By Michael Parker*
Genius is solitary.
A painter fragments time and space. A deaf man composes a symphony. A sprinter coasts to victory in an Olympic final. After years spent preparing, creation is effortless, ecstatic and individual. The moment redefines possibility and how we see the world.
Innovation is collaborative.
Innovation needs planning, money and concerted effort by a dedicated many. The key requirement is not genius but premeditation. There is no single moment of creation, merely a series of collective and often mundane steps.
Richard Pearse soaring above the Canterbury Plains is a moment of genius. The Wright Brothers patenting their flying machine, contracting with the U.S. Army and touring Europe to perform exhibitions is innovation. The Wright Brothers - the innovators - changed the course of history. Richard Pearse - the genius - startled the sheep.
We are awed by genius and drawn to it. But students of economic development must turn away and focus instead on the process of innovation. This is a book about New Zealand’s economic development. As I will explain, the subject matter is therefore necessarily the process of innovation.
A Path Paved with Good Intentions
This book is a celebration of innovation. There are five broad paths along which modern economies can create wealth: extraction, agriculture, manufacturing, services and innovation. The New Zealand economy remains predominantly agricultural. However, if we wish to outperform the rest of the OECD over the long term, we must change that focus from agriculture to innovation.
For the last 50 years, New Zealand’s economic standing has been in decline. We had the fifth highest income per capita in the OECD in 19601. Today we are 27th 2. This drop in income relative to the rest of the developed world has been matched by a decline in critical societal metrics too: female life expectancy has dropped from eighth highest in the OECD to 14th over the last 50 years; our infant mortality rate has gone from 11th lowest in the OECD to 20th 3.
The root cause for our economic decline is our continuing reliance on agriculture.
Meat, dairy, wool and forestry still comprise roughly 45% of our physical exports by value. The simple truth is that, in an age when food is in abundance and most countries in the OECD are dealing with obesity epidemics, rich nations cannot economically outperform the rest of the OECD by selling food. The quality of either the produce or its marketing does not change that fact.
This simple truth is what I mean by the Pine Tree Paradox. Monterey or radiata pine is the most popular softwood in the world and it grows faster in New Zealand than anywhere else in the world - seven times faster than in Sweden or the U.S. This discrepancy in growth rates for a product in high global demand feels like exactly the kind of sustainable, competitive advantage that should have made us the Saudi Arabia of timber and should have made us fabulously wealthy. It isn’t and we aren’t.
Instead, to compensate for their inferior yields, our forestry competitors simply plant more trees. There is no shortage of land in Alberta or Oregon or Wyoming to grow pine trees. Cheap land and large forests compensate for inferior growing conditions. With these large forests, our competitors have the capability to produce at levels that exceed annual global demand, compressing margins and limiting our ability to extract value from our superior soil and sun. If you want to grow one pine tree, come to New Zealand. If you want to grow a million, go to North America.
And so it is with our peaches, our mussels, our wool, our wine, our lamb, our apples and a hundred other agricultural products we grow here. Our eyes deceive us. We look out to our lush, green farmland and our endless coastline and assume that the incomparable beauty and bounty will surely make us rich, if only we identify and cultivate the right product. But, somewhere else in the world, the combination of cheap land, cheap labour and proximity to market serves to limit the value that we can extract from our agricultural advantages. If you can grow it in Cromwell, you can grow a rough approximation in California and you can create a perfect replica in Chile.
We therefore face stiff global competition for everything that we grow, lowering the value that we can extract from our land. The result is that we cannot keep pace with the economic growth rates of the best performing countries in the OECD by selling food. Failure to accept this truth about our economic development renders our efforts at higher growth futile and moves our dreams for the future beyond our grasp.
The Innovation Cycle
This book is an attack on those who fail to accept the central paradox of our economic circumstance: our substantial agricultural advantages will not make us rich.
Equally, this book is an attack on those who characterise waiting for lightning to strike as an economic strategy. Hoping that someday soon someone somewhere in New Zealand will create some new invention to reverse our economic retreat is not an economic strategy. Innovation does not work that way.
This is the second paradox of our current economic position: the fellow travellers on the path to innovation are not inventors or scientists, but artists, musicians and university donors.
As a nation, we are well placed to create the conditions required for innovation. What is required is money and time and - far more importantly - a national consensus to embrace this path.
There is tremendous consensus in New Zealand about where we are as a country and what we want our future to look like. We want to be a modern, liberal, wealthy, egalitarian, democratic, open, capitalist, educated, green, multi-cultural meritocracy that is really good at netball, rugby and sailing and goes to the beach for two or three weeks every summer.
We know that this future is imperiled by our long and continuing slide versus the rest of the OECD on metrics like income per capita. We know that, in order to guarantee this agreed future, we need to be champions of more than just primary products. Because of this broad consensus, I will unapologetically use the term “we” to apply to New Zealanders throughout this book. We may be four and a half million independent economic agents, but we are all in this together—and we know it.
