Research and social innovation, not pouring money into road building, will make nations wealthy again after the recession, a former policy chief for Tony Blair told a meeting in New Zealand.
Geoff Mulgan, a son of New Zealanders who heads a London think-tank called the Young Foundation, gave his views on the recession to Finance Minister Bill English in Wellington yesterday.
He said New Zealand led social innovation in previous slumps in the 1890s and 1930s and was well placed to do so again - if it lifted its sights beyond "concrete".
"I completely understand why governments are doing quick infrastructure projects. If you have a sudden collapse of confidence, that makes sense," he said. "But what is disastrous is if that is all your strategy. In government the challenge is getting the right mix."
Mr Mulgan, 47, was Mr Blair's policy director and now advised several governments, including that of Australian Prime Minister Kevin Rudd. He has come here fresh from lecturing to Chinese ministers and provincial governors.
His family lived in Auckland for three generations until his father migrated to Britain.
He said state spending to boost economic recovery should go into future "growth sectors" such as aged care, health, education and environmental services, rather than "failing" industries such as cars and retail banking.
He said that "social innovation" required investment in new programmes and evaluations, just as business growth required investment in research and development.
"One per cent of the public budget should go on innovation," he said. "The instant reaction of leaders is, 'we are doing cuts, how can we afford 1 per cent on innovation?' But if you are looking strategically it becomes even more important to get the productivity and efficiency gains we need."
Mr Mulgan can point to support in high places. US President Barack Obama has announced plans for a White House Office of Social Innovation and British Prime Minister Gordon Brown has created a Public Service Innovation Laboratory, which will give priority to finding ways to cope with Britain's ageing population.
In New Zealand, Mr English joined corporate sponsor Cisco and other business leaders at an initial leadership forum organised by a new NZ Centre for Social Innovation in Auckland in February.
Mr Mulgan was to speak at another forum for government and business leaders in Auckland today.