A Tale of Two Islands - Chapter 3 of Michael Parker's book about why New Zealand needs a great university

A Tale of Two Islands - Chapter 3 of Michael Parker's book about why New Zealand needs a great university

By Michael Parker*

[This is Chapter 3 of the book, The Pine Tree Paradox. The Introduction was previously published here », Chapter 1 is here » and Chapter 2 is here »]

Development of the innovation sector is our best chance of getting back to the top of the OECD in terms of GDP per capita. This goal is desirable socially, as well as economically.

“I’ve been rich and I’ve been poor. Believe me, rich is better.”
- Mae West

A half-hour ferry ride from downtown Auckland, sitting in the middle of the Hauraki Gulf, is Waiheke Island.

The island is home to vineyards, sheep farms, native forest and white-sand beaches.

Thirty years ago, Waiheke was predominantly known as the centre of New Zealand’s alternative lifestyle movement. Today, that has given way - at least in the many of the bays around the western half of the island - to holiday homes for Auckland’s knowledge workers.

In the middle of the island is the Onetangi Sports Park, which is home to the Waiheke Rugby Club and some beautiful tennis courts. There are almost always courts available and it’s free to play. The tennis courts are surrounded by hills on all sides. Many of the hills are planted in grapes, as wine is today one of Waiheke’s major products. The rest of the hills are either pasture or are covered in New Zealand native forest - pohutukawa, manuka and ponga trees. As you play, you may hear or see some of the native New Zealand birds - perhaps the flute-like call of a tui; occasionally a pukeko - a blue, red and black New Zealand bird - may wander past.

The ferry ride from Auckland will cost you $34 return. Renting a car on the island will cost you $60 for the day and that will allow you to go to the beach for a swim after playing tennis or perhaps stop by a vineyard. Call it $100 or roughly US$60 for an afternoon of tennis and swimming in a secluded, idyllic seaside hideaway.

Of course, if you don’t live in Auckland - if, for example, you live in Manhattan, then your options for an idyllic afternoon by the sea, playing tennis and swimming are a little different. But you might try the East End of Long Island.

The East End of Long Island is home to vineyards, farms, forests and white sand beaches. Fifty years ago, East Hampton and the neighbouring town of Springs were predominantly known as an artist community. Jackson Pollock lived in Springs and developed his famous dripping technique there. The town is considered the birthplace of the American abstract expressionist movement.

Today, that has given way to vacation homes for Manhattan’s wealthy and its more successful knowledge workers. Easthampton is one of the four towns (together with Southampton, Westhampton and Sag Harbor) known as “the Hamptons.”

Like the Onetangi Sports Park, the East Hampton Tennis Club is in a pretty, wooded setting. However, access is a little more difficult. The East Hampton Tennis Club is private. I have only played there as a guest and I didn’t like to ask what the club fees are. But in any event, you can only join if invited by a current member, which probably is not going to happen unless you own a house in East Hampton. In fact, you will need to buy a house anyway if you want to go for that swim, because only residents of the area are permitted to park within walking distance of the beach.

A quick search online suggests that a “Lilliputian Manor” (nothing ostentatious; three bedrooms, two bathrooms, no view, no water access) in Easthampton was available in early 2009 for US$1.2 million. Of course, to get a job in Manhattan with an income that supports a house in the Hamptons, you will probably need a post-graduate degree of some kind: law, business, maybe a medical specialty. A good U.S. university will cost you, call it, US$50,000 a year. Finally, you have to wear whites to play at the East Hampton Tennis Club. But there is a tennis shop in the Easthampton township that will happily set you up.

So, in total, with US$25,000 for a pre-owned BMW 3-Series “beach car”, US$200 for the whites, US$1.2 million for the house and a minimum of US$100,000 for the education, an afternoon of tennis and swimming in East Hampton will cost you US$1,325,200. Oh, plus club fees.

Of course, my Waiheke-Easthampton dichotomy is heavily stylised. But it draws out two points.

First, there are benefits to living on a group of islands at the bottom of the South Pacific with only four million other people: you very rarely have to pay money to get away from people. GDP per capita statistics and purchasing-power parity adjustments do not capture that. The fact that our GDP per capita is only 60% that of the U.S. does not mean that we are only 60% as happy, or that our quality of life is 40% worse.

