Rod Oram

New Zealand business thinks it needs a change of government to unleash its potential. But all it needs is to change its own culture. The dysfunction starts right in the boardroom and seeps out from there.

That's the harsh but crucial truth demonstrated in spades in the latest New Zealand Herald Mood of the Boardroom annual survey. Once again, it showed what a miserable bunch of unambitious deniers run many of the country's businesses. They were very quick to blame everybody else, particularly the government, for their difficulties. They trotted out the usual long list of complaints about tax, regulation, labour shortages, exchange rate and policies. The poll results showed they were certain the government would lose the next election; and they believed they would then be better off under National.

But this view of the world is more an indictment of businesses than government. The business respondents were remarkably illogical, ill-informed and inconsistent in many of their opinions. Yes, for example, there are labour shortages. But, by and large, the solution lies with the companies themselves.   The best, most profitable companies will attract the staff they need because they can offer them interesting work, career progress and good pay. Refreshingly, the survey quoted chief executives of two such companies.

Of course, governments play vital roles in getting education, skills training, welfare, tax and immigration policies right to maximise the number and quality of people in the workforce.  But if business thinks New Zealand is seriously off the rails on any of those issues, it should lift its gaze from its navel to the wider world. You can find many nations where businesses do better with worse governments. That said, there's always room for improvements. But those take time and even then the success of policies depends on how businesses then use the national workforce.

So it is down to business. If New Zealand is to prosper, businesses have to make the shift from being labour intensive to capital intensive. That is the only way they will improve their technology, sophistication of their products and the wages they can afford to pay. That's the nub of the productivity debate. That's why the Budget cut the corporate tax rate to 30% and offered a raft of other incentives to those companies that have a bit of ambition and plan to invest in their future and the country's.

Superannuation was another crashing, ill-formed and self-serving contradiction revealed in the Mood of the Boardroom survey. On one hand, 82% of respondents supported compulsory superannuation. But on the other hand, they see it as somebody else's problem. Asked before the Budget, only 50% of large companies and 15% of small and medium companies said they would contribute to a super plan.   Who do they think is going to pay for super? Don't they know that Australian employers pay 9% of their wage bills into employees' compulsory super plans? Don't they know that's the main reason why Australia has $A1000 ($NZ1122) billion of pension assets so it can afford to buy up lots of companies here?

It is just as well the government used the Budget to spring compulsory KiwiSaver contributions on employers. Given businesses' desire to push the bill on to somebody else, the talks would have ground on for years, even as the country's hopeless dis-savings record (that is, the rapid accumulation of household debt) went from chronic to catastrophic.

Tax cuts were another topic surveyed. Business strongly supports personal tax cuts. At first glance, it seems so noble to put their staff first. The truth, though, is that quite a few employers hope that they could skip a wage rise or two if taxes were cut. And again the illogicality, the sheer ignorance, is a worry. Don't businesses understand personal tax cuts will increase pressure on spending, house prices, imports, interest rates, the dollar and the current account deficit?   So, they argue, government should cut spending instead to relieve the pressure. OK, so what will they give up from the long list that runs from roads, apprentices and research to universities, export services and lots of other essential investments in economic capability and growth?

Amazingly, National is just as irresponsible. The day after the Budget it voted against cutting the corporate tax rate. The vote was on that alone, not the whole Budget. Asked to explain the party's curious decision, John Key said National's top priority was personal not business tax cuts. And this is the party that business thinks will deliver what it needs to unleash its potential?

What business really needs is a hefty slug of reality and responsibility. Not much was evident in the survey. The views were particularly parochial. Apart from a few references to falling behind Australia and oil prices being their greatest international worry, there was scant evidence the chief executives had much knowledge or interest in what was going on out in the world.

Their views on climate change were particularly revealing. To the question, "Are you sufficiently convinced the science of climate change is accurate and robust?", 72% answered "no" or "unsure".  They would have answered "yes" if they had taken even passing interest in the latest, well-publicised reports from the UN's Intergovernmental Panel on Climate Change. "Warming of the climate system is unequivocal," it said. "Most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations." By the way, "very likely" has a precise scientific definition of 90% likelihood and anthropogenic means human activity is the cause.  This large majority of climate deniers prove to be equally muddled on related issues. Although they don't believe the science, 82% believe that New Zealand should prepare for a carbon-constrained future anyway. In addition, 64% don't believe or are unsure that the country has enough electricity to fuel business growth. But 93% don't believe power prices should be increased. That's nonsense. There's no way we can increase electricity capacity, either in non-carbon ways like wind or carbon ways like coal, without putting up the price.

Quite simply, business wants lots of things gifted to them - a break on climate policies, more infrastructure, employee tax cuts, superannuation, roads and electricity to name but a few. It is not prepared to pay for them. For example, 52% of respondents want the government to invest in broadband but then they reject by strong majorities the three ways it could happen.  In stark contrast, what would a constructive corporate culture look like? Business leaders would be ambitious, confident about themselves and the country, excited about New Zealand's opportunities in the world, ready to shoulder a fair share of the responsibility and investment; be strategic, well-researched and deeply analytical.