This consensus breaks down over how we achieve our agreed future. Since the mid-1980s, thinking big in New Zealand has been out of vogue. Our economic policy is conducted largely through monetary policy and welfare transfers. If we are to build a new economic growth engine in New Zealand - if we are to escape the Pine Tree Paradox - bigger thinking is required. Offering research and development tax credits, tweaking monetary policy, funding this year’s new technology (biotechnology, no wait… nanotechnology), or selling off State-Owned Enterprises will not do it. A long-term strategy is needed.
That strategy must focus on building in New Zealand what I term an Innovation Cycle.
In this cycle, a research university fosters and develops innovative thinkers; those innovators attract investors; those investors attract a supporting infrastructure of advisers; and together those innovators-turned-entrepreneurs, investors and advisers attract a creative class that includes artists, designers, chefs and musicians. These groups settle or stay in New Zealand thanks to the unique lifestyle on offer here and the economic opportunities that the cycle creates. And, once those elements are all in place, the cycle becomes self-sustaining.
New Zealand in the 21st century is one of the few places in the world able to create this kind of Innovation Cycle.
At the heart of the cycle is not tax policy or government strategy to make Auckland “world-class”. At the heart of the cycle are a great research university and a unique lifestyle. We already have the lifestyle; we now need the university.
Why Not Us?
This book is a call to action. There are many books now in print about New Zealand’s economy and its future. This one is different in one fundamental respect. I don’t just want you to read it. I want you to act. Specifically, I want you to fund a university. I want you to endow a great research university that, over time, directs and fosters innovation and becomes a new economic growth engine for the whole country.
Because here is the rub: the process of building the kind of institution I am proposing will be eye-poppingly expensive and will take decades to achieve. Government is limited in how much financial assistance it can provide. There will always be other, higher priorities for the incremental dollar of government spending. Projects like this one, with long-term paybacks, always look discretionary in a budget negotiation. Therefore, the private sector - New Zealand companies, New Zealand residents and New Zealand citizens around the world - will have to pay for much of this enterprise.
There is no shortcut and no easy or cheap option. History has taught us that.
Wishing for some New Zealander working alone in his shed to create the invention of the century will not save us. We know that because we already did that. In March 1902, Richard Pearse flew a plane 140 metres into a gorse bush on his Waitohi property - a full eight months before the Wright Brothers took flight at Kitty Hawk, North Carolina.
Pearse’s design was technically superior to that of the Wright Brothers, thanks to its single-wing, its front-mounted engine and its use of wheels, not skids. However, no one ever knew about Pearse’s designs while the information might have been of any commercial use. Pearse, after making - or, at the very least, significantly improving on - the invention of the century, dusted himself off and went back to farming. For his efforts, Pearse sustained a broken collarbone and earned a new nickname from his neighbours: Bamboo Dick. His design breakthroughs were replicated later, elsewhere, by other inventors who were oblivious to Pearse’s achievements.
Pearse went back to farming because the conditions for creating innovation were simply not in place in New Zealand when he took to the skies. Because of that, Pearse’s invention of the century… wasn’t. The Wright Brothers are rightly credited with the discovery because they commercialised it. The aeronautics industry took shape in America and Europe, not in Canterbury. That is how important it is to create the right conditions for innovation.
In all of this, there is some very good news for New Zealanders: you and I do not need to possess the genius that I referred to in the opening paragraph of this book. We do not need to be Pablo Picasso, Ludwig van Beethoven or Usain Bolt. And, to create the Innovation Cycle in New Zealand, we do not have to wait for the next Richard Pearse. In fact, it is imperative that we do not wait. Instead, we must simply prepare for him or her. Collectively, we can create in New Zealand the conditions required for innovation through planning, premeditation and concerted effort. This book describes how.
None of this will be easy.
To achieve this goal, I am asking you to follow me into the desert for 30 years. The cost will be astronomical and there may be no tangible results for decades. There will be countless delays and disappointments. In exchange, all I offer is a few hours of entertainment today… and the kind of future for New Zealand that we all dream of.
This is the sixth part of a serialisation of the book, The Pine Tree Paradox. It will be published online here in eleven parts.
The Introduction is here »
Chapter 1 is here »
Chapter 2 is here »
Chapter 3 is here »
Chapter 4 is here »
Chapter 5 is here »
Chapter 6 is here »
Chapter 7 is here »
Michael Parker is an equity analyst living in Hong Kong. Originally from Wellington, he has spent the last decade in San Francisco, New York and - on good days - Waiheke. He has a law degree and bachelor of commerce from the University of Otago and an MBA from NYU. You can contact him here »
Used with permission. © Michael Parker.
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