Second, the essence of the Kiwi lifestyle is that we live in a beautiful part of the world and we have access to it whenever we want. There is an egalitarian attitude in Remuera and Fendalton that you might not appreciate until you get to the Upper East Side. At some level not too far down, we are all Nick Carraways or - more importantly - no one is Jay Gatsby. A key part of any New Zealand economic strategy is that we do not destroy that aspect of life here.

But the Queen’s Chain and our egalitarian approach to life cannot make up for the fact that we are approaching the bottom of the OECD in terms of GDP per capita and we are continuing to fall. Switching one or two places at the top of the OECD league table is a matter of cultural preference. However, when we - in 27th place - are facing the prospect of being overtaken by countries that were run by Communist governments until 1989 (Hungary, the Czech Republic, Slovakia), the matter ceases to be one of cultural preference and becomes a far more pressing issue.

And it is not simply in economic statistics where our decline is evident. Life expectancy has dropped from 9th in the OECD in 1960 to 11th in 2004 with female life expectancy dropping from 8th in 1960 to 15th in 2004. In terms of suicide, we had the 13th lowest suicide rate in the OECD in 1960 and fell to 18th by 200626.

Of course, it is possible to attribute differences in life expectancy and suicide to life choices. When a significant percentage of our population is working on farms, in the great outdoors, felling pine trees, herding sheep, playing rugby on Saturday and going to the pub on Saturday night, a lower life expectancy is a given. Anyone who tries to change these aspects of our way of life is accused of ushering in the era of the “Nanny State”. Boys will be boys, after all.

Make what you will of that argument, but ask yourself: if we accept that boys will be boys, do we also have to accept that babies will be babies? There is one statistic that is impossible to explain away based on cultural factors or individual choices: infant mortality. In 1960, New Zealand’s infant mortality rate was tenth lowest in the OECD. In 2006, it was 20th.

Over the long term, good social statistics (high life expectancy, low infant mortality, low occurrence of preventable diseases) tend to correlate with higher income levels. Health care, education levels, retirement benefits and public services in general are of a higher standard in wealthier countries than in poorer ones. And little differences compound over time.

Therefore, decisions we make now about our future will not just determine which features we can afford on our iPhones. There are quality of life and quality of opportunity issues for ourselves and our children involved in what we do next.

In Heated Agreement

And New Zealanders get that. There seems to be tremendous consensus about the need for accelerating, long-term economic growth and the kind of country that we should be as a result of that growth.

On 12 February 2002, then Prime Minister Helen Clark announced a Growth and Innovation Framework27 with:

"… a widely shared vision for New Zealand. It sees our country as: a land where diversity will be valued and reflected in our national identity; a great place to live, learn, work, and do business; a birthplace of world-changing people and ideas; and a place where people invest in the future.

That shared vision sees New Zealanders:
- Optimistic and confident about our country’s future;
- Celebrating our successes in all walks of life;
- Creating globally competitive companies;
- Committing to sustainable development;
- Ensuring that a social dividend flows from economic success;
- Gaining strength from the Treaty of Waitangi as our nation’s founding document.

The growth and innovation framework’s objective is to return New Zealand’s per capita income to the top half of the OECD rankings over time."

And who could argue with that?

Clark is no longer Prime Minister but the National Government is unlikely to argue much with this “shared vision”.

The question is one of execution. And as depressing as the restatement of New Zealand’s economic woes over the last five decades is to write and—I am sure—to read, it is undeniably heartening that there is so much consensus about what New Zealand should look like today: a modern, liberal, wealthy, democratic, educated, egalitarian, open, capitalist, green, multi-cultural, secular, meritocracy that is really good at netball, rugby and sailing and goes to the beach for two or three weeks every summer.

We know what we want—we just do not seem to have a clear vision of how we are going to get it. That’s where the trouble starts.

Yes, But What Do We Actually Do?

I worked for a Big Four accounting firm in San Francisco during the dotcom bubble in the late 1990s. For a start-up technology company in a period of easy money, auditors are a vital resource. It is the auditor’s sign off on the financial statements that is the key to making an initial public offering (“IPO”) - that is, selling your stock to the public. And in the venture-capital world, the IPO is how entrepreneurs, early-stage investors and investment bankers get rich.

