SOLEMN PIANO MUSIC In the '60s and '70s, NZ had a standard of living that was the envy of the world. SPLASHING, CHILDREN LAUGH BIRD CHIRPS A lot of us owned our own homes, unemployment was almost non-existent, and we enjoyed decent wages and a decent lifestyle. Now everyone seems to be working longer for less. We're moving from a high-wage to a low-wage economy. We came in 21st in the OECD's Better Life Index for income. So what went wrong, and what can we do to turn things around? www.able.co.nz Captions were made possible with funding from NZ On Air. Copyright Able 2016 UNSETTLING TONE We're constantly told we have low inflation and we have a flexible and low-wage workforce which, apparently, makes us internationally competitive. We're rated as one of the best places in the world to do business, and we're not corrupt. So why aren't economists calling us the NZ miracle? Because they're not. Instead, they're calling us 'the NZ paradox'. The NZ paradox is if you look around NZ, we're, uh, safe, secure, uh, well-regulated, uh, not overly taxed, not overly burdened by many things. We should be much richer than we are, and that is the paradox. And by the OECD's reckoning, we should be 40% richer than we are currently. But there's something that seems to be missing, and if we find those missing ingredients, NZ will be a lot better off. So what are those missing ingredients? OLD-TIME MUSIC PLAYS ARCHIVE: NZ is a farming country. Farms are now the very lifeblood of the country's prosperity. To NZ, farming is the biggest and most important industry. 80% of all its exports come from the land. Farming is still NZ's biggest industry, and dairy farming is by far the biggest component. REFLECTIVE MUSIC But farming isn't doing so well lately, particularly dairy farming. Now milk prices are dropping, and our farmers are in serious trouble. They're now rated as one of the economy's greatest risks. So, this is the, uh, milking shed ` ground zero for the dairy industry. WHIRRING, CLANGING It's obviously been a` economic backbone of our country for quite a long time. And it's not easy work. MOOING, BIRDS CHIRP As one lot walks in, the other lot's milking, walking away. Um, so nothing really stops. Something's always milking. COW MOOS LOUDLY Michael Webster and his wife, Megan, have seen the best, and now the worst, of dairy farming. These past two years, they've seen milk prices cut in half and farmer payouts at historic lows. I've always said that people need to eat. That's, you know` So I think there is a future for it. At` At the moment, I think, you know, there's a lot of (SIGHS)` a lot of turmoil that's happening in the world, and it's just` it just hasn't been on our side so far, you know? And how many stock are you running on a farm? Between 650 and 670. So, this season will be 650. We've destocked, given the current payout. Other farmers are now doing the same. But only a few years ago, farmers were falling over themselves to convert more and more land to dairy. They took on whopping mortgages; herd sizes increased by more than 30%; and raw milk production rose by 58%. MICHAEL: Move up, move up. Dairy's always been an important part of the NZ economy, but a` a lot of people say that it's` it's also a risk, because we rely so much on dairy that when the dairy prices go down, the shockwaves go right throughout our economy. What's your view about that? I guess th-that is` that is true when you step back and look at it. But on the` on the flipside, when dairy succeeds, which it has over the last decade, NZ has prospered, and very well. Like` Like any business, any industry, there's` there's two sides to the coin. I thought I'd try my hand at dairying. How hard can it be? HISSING, WHIRRING < Well, I think you've upset her now. Hang on. > < Oh boy. Oh boy. I'm cocking this up completely, aren't I? Turns out it's quite difficult. But then, so is just about everything in dairy farming these days, and no one's expecting a sustained recovery of milk prices any time soon. In the good times, the banks were more than happy to lend and farmers were happy to borrow. But a recent Federated Farmers poll found that one in 10 farmers are now under pressure from their banks over their mortgages,... which all points to farmers and their families being forced off their land. The Websters are looking to ride it out. It just makes things a lot more challenging. You're talking to a lot more people, um, you're organising finance. What I'm focusing on is our business and, like, how we're gonna get, you know` get through this season. Do we have the right strategy in place when it comes to dairy? In hindsight, there's probably things that Fonterra would've done differently. Um, but it's the same with my business, you know? We are really good at exporting