Troughing techies take it because it's there

Troughing techies take it because it's there

Summary: The news that "Kiwi" software company Right Hemisphere now has German owners should make us rethink the role of corporate welfare.

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The news that "Kiwi" software company Right Hemisphere now has German owners should make us rethink the role of corporate welfare.

The former Helen Clark government lavished taxpayer funds on this company, seeing it as a successful example of the New Zealand digital economy that her government once pushed.

Now, some years after receiving an interest-free NZ$14 million from the government, the company has been bought by SAP.

When it comes to government funding, corporate welfare can be every bit as insidious as that given to the shirkers, the breeders and the bludgers. Seriously, the tech sector is top of the troughers!

Just last month, at a time of government cutbacks, the tech sector received NZ$50 million in government research grants.

The biggest financial booty, NZ$5.9 million, went to NextWindow, now owned by Canadians!

It certainly does make you wonder how much New Zealand actually benefits from such taxpayer funding, when overseas interests benefit, too.

Adding more fuel to the fire was a fine post from blogger Cactus Kate, a Hong Kong-based Kiwi lawyer, who singled out one government beneficiary, Rod Drury, who, according to the latest Rich List, is worth around NZ$72 million.

Cactus, real name Cathy Odgers, believes that it is unfair for the taxpayer to subsidise successful entrepreneurs. Drury has the successful Xero software business, which recently took over an Australian payroll firm, and he has interests in the trans-Tasman Pacific Fibre, too.

But Drury revealed why a successful businessman, even if he doesn't believe in corporate welfare, applied for such grants.

He said that rival businesses applied for and got grants, too, so Xero needed such cash to maintain competitive advantage.

"If it's on offer, we have to take it," Drury said, adding that such funding also helped create jobs and exports.

Indeed, he says that if the money is on offer, it is the duty of companies to their shareholders to take what support they can, and more fool the government for making such funding available!

But wouldn't it be better to — instead of trying to pick winners — which creates nice photo ops for government ministers, make life easier for all businesses, by keeping taxes and regulations as low and simple as possible? That is, give business help, not hand-outs.

Isn't this also more honest than "crony capitalism", where companies seek the favours of government?

Perhaps governments should take a share in businesses that they fund, so that the taxpayer gets a fair share of the business' later success, especially when the business is sold to overseas interests.

Yet that may be too much effort. That NZ$50 million per year is chicken feed in the context of government spending. Maybe we have to accept that in the name of jobs and exports, some tech troughing will happen, and is OK.

Trouble is, as the Rod Drury case shows, sometimes "taking it because it's there" just doesn't seem quite right.

Topics: Government, Government AU, New Zealand

Darren Greenwood

About Darren Greenwood

Darren Greenwood has been in journalism, not all of it IT, since the days of typewriters and long before the web spun its way around the world.

Coming from Yorkshire, he can be blunt, and though having resided in New Zealand, as well as Australia, for quite some time, he insists he is not one of the 'sheeple!'

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2 comments
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  • At the very least the government should insist on Convertible Debt (effectively accepting options in lieu of interest). The potential dilution could provide some discipline to owners and shareholders at the same time as it would provide taxpayers with a share in any windfall profits which might be realized by sale of the company.
    JonathanBlock
  • In fact I disagree with both of you. The reason Silicon Valley is so successful is that there is ample access to capital in a unregulated environment. No one in the States moans about an Aussie or Kiwi setting up their business there, even if they repatriate all the proceeds. Likewise for research grants. What we should be worried about is why the majority of our entrepreneurs feel they need to go offshore to succeed.

    Whatever investment the government makes in these firms comes back to it in multiples through jobs, technology, foreign investment, competitive opportunity and economic growth even when these firms are sold to foreign investors. Singling out one or two companies where this has not worked exactly in the perceived interest of tax payers ignores the global economy or the bigger picture with respect to the local economy.

    SAP has now made a significantly bigger investment in New Zealand through this process. The staff are still employed. The profile of New Zealand's tech sector has grown. And there is now more capital floating about with which to spin off the next venture to bring about growth.

    Why would we want to go back towards command style economies? Entrepreneurship and innovation are the fundamental drivers of economic growth as protectionism and regulation are its enemies.

    Government is acting like the private sector should be. This should be one of an arsenal of stimulation measures from the private and public sector including reduced taxes for start-ups, incubation programmes, support services (legal, infrastructure, consulting), and above all good venture capital markets.

    We live in a global economy. If we don't make innovation attractive it will just go elsewhere. The question we should be asking is why there wasn't NZ$100 million made available?
    bbusta