because we are; we are not so good at cricket because …we are not so good.

The cliche arises because they look only at successful industries, or sports, only at a particular time, in freeze frame, identify ing features which appear to explain why the industry is successful. But you can look at failing industries and find similar features or, if you don’t, the feature is missing precisely because the industry is failing. Analysis of a singular instant in time can confuse causality. As the philosophers put it: association does not prove causation.

Sutch identified the weakness in our export composition four decades ago. Since then there have been changes. First it was diversification out of meat, wool and dairying (‘processed grass’ was Sutch’s term) into other commodities: forestry, fishing, horticulture, energy and minerals. You make your profit from using these commodities as industrial inputs, not from selling them -so this encouraged additional further processing. And we diversified markets, away from Britain.

The effort through the late 1960s and the 1970s was a considerable achievement, and may have been part of the reason our economic growth kept up with the rest of the world in the late 1970s and early 1980s. We moved on to the next phase, which was the creation of export-oriented industries linked to these traditional and diversifying industries. (Examples include wool scours, electric fences, ear tags, but in future could include sawmilling and fishing equipment.)

The thrust of the Porter Project is that we have to get into these industries. Agreed: Sutch told us so 30 years ago. But why didn’t all that potential of the early 1980s flower?

There were, after all, any number of exciting prospects. (No, I am not referring to the shonky halfbaked ideas the finance sector was floating.) I leave you to explain why that potential came to so little. But you will not get much help from the Porter Project’s report. You would have to consider such unlikely scenarios as a deterioration in ‘Kiwi Ingenuity’.

It would be easy enough to explain this away as the usual shallowness of a visiting guru passing through; But New Zealand’s. Porter Project spent about $1.5 minion (of taxpayers’ money) on a report which is, largely a recycling of conventional wisdom and material published elsewhere. Even if there were more and deeper case studies, the return on the money expended would still be low. Particularly galling is the book’~ claim that we should improve the efficiency of government spending. The funding of this report would have been a good place to start. It must be a candidate for the lowest productivity research publication ever funded by government.

That is not the impression one might have got from the launch, and the superficial comments that followed. But in this postmodern era fashion replaces intellectual solidity, Do New Zealand economists and business people have a competitive advantage in fashionable analysis relative to sound analysis? I have a case study plus an attractive diagram to demonstrate this proposition (or its opposite, if the conve~tional wisdom says so).