milk powder. That's something that we can take advantage of. Um, but the better returns come from value-add. But at the same time, it's very hard to break into that market when you've got, like, the likes of Danone and Kraft and all those other big players who've got a lot of capital behind them. HORN BELLOWS Is our current strategy of, kind of, bulk export of milk powder ` is that the right strategy? Not at all. And the reason for that is, you know, uh, we export a lot of milk and mainly milk powder and commodities like that, rather than, say, lots of infant formula, lots of formula for older people. That's where the bigger, established companies like Nestle and Danone and going. And NZ hasn't quite managed to be as competitive, as innovative and as close to customers as those guys. And so we and Fonterra, our dairy export giant, have stayed in the low-value whole milk-powder game, because up till now, there hasn't been much incentive to do things differently. This is a big dilemma. We know what to do; we know where the solutions are; and this is so true for so many of the problems that NZ faces. The missing piece is the execution. And that missing piece is quite often because of governance, because of politics and a lack of leadership. At the peak, farmers were getting some $8.60 per kilo for milk solids. But now they're getting less than half of that because there's a glut of milk on the world market. What are good milk prices? What are bad milk prices? When do` When do dairy farmers go, 'Oh my God'? Um, $3.85's a` a definite 'oh my God' moment. Um, but an 8.40 is like a, 'Wow, I'm feeling good about this,' you know? 'There's a future.' (LAUGHS) 'We've got it.' With the current drop in milk prices, that 'oh my God' moment has all but arrived. And according to some estimates, as many as a quarter of farmers and share milkers could be forced out of business. This is challenging times, um, with the milk price, but I think there's still huge opportunities, huge growth, and, um, I think things are definitely looking up for the future. This is not new. This is the human condition. You know, we like to believe that things are going to get better. And debt is such a easy way to supercharge your returns. But the problem is, of course, when there are losses, it also supercharges those losses. And that's what we're seeing in dairy right now ` where highly indebted farmers are going to do it really really tough. And we are going to see the banks not just pull back on lending to the farming sector; they're gonna pull back on lending across the whole economy. (WHISPERS) There's our manager Neville. He's super picky. (WHISPERS) There's no fault he can't see or crack he won't spot. And no conversation he can't hear. GENTLE, RISING MUSIC Forestry is another of our core primary products. It's hugely important. At least 20,000 people depend on it for a living. We harvest 27 million m3 of it a year, and it made around $5 billion in export earnings last year. But just like milk, it's precarious. It's a great example of how we're not doing it right. So, we're very good at growing trees, but what we tend to export are logs that are more or less unprocessed. They go to China, get the` they get turned into plywood, and they use it to hold in the concrete while they're building buildings. There is very little reason why NZ should still be exporting untreated logs, because that's not what NZ is about any more. That was us a hundred years ago when it was just starting off. There was something fundamentally backward-looking with what we're doing with things like forestry and exporting untreated logs. What Shamubeel's talking about is adding value. When you see the big logging trucks heading off to the port, what do you think when you look at it, given what you do with timber? Well, you` you have to see it as a wasted opportunity, to some extent. Robin's company XLam, here in Nelson, laminates timber into enormously strong prefabricated panels for buildings. We grow a vast number of trees. We can't possibly make all of those into houses or buildings or commercial buildings in NZ, so what we're doing is a small step, but it is a step in the right direction. We should be` Rather than using concrete and steel, we should be using timber. The suggestion that timber is preferable to concrete and steel on the larger scale is a fairly bold claim. So why would you use this product rather than more traditional ways of building? It's extremely fast to construct on the site. Uh, that's the` that's the first point. The second point is it's a very safe building structure. It seismically performs really well in high earthquake-risk zones. And the last point, of course, is the question of sustainability. You can build a timber building and you can actually have