By the spring of 2000, there was a pervasive fin de siècle atmosphere in the city and an increasing number of new start-up companies were searching frantically for accountants to sign off on financial results so they could go public - and quickly. The world is upside down when the most important person in the room is the auditor. In any event, I sat in a lot of meetings, effectively getting “pitched”.

Often the first question you asked at these meetings was the same question you asked all the way through: “Yes, but what do you actually do?”

“We’re a Web 2.0, advertising-based, mobile, social networking aggregation portal.”

“We leverage seamless, plug-and-play, middleware solutions across multiple systems architectures.”

“We are a virtual provider of managed and enhanced network services for next-generation, global, network carriers”.

As I recall, “turn-key, end-to-end solutions” were big. So was speaking in platitudes. Of course, the absence of clichés and platitudes is not always the solution either. Not every concrete strategy is a good one. But at least you can debate a concrete idea on its merits.

A review of recently published proposals for New Zealand economic development gives rise to a similar frustrating cry: “Yes, but what do we actually do?”

There are few answers for anyone looking for concrete proposals to the question: what do we, as a nation of four million independent economic agents, do for 2,000 hours a year each in order to create value at a faster rate than the rest of the OECD?

I am not asking for a Soviet-style, five-year plan. But, if we are going to set an economic strategy for the country, shouldn’t we at least talk about our strengths and limitations as a nation and link those characteristics to the kind of activities that seem to earn outsized returns in the 21st century?

Take a few examples:

The New Zealand Institute and New Zealand Stock Exchange joint white paper published at the end of 2008 titled “Economy on the Edge: Swan Dive or Belly Flop? A Draft Strategy for Coming Out of The Crisis Stronger”28 suggested a New Zealand economic strategy that included:

- Tax cuts, monetary easing and fiscal stimulus
- Increased local investment
- A more supportive growth environment
- "Win in the global economy"; and
- Private-public sector cohesion

In a report commissioned by the New Zealand Business Roundtable and written by Frederic Sautet, published May 2006 entitled “Why Have Kiwis Not Become Tigers: Reforms, Entrepreneurship and Economic Performance in New Zealand”29, the proposed policy changes to improve entrepreneurial incentives were:

- Reduce the size of government
- Reduce high marginal rates of tax
- Continue to open the economy
- Improve the regulatory environment

The Ministry of Economic Development under the previous Labour Government had an Economic Transformation Agenda which:

"… seeks to progress New Zealand to a high-income, knowledge-based market economy, which is both innovative and creative, and provides a unique quality of life to all New Zealanders…. It comprises five themes30:
- Growing globally-competitive firms
- World-class infrastructure
- Innovative and productive workplaces
- Auckland as an internationally competitive city
- Environmental sustainability."

A recent check of the Ministry of Economic Development’s website (25 September 2009) suggests that the Economic Transformation agenda has been retired by the National Government. However, the goals of the organisation remain equally admirable - but also equally loose: “make New Zealand successful on the world stage, lift productivity and prosperity…”

In November 2009, the taskforce commissioned by the National Government and chaired by Don Brash (“the 2025 Taskforce”) announced that in order to match Australia’s GDP per capita by 2025, we must:

- Lower income taxes
- Reduce government spending
- Reduce government debt
- Not introduce capital gains tax

From my review of the literature, I understand that taxes, government activity in general, and regulation in particular, are bad; while investment, competing globally, improving productivity and “winning” are good.

But, again, what do we actually do?

The answer cannot simply be: cut taxes and reduce government spending. Surely, if it were that simple, every country in the world would have already done it. And that’s when the conversation turns to the Emerald Gorilla that sits in the corner of any room when the long-term economic growth of small, developed countries is discussed. Let’s talk about Ireland.

Lessons from the Irish Experience: More than Low Taxes

In 1986, Ireland was near the bottom of the OECD in terms of GDP per capita, behind all but Korea, Turkey and Mexico. By 2006, Ireland was fourth. Irish GDP per capita growth in the intervening period was higher than any other country in the OECD. All the economic and social statistics improved—most of them dramatically. Depending on your preference, it was an economic miracle or the emergence of a Celtic Tiger. Or both.

