Diversification and picking winners

By Infometrics 01/09/2013 1


Following the concerns about botulism and Fonterra, there have been increasing calls for New Zealand to be “diversified” or even for the NZ government to “pick winners”.  Gareth Kiernan touches on these ideas, and why we should be careful with them here.  A choice quote:

Although economic diversity is useful in terms of limiting the volatility of GDP growth, it needs to be remembered that “picking winners” is generally a costly and futile exercise – politicians will usually be worse than entrepreneurs at where to invest resources, and are worse at letting poor performers go.

Remember, it is folly to look at the failures of markets and entrepreneurs without recognising the failures of institutions and government (as a large institution) as well.  In that context, aiming to help out certain firms looks more like taking risk off businesses and putting it on the taxpayer – a shift that hardly seems fair.

What do you think?


One Response to “Diversification and picking winners”

  • The problem was not Fonterra’s dominance, but the clear and obvious failure of quality assurance protocols. China was miffed because the NZ Government’s hands-off regulatory approach resulted in potential harm to their consumers. The solution is better Quality Assurance of current products, rather than diversification.

    This event was a failure by private industry to self regulate to their client’s expectations. Several years ago industry lobbied for self-regulation and elimination of govt oversight, for example removing industry levies for govt testing. This is a consequence.

    There are two obvious failures, the failure of Fonterra to ensure effective CIP ( clean-in-place ) protocols applied to rework processes, and then inadequate final product testing.

    China, and other clients, are creating high-quality, state-of-the-art analytical resources to monitor their industry, including imports and exports. We should expect more issues like the Chinese discovery of unacceptable levels of nitrate in Lactoferrin from Westland Milk.

    Fonterra’s finger pointing at Agresearch’s false positive test diverts attention from the core fact that their product was contaminated. I suspect the Chinese will be very interested in how contaminated product was created and released to their market.

    Rather than worry about diversification, let’s improve the Quality Systems of current exporters to exceed those of their clients, and add some cold, dead, hands of government oversight to ensure our national reputation is not besmirched.

    As for the smelter, the government should be looking at alternative uses for the electricity, as aluminium prices will continue to decline – due to increased mismatch of production and demand. One obvious alternative is to look at one replacement for aluminium ( carbon fibre ) as it’s manufacture also demands lots of electricity. One large US carbon fiber plant was built near a cheap hydroelectricity supply to ensure current and future competitiveness.