a negative carbon footprint. Given we're currently in the middle of reconstructing an entire city after a seismic event, Robin's argument makes a lot of sense. They can build the panels with great precision and transport them to the site, which makes the actual onsite construction process much quicker. Robin, this is quite exciting technology. Is this the future of building, do you think? I think prefabrication is the future of building ` making buildings offsite. And I think the 21st century is the century of wood. Wood's gonna be rediscovered as the building material. It's an ancient, patient material that's been with us since the beginning of time, but it's got a big story in the future. When we talk about growing the NZ economy, what do you think we should be doing? I think absolutely we should be adding value wherever we can. I mean, I think that's a well-accepted mantra. It's easy to say; it's not so easy to do. Um, it's` But I think that if you` If you can find a product that has a market, then, really, what you need is just` you've` you've just gotta have people who will pin their ears back and go for it. I mean, there's a few things that are unique about NZ. I mean, we're a long way away from the rest of the world; we're a relatively small country. But, you know, there are other small countries ` you know, Israel, Finland ` uh, that` that have done very well, um, and they're not at the centre of the world either. Professor Shaun Hendy is another expert calling for a change in the Kiwi mindset if we're going to reclaim our standard of living. So, you've got` Countries like Denmark have shifted from agricultural base. So, 20 years ago, Denmark, it's biggest export would've been Danish bacon; um, today it's pharmaceutical products. You know, those countries have diversified their economies, and they've built a` a high-tech manufacturing base, and that's just something that we haven't` we haven't really done yet in NZ. Diversification's all very well, but pharmaceutical companies take a massive investment to create, which is out of our league, I'd have thought. We could never take on global pharmaceutical brands, could we? Hi. I'm Hartley Atkinson. I'm the pharmacologist who invented Maxigesic. I combined... I remember seeing you on TV, and the` the first time I saw it, I thought, 'Who's this guy?' Like, 'Is this a guy who's just made his own thing?' Yeah, look, um, a fair amount of it is taking older products, um, and improving them. There's a lot of room to do that. Like, often people think it's all about the new kind of wonder drug, but a lot of the existing products actually have major disadvantages and can be improved a lot. Hartley Atkinson and his company AFT Pharmaceuticals in Auckland did what the Danes did, well out of sight of the world's pharmaceutical giants. Plan A is generally to keep away from them and try and find something maybe they're not doing or do it a little bit different or a little bit better. You know, it's kinda like stalking big game. You don't wanna prod the hippo too hard, because if you give it a good prod, it, you know, turns around and has a go at you. Is it harder or easier for your company to develop and improve that than, say, a major pharmaceutical company? Um, I know that we've done one of our developments for probably about a 20th of the price that a large pharmaceutical company would've done the same thing for. This is Boris the nasal nebuliser, and hopefully the next big thing, for AFT. A standard nasal spray, the amount of drug that gets into your sinuses, which is what you're trying to treat, is literally half a percent. Really? So hardly anything gets into your sinuses. The idea is from somewhere else, but AFT took it and vastly improved on it. So, percentage-wise, what sort of drug uptake would you get from this device? Sort of probably around 40% or 50% type of number. Right. And all this developed in record time in a modest lab. It's taken us about a year and a half to get to production. A lot of companies take a lot longer than that. And when you say a lot longer...? About 10, 15 years, sort of thing. Seven-year` Yeah, yeah. It can take a long time. A long time. Based on market research in the States and the UK, the earning potential for this device is staggering. We get income from that of around about a couple of hundred million US, just` just from those two indications. And where did this rapidly expanding Kiwi pharmaceutical empire begin? Where else? Hartley's garage, of course. And so how long were you based here for? Mm, literally quite a while. We didn't probably move out of the garage till we turned over about $8 million, which is probably about 2004 or something. Yeah. Yeah, that's right. They moved out of the garage when they hit $8 million. Not bad ` I've only ever parked a car in mine. I mean, one of the reasons we stayed here is I guess it was pretty cost-effective, saved on rent, and when you're growing a business without much capital, that's something you need to do ` save money all the time. When we got to 8 mil, it was time to leave, wasn't it? It was. The new place has a bit more room. We've grown about 50% in the last two years. So last year, we sold about $75 million. Um, I mean, I would think we could sell many times that, as long as we get it right. But how do you go from local to global? Because if global is where the big money is, how do you break into the big wide world? So, how does a small nation like NZ, with limited resources and money, compete successfully in huge global markets? You've gotta have a unique point of view, and seeing that little tiny sliver ` it's just like a sliver like that ` that nobody's doing. Karen Walker is a truly global brand. The prestigious website Business of Fashion puts her right up there alongside the biggest names in the business, like Versace and Lagerfeld. And I think there's only 118 or so designers on it at any time. So to be one of 118 fashion designers that are considered to be really influential is,... I think, pretty cool. That finishing's looking really nice. Whenever I meet anyone who's achieved what Karen Walker has accomplished on the world stage, I'm always curious about how it all started. I was 18; I had $100 when I started this business, and I made a shirt for a friend who was in a band, (LAUGHS) and other people saw the shirt and wanted it as well. And so, no, at that point, I didn't have a vision for, you know, a thousand stockists around the world and yada-yada-yada. It was really sort of, I don't know, two, three years into it that we kind of had that epiphany of, 'It's got to be global, and there's no reason why it can't be.' Yeah, I'll take it. (CHUCKLES) LAUGHTER Like everyone else I've met who are breaking new ground, Karen Walker is doing it through innovative thinking and superb design, taking something ordinary and making it extraordinary. But how much of that is Karen Walker and how much is the team she builds? Yeah, collaboration is` is, yeah, most of it, to be honest. You know, we still create the ready-to-wear ourselves, but everything else is a partnership. And that's really been, I think, the key to our growth, being able to go beyond ready-to-wear and working with, um, experts in those other areas. And that capacity to diversify to seize opportunities has allowed the brand to expand. Eyewear; ready-to-wear; fine jewellery; fragrance; bags; shoes; homeware. It started out as a ready-to-wear brand, but it's been a lifestyle brand, really, for a long time. And that's` that's really our perspective on it. It's a lifestyle brand and it's an ideas brand. And Karen Walker's ideas and style command premium prices. She's diversified from clothes to fragrances... Yeah, so, this is our first trio of fragrances. More to follow. Watch this space. ...and showcased her products for 20 years at New York Fashion Week. Her latest success is sunglasses. There was a lot of eyewear. There was plenty of eyewear out there. Nobody needed more sunglasses. (LAUGHS) You know, there were lots of people doing sunglasses. But we just though they're` that they were sort of a little bit timid and a little bit, um, all same-same. Um, and yeah, this Number One, that's one of our most famous shapes. We've been` This shape's been in the line for 10 years. But we reinvent it every single season, but you still know it's Karen Walker. And so, you know, I don't think that it's a coincidence that the rise of Instagram has coincided with the rise of Karen Walker eyewear, you know, because it's all about 'there'. Yeah, Super Duper's another one of our most famous shapes. Actually, Adele's wearing exactly this style in her new video, which I think had 20 million views. Do they kind of ring you and say, 'Oh, we wanna use your glasses,' or you just` someone goes, 'Oh look, Adele's got your glasses in her video'? Yeah, I don't think we knew about Adele. Sometimes you do, sometimes you don't. Adele, I think, was just one of those surprise ones. That must be a nice surprise, though. It is nice. 