NZ ripe for clusters says world expert

By Yoke Har Lee

After a decade of market reforms, New Zealand has all the right ingredients for the pursuit of aggressive cluster development, says a visiting Hong Kong professor.

A cluster can be loosely defined as a group of companies involved in the same industry, supporting or complementing each other in production.

The companies are geographically concentrated.

The Italians are the world's most celebrated cluster pursuers. They have clusters in the pasta, textile, tile and other industries.

Michael J. Enright, of the University of Hong Kong, is a cluster guru who has studied such developments around the world.

He said that the New Zealand environment gave a Government a unique chance to develop clusters without efforts becoming diffused.

"The state mentality, I think, has finally been broken, allowing market forces to pervade the economy."

Professor Enright said that while market forces were all-pervading in the local economy - providing pressures and incentives for industries - they did not necessarily generate the skills, capabilities or resources for industries to adjust to the international marketplace.

"I think now is an appropriate time for New Zealand to bring about a way of developing the capabilities and resources in a way that is totally consistent with its market-oriented philosophy."

Professor Enright said Government involvement in clusters should be aimed at identifying market failures and finding solutions to help the private sector overcome the shortcomings.

The Government should be a catalyst, collecting information, providing public infrastructure, coordinating the clusters and improving skills to support them.

The type of activities that a Government could meaningfully contribute were identifying what clusters existed, defining their needs and where their competitors were.

The Government could obtain relevant market information and disseminate it to help clusters pursue their business.

"Public and private sector are then able to identify what public goods might be necessary for the clusters.

"We are not talking about road systems or generalised education, but a programme which would provide the skills needed to support, for instance, software developers.

"In some cases, they require substantial investments, but in many cases they don't, because in the cases I've seen, what has happened in the process has allowed private and public sector to focus resources on what has been diffused, into industry-specific infrastructure."

Professor Enright said that in other instances the Government could remove bureaucracies that hindered the market from functioning properly.

Some basic tenets had to be observed in this national vision.

Firstly, clusters could not be transported here - they were organic in nature and happened as a result of history and geography, or were a spin-off from available resources.

Other clusters developed to service specific demand.

Secondly, the Government need not spend huge sums or dangle fiscal incentives.

Most importantly, cluster development should not be allowed to mutate into a politically captive public programme, said Professor Enright.

In Hong Kong, six big clusters accounted for between 70 and 75 per cent of GDP.

Hollywood was the classic cinema blockbuster cluster, while in New Zealand clusters existed in the dairy produce, marine, seafood and tourism industries.

Around the world, the chase was on to develop clusters into economic engines, he said.

In Canada, almost every province had a cluster programme. In the United States, more than 20 states had programmes.

More than half of the provinces in Spain were in the chase.

The World Bank was also using the cluster concept in its development policy for some countries.

Professor Enright said New Zealand might be late in developing clusters, but it had a chance to do it right.

Many Governments might be promoting clusters but few were creative. Some had slid into general programmes that failed to address specific needs and degenerated into public "feel-good" exercises.

Other programmes were not focused enough on addressing market failures and had not been staged appropriately.

Sequencing the development of the cluster programme was important, he said.

The big pitfall to avoid was allowing the development programme to be wed politically to the success of individual clusters.

"The notion should be supporting clusters, and part of that is using public resources only when the private sector does its part," said Professor Enright.

"If it does not, life is too short - pull the plug and move on."