There are some. The search is on for more. Nominations, please, to oram@clear. net.nz

The current chaos on Auckland's western rail line is not just a real example of New Zealand's infrastructure headaches. It's also a handy metaphor for the inadequate decision-making for solving them.

The work to double-track the line makes great sense. Expanded capacity and greater reliability are needed to help the trains keep up with fast growth in passengers.

But two problems arise. First, the old, fragile infrastructure can't handle the upgrading demands placed on it. For example, heavy construction equipment is damaging cables controlling points and signals so train services are suffering.

By mid-year, new signalling will be in place as part of the $600 million, three-year project for double-tracking and other investments agreed in 2005 by the region and central government.

But as soon as all that's finished, a second, bigger problem will arise: the regional rail network will once again be pushing its capacity limits thanks to New Zealand's penny-pinching, piecemeal approach to infrastructure projects.

There is a solution: electrification of the rail network so faster, more frequent and reliable trains can run. And with lower operating costs and environmental impact compared with a diesel-powered fleet.

Last September, Auckland Regional Council and its public transport agency, ARTA, made the electrification case to government. Again, it was a rather modest proposal. It called for spending $572m over 10 years to electrify and re-signal the lines and to buy the first 40 two-car trains. The ARC reckoned it could come up with $250m so asked government for the other $322m.

While that is a bigger, bolder project than attempted before, there is still a penalty from the piecemeal approach. Some aspects of the new signalling going into the western line now will need to be adapted to handle faster trains and the electromagnetic interference from their power supply.

And there are much bigger projects to come. Crucially, The solution is to make it a through station via a tunnel around the CBD and up to K Road. It would cost some $1 billion and take a dozen years or so to design and build.

With that and other major improvements at a total cost of about $3.6b Auckland, could have a rail network that could handle some 30 million passengers a year by 2030, up from 5.5 million in the past financial year, a year that saw train patronage grow 32%.

Not only would this network help keep Auckland's rapidly growing population mobile, it would do so in environmentally sound ways. ARTA estimates such a network would save 70 million litres of fuel a year and 233,000 tonnes of greenhouse gases, but also reduce road deaths by 9%.

Investing in small chunks is an inefficient way to meet those long-term goals. Above all, it ignores the reality of Auckland's growth. If the region had happened to be in the US, its rate of expansion over the past 15 years would have ranked it the fifth fastest growing urban area after the likes of Las Vegas and Phoenix.

Growth that brisk requires vision, analysis, decision-making, planning, investment and execution of far greater scale and confidence than regional or central government have ever managed to achieve. And if both are serious about making Auckland a truly great city of the world, or at least the Asia Pacific region, then the demands on them are even greater.

But that's not how the electrification issue is playing out. The regional government prepared an excellent case for the investment, presenting it to Wellington last September. Sound analysis proved the economic and environmental case for electric over diesel power, but the government has been dragging its feet.

The delay is becoming crucial. ARTA is achieving growth of passenger numbers well above the forecasts it produced for its case. As a result, it needs to make decisions soon about new train sets. It will certainly buy some old UK carriages and refurbish them in Dunedin. They will be pulled by diesel locomotives which could be replaced by electric ones.

But the sooner ARTA has the go-ahead on electrification, the better the rolling stock decisions it could make. It could minimise the number of carriages and diesel locomotives it buys and maximise the number of electromotive units, rolling stock with built-in motors. These are the quickest, most efficient form of train, but the waiting list for them is long because they are in strong demand around the world.

While there have been plenty of issues and complexities to work through on electrification, there have been two clear drags on the process. First, Treasury has struggled to develop the analytical skills it needs. It remains stuck in the old narrow cost-benefit models it perfected in the late-1980s and 1990s.

For example, it argued initially that the electrification project should be judged on the basis of a 10-year life and a 10% discount rate. That flew in the face of experience overseas. Rail investments are long-life ones of typically 25-40 years and their cost-benefit ratio calculated on a discount rate of 3%-7%.

In the end, Treasury grudgingly agreed to 25 years and 7%. That was still a high hurdle to clear, but electrification has succeeded in doing so.

But the bigger problem remains. The government keeps loading up policy with the likes of multi-faceted economic, climate, environmental and social objectives. These are worthy in themselves, but Treasury, as a crucial player in the decision-making processes, has very little idea of how to work those issues into the advice it gives to ministers.

Unless Treasury learns those analytical skills quickly, it will make a mockery of the bold policies the government is promising on the likes of climate change, carbon neutrality and renewable energy.

But the other drag is the government itself. It has, for example, played fast and loose with some of the wider environmental and economic criteria it built into the 2003 Land Transport Act. It has found bureaucratic ways to subvert those criteria to tilt the playing-field back towards roads and away from public transport.

On electrification, Finance Minister Michael Cullen has proved very hard to convince of the wisdom of the investment. Perhaps the prime minister's support for electrification in her speech in February may have helped him make up his mind.

That comment, plus some by Transport Minister Annette King, had suggested a decision on electrification was imminent. But now people close to the discussions say the go-ahead won't come until June.

It had better come then - and preferably sooner - or confidence in the government to live up to its self-proclaimed bold economic and environmental agenda will ebb further away.