'Oh look, Adele's wearing my sunglasses in her video 'that's had 20 million views.' Yeah. Could've chosen from anybody. Did you have an idea that that element of your business would become so huge? No, nobody did. (CHUCKLES) No, not even our partners on it thought that. I remember our partner on it saying, you know, 'If we can get it to around a million a year, (LAUGHS) that would be really good.' Last year, they passed $35 million. The projected target for the coming year is around $50 million. How does someone like Karen Walker manage to sell sunglasses for $350? And, you know, that's exactly what NZ is about. It's about somebody who's a brand, who's niche, and it's scarce but it's fashionable, it's interesting, it's good quality, it's all of those kinds of things. And Karen Walker is a great ambassador for NZ. OK, that's high fashion. But how do you add value to something a lot plainer like agriculture? This is the headquarters of Gallagher, a big agri-company in Hamilton. Father was very much a tinkerer. But he never built it very large. So, it was about a 10-man business when I joined in 1962. Why is the world headquarters for a multinational company in Hamilton? Uh, when it comes to the agricultural business, we're in the home of the most demanding market. Sir William's dad invented the electric fence in the 1930s. In the years since, Gallagher has diversified into a $200m company. Derek, what's being manufactured here? So, in` in this` in this factory, we're making plastic components. But across the site, we make dies and tools for all our` all our, um, products. Uh, and then we do` And then we plastic-mould them here, injection-mould them, and then next door, we make printed circuit boards, and then we test them and ship them out the door. Like, why are you making stuff in Hamilton and not in China or`? Do you know what I mean? Like, why here? Yeah, good point. Yeah, good point. Um, well, we're` we` We believe with keeping` with keeping manufacturing in NZ where we can. Yeah. Uh, but we're a fairly high-mix, low-volume, uh, manufacturer. So it is quite difficult to get stuff offshore, because they're really into the higher-volume stuff. Now, we've got the ability to do small-run trials, because it's really hard to do trials offshore, um, so we can get the benefits of using our technical teams, um, and keeping the` keeping the products in NZ. So it makes sense to do that here because head office is literally 200m that way. That's right. Gallagher, just like Karen Walker, has achieved global status by finding a niche in the world markets and collaborating with international partners. So we've got companies in Sweden, uh, uh, Denmark, uh, Austria, Switzerland, France, Midlands in UK, South Africa. How many people does Gallagher employ? Well, indirectly, about 1100. NZ's about 750. The stories of Sir William and Karen Walker clearly show that there are real opportunities for Kiwi companies to become global players by adding value to existing products. We need companies like theirs if we're going to close the gap with other OECD nations. But is there still time for that, or have we been left behind? SOLEMN ACOUSTIC MUSIC Primary commodities like dairy are still pretty much where it's at when it comes to earning export dollars. The problem is that we can't grow loads more cows, cos we don't have endless amounts of space to put them. This is what economists call scalability ` the capacity to double, treble, quadruple your sales and profits without having to increase your costs and inputs by the same amount. PikPok exclusively makes computer and mobile games. We don't think that NZ is a place that you would make games. You would think, 'Oh, that stuff would be done in Silicon Valley. 'It'd be done in America and places like that.' Yeah. I` I guess a lot of people, when they think about video games, uh, being made, they imagine that they get made in, uh, Japan and the US and the UK, which are, you know, very large, uh, markets where` where games are developed. Uh, but games are actually made here in NZ. We've had an industry that's been small but` but growing. One of PikPok's best sellers is a game called Into the Dead. GUNFIRE All right. So, glasses on. Yep. It's one of my own favourite games, and I had no idea it was made right here in Wellington. Oh man. Oh, this is super creepy now. ZOMBIES GROWL (LAUGHS) GUNFIRE TELEPHONE RINGS We've done about 50 million downloads, uh, of that game. It's really been satisfying to be able to create an` an experience that so many people have loved. Come on, zombies. I've got a gun. Come on. GUNFIRE Games are hot property. Already, the NZ-based creative sector is making revenues of $4 billion a year. The video game market has almost infinite possibilities. Worldwide, it's already estimated to be worth $90 billion and rising. But not everyone can see that gaming is serious ` not yet. While there's a sound economic case, we still, I guess, have to win over hearts and minds. You know, we have to convince people that, uh, video games is a stable place where there is a lot of economic potential, and government getting behind that is not a bad thing. Digital companies like PikPok, the tech sector, are exciting because the potential for global sales is huge. But are we taking too long to get our heads around all of this? We now have the opportunity to reach, uh, hundreds of millions, even billions of gamers worldwide. You know, suddenly, you` you know, we could go from, uh, $100 million to over $1 billion, um... or more. That's really interesting, because if we were to think about, say, the fruit industry or the dairy industry, for them to double, we'd need another NZ. Never gonna happen, is it? Like, you can't scale other industries. But you guys are doin' it just here (CHUCKLES), every year. Well, I` I guess that's the advantage of digital content. I don't hear anyone talking about the gaming industry or the tech industry generally. I do hear a lot of talk about the ups and downs of traditional industries. No one's saying they're not important ` they are ` but how big are the opportunities in the tech sector? If you look at export categories, dairy's about $15 billion in 2014, tourism was about $10 billion and the technology sectors, uh, was $6 billion. Greg Shanahan charts the performance of Kiwi tech companies. So how are we doing? So, those, uh, 200 companies have revenues of $8.3 billion. They have exports of $6.1 billion. They employ 35,000 people. The job growth rate has roughly been about 1200 to 1300 new jobs created every year for the past 10 years. The number of companies between $50 million to $100 million since 2010 has doubled. Wow. And so there's, uh, roughly about 40 companies now with revenues over $50 million. Wow. That means that tech exports are expected to overtake the $1.3 billion wine industry, kiwifruit, and even the meat industry in the next few years. And technology can keep growing. You can sell the same thing over and over again. With some of our traditional industries, we have that limitation ` you can only sell each apple one time. Uh, but, you know, we can make a game and have that, uh` that downloaded or sold millions, tens of millions, hundreds of millions of times. WHIRRING So, this is left and right? Yes. And if I wanna fly forward, I'm just forward like that? What about other high-tech, high-value opportunities in NZ? We actually have another industry that until recently also didn't exist. Aeronavics make drones on the outskirts of Raglan, of all places. Actually, it's not too hard to fly, but it's actually much smarter than me, and it knows what to do. There's a growing worldwide fascination with drones, and NZ's Aeronavics is right on the cutting edge. So, we're really scaling up. And what we really want to become is one of the top three players in the world, um, in that industrial commercial sector. Hollywood is already taking notice. We know that it's been used for the Twilight saga, which I find really cool. And it's not just entertainment. Linda Bulk and Rob Brouwer, Aeronavics' co-owners, see big potential for their drones to reduce costs and improve safety and economy in agriculture and industry. Getting into the real high-end industrial space. On the farm, I'm lookin' at ways that we can bring some more safety into some specific, you know, workplace problems. For instance, guys hanging out of helicopters to inspect power lines, or dangling off scaffolding underneath bridges and things like that. So all those things inherently have a risk, uh, to human life, and` and` and that's, I think, why Linda and I are involved in this, because we can just see a whole lot of potential here. Aeronavics invests around 33% of its profits into research and development. They're small as businesses go, but if that's what they estimate it takes to stay ahead of the game, what about us as a country? How seriously are we taking R & D? We're way, way behind. Our government's putting in about 0.5%, um, of GDP, which is well below the OECD average. And` And certainly when you look at small successful countries, we're only putting in about half, uh, what they do. So the` the Finlands and the Israels, um, you know, their governments are` are` are spending twice per` per person what we do. It's our businesses that are really letting the side down. Fundamentally, what it boils down to is without those ideas being generated, you can't be a leader in any kind of field. And if you're not a leader, then it's hard to, sort of, be profitable, innovative and to have those new businesses, new ideas that'll grow your economy. Aeronavics reckons it will see a 300% growth this year and puts much of that down to what it spends on R&D. But as a country, we're ranked almost 30th in the world in terms of how much we invest in research and development. Have we got the emphasis right when it comes to our research-and-development spending at the moment? No. I think` I think we're very focused on short-term opportunities. And` And that again, it comes back to a little bit of a lack of confidence in ourselves. You know, we're` we're not backing enough of those niche ideas, those kind of crazy ideas, uh, that` that, you know, sure, are` are riskier and may fail, um, but at the end may also produce the big` the big payoffs. You look at industry sectors that invest more in R & D, you can see a link between R & D spending and` and productivity growth in those industries. If spending on research and development leads to greater productivity, what about wages? Are NZ wages matching our companies' productivity and profits? DOG BARKS NZ's standard of living has dropped considerably in the last 50 years. But turning that around means more than just growing business profits. It seems to me if NZ business does well, then we all should do well. Good profits should equal good wages. Except according to some estimates, they don't. Labour productivity has risen by more than 50% but wages by only around 20% in the last 25 years. Half our working population is earning less than $25 an hour, and that doesn't seem right to me. So are we a low-wage economy because we have to be to stay competitive, or because we choose to be? Well, why would we choose to be? Well, why would we choose to be? Because we` we had a sort of an ideology that we had to be competitive and low wages made us competitive, which is the` absolutely the wrong way around. The most competitive countries in the world, uh, prove that by paying` you know, by earning a lot of money and making good profits and paying higher wages. The idea is that no one should be paid a salary that they couldn't expect to live on and perhaps bring up some children with, you know? That's the cultural idea. There's no reason why an economy as a whole or a society as a whole can't choose to do this. It's a shameful thing for a rich country to not pay honest, hard-working people ` even if they're not very skilled ` a decent wage. That's all very well, but there have been dire predictions that paying a living wage would cost up to 26,000 jobs. It's propaganda, I think. It's got some rationale to it, but it literally doesn't add up. If everybody gets a living wage, there's no effect on employment as a whole. Perhaps the price of a Big Mac would go up a bit. That's one way of s-spreading it around, of making` you know, of paying for it. But, well, it could be worth it. REFLECTIVE MUSIC This is tofu in the making. Right. So, this is, um, soy milk. Tofu is basically soy cheese. That's pretty much what it is. Tonzu is a small tofu-making company in West Auckland. It's family-run and driven by a focus on quality and on values. Our style of tofu is very traditional. Mm. Um, there are different ways of making tofu that are a bit more, um, I guess more commercially viable, in that you can just sort of add agents that just set it for you and takes a little bit less skill. And we prefer the quality of product at the end, and we prefer the traditionally handmade stuff. Of the thousands of small to medium employers in NZ, Tonzu is one of less than 50 accredited companies that have chosen to pay their workers the living wage. The new living wage rate is $19.25. Um, it was $18.40 and obviously increases every year with inflation. Jessie runs sales. Her brother Daniel is the production manager. For them, it's about doing the right thing. If our staff are` are living a full life and a happy life and then we can bank some money,... Mm. ...then we're all happy, eh? (LAUGHS) We just weren't happy to have people come and work for us and leave at the end of the week and not be sure that they could afford the basic costs of living in Auckland. That just was something we weren't comfortable with. Yeah, exactly. And that's our choice. And the payoff isn't just warm feelings ` it's intense employee loyalty. Lofa has been with the company for six years. And how much difference has it made for you being paid at, like, a living wage, being paid that little bit more? I'm so happy about the living wage. I pay enough money for my, um,... kids' stuff at school and buy their food and send money for my mum and dad at the islands. Yeah, and save some money. And this isn't a charity ` Tonzu is fundamentally a business. We've got shareholders, and, you know, we wanna grow our business, um, but the board and the shareholders have been quite clear that they don't want to return a profit if, say, Lofa's kids can't, you know, have` have breakfast. Because that does` The cost is the single biggest objection. > 'We can't afford to pay people the living wage because then we'll go under.' > Yeah. Yeah, well, if you can't afford to pay it, don't. We're talking about the companies that can afford to pay it should be paying it. Yeah. Productivity is growing at Tonzu by 10% to 15% a year. And they retain their staff, which means the payoff for the company is worth it. LOFA: And that's how we box up the tofu. That might work for small family-run businesses, but what about the other end of the scale? What about when you're playing on a global level and you employ thousands of people? I'm here at the sprawling mini-city that is Fisher & Paykel Healthcare in South Auckland. MAN: Well, it is. We've got almost 2000 people on the site; we've got a number of cafeterias; we've got the three large buildings; large, park-like grounds. So, yes, it is like a small town. They're world leaders in respiratory care products for hospitals ` from the ED to neonatal care, and then home products like this one. What sort of volumes are we talking about here? Because it seems a very big and very busy place. We provide around about 70% to 80% of the world's needs, um, for humidified breathing circuits. 70% to 80%? Of the world's consumption, yeah. They expect revenues of $1 billion a year in two years' time. I'm interested to know how much they invest in research and development. Almost 10% of our revenue is ploughed back into research and development, and this year we'll invest probably more than $70 million in research and development. We grow at a rate that sees us double in size every five or six years, and we've got to the point of being more than 3000 people now, uh, here in NZ and around the world. And because they're a high-value industry, they pay high wages. The cleaners are paid above the living wage, and everyone gets a profit share bonus. Not surprisingly, they retain their staff. What do you enjoy about working here? There is, um, enjoyment of me over here because the product that they're making here is using at a hospital for the kids. Mm. Because I've got an experience from my own one that they've been using this product. So the` Oh wow. So that's why I'm stick on working here. So they used a product that you` Yep. that you have been involved in making on one of your grandchildren? Yes, one of my grandchildren. Oh wow, on your grandchildren? That's right. Yeah. So that makes it really personal. That was` That's why I really love the place. Uh-huh. That's why I'm still sticking. Fisher & Paykel's experience clearly shows that you can pay people really well and still accomplish stellar growth and profitability over the longer term. So what about the rest of the country? What do we need to do to grow a higher-wage economy in NZ? How do we lift everybody? Yeah, so, lifting everybody is not really about, say, things like lifting the minimum wage or, um, you know, directing what wages should be. Uh, nor is it about some supporting particular industries. It's really about going much more fundamental than that in making sure that we have a well-trained, a well-educated workforce. And that means that we have to invest in very basic things like education, tertiary education; um, in basic science and basic research, because those are the things that are at the nucleus of what makes a great economy over time. There are no quick fixes. Shaun, if you think about education as part of the production line, uh, are our secondary schools and universities producing the kind of skilled graduates that the economy needs? Uh, not` not yet. I mean, I think there's been some changes, uh, in` in recent years ` we are getting more people into` into ICT. Um, but I still think it's` you know, it's` it's not something that's reached right across NZ society yet. Why aren't more of our kids getting into those kinda computer software, tech-type jobs? I think we just haven't sold that part of the economy to` to NZers, right? We still think of ourselves as a` as a country that's based on primary production, agriculture. If we want to rebuild our standard of living, we're not going to get there by doing what we've always done. Our focus when it comes to economic leadership has become very much about economic management through the political cycle rather than taking brave decisions that will help NZ over the long term. And this is around investment in NZ ` in our infrastructure, in our housing, in our people through education, through breaking down the cycle in poverty. The thing is everybody's looking for some kind of one-hit wonder that's gonna solve our problems. And we tried that with dairy, for example, in recent years. And when it turns, it looks very clear that what we have to do is fix the fundamentals, because it's not going to be one industry that's gonna fix NZ. We're always gonna need to send milk powder and logs overseas, and to bring in tourists. But science, technology and design are where the bright futures lie, so we need to be ready, and I think we need to let our kids know that this is where the good jobs are likely to be. We can do it. We just need to get our head into the right game. REFLECTIVE MUSIC MUSIC RISES