But how did it happen? As the conservative American publication, the National Review Online recounts:

"In 1986, Ireland slashed spending in areas such as health expenditures, education, agricultural spending, roads and housing, and the military, while abolishing agencies such as the National Social Services Board, the Health Education Bureau, and regional development organizations. By 1993, government non-interest spending declined to 41 percent of GNP, down from a high of 55 percent of GNP in 1985. Subsequently, it significantly lowered corporate tax rates to 12.5 percent, at a time when the lowest corporate rates in Europe were 30 percent and U.S. rates stood at 35 percent. Since 2004, Ireland also has offered a 20 percent tax credit on research and development."

As a result of both the fiscal policy prescription adopted in the mid 1980s and the ensuing growth, Ireland is often quoted as an example of why lower taxes and reduced government spending are the answer to the question: how do we accelerate growth?

But low tax and less government are only part of the Irish strategy. Sean Dorgan, CEO of IDA Ireland, the agency responsible for developing foreign direct investment in Ireland, explains Ireland’s economic success as follows31:

“Ireland achieved this success through a combination of sensible policies and pragmatism. At the heart of these policies was a belief in economic openness to global markets, low tax rates, and investment in education.”

Tax cuts and reduced government spending were a key part of Irish success. But there was also a long-term strategy in place.

The Irish had made a long standing commitment to attracting foreign companies in the pharmaceuticals and high tech sectors dating back to the 1950s—much of it focused on the U.S. A U.S. Commerce Department study32 found the U.S. has been the main source of foreign investment, accounting for about two-thirds of all investment projects and over 80% of capital invested.

Ireland attracted a significant amount of foreign direct investment from U.S. and Asian firms including Sharp, Pfizer, Intel, Dell and Google. These companies set up European headquarters, factories and distribution and call centres in Ireland. This outward focus fundamentally changed the Irish economy. Export revenue was the equivalent of 75% of GDP in 2006, up from 38% in 1970. As discussed earlier, agricultural exports fell significantly as a percentage of total trade over the period.

There was also a focus on higher-level education, in vocational training in Regional Technical Colleges (now Institutes of Technology), and in science, engineering, and business studies in universities. As a result, Ireland was able to offer foreign companies a well-educated, English-speaking workforce. The education commitment endured over the long term despite, at times, the lack of obvious return or benefit. As Dorgan points out:

“During the high-emigration years of the 1980s, concern was expressed that Ireland was educating its young people for the benefit of other countries…
Whole classes of university graduates would frequently leave the country. There was a disheartening drain of human capital. A net 200,000 people left from 1981 to 1990. In the worst years, more than 1 percent of the country’s population fled.”

Geography, politics and timing were key as well. Ireland joined the European Union in 1973. It is located on the edge on a market of 400 million people. Dublin is less than two hours’ flying time from London, Paris, Amsterdam or Frankfurt. And Irish growth coincided with the long bull market between 1982 and 2007 and the first stages of globalisation, where U.S. companies determined that they needed a significant presence in Europe.

There are intangibles too: the fact that American executives of a certain age like golf courses, Guinness and friendly, English-speaking barmaids probably gave Ireland the inside run over Luxembourg when deciding where to locate the European operations of many U.S. companies. The ancestral links many Irish-Americans feel toward Ireland no doubt helped as well.

Put the whole thing together and you have a coherent strategy: give an identified market (foreign corporations) what they want (proximity to Europe, English-speaking workers, golf courses) at a price (low wages and low taxes) that the competition (Luxembourg) can’t match. There’s an identified market, an identified product and a unique selling proposition. That is how to “win in the global economy”.

The only policy changes that the Irish needed to make in 1986 were to lower their taxes and reduce government spending. There were already plenty of unemployed Irishmen and golf courses around. Ireland was already in the EU and conveniently located at the western edge of the Irish Sea. However, the fact that tax cuts were the only positive action that Ireland made in 1986 should not lead envious New Zealanders to conclude that the entire strategy behind the Celtic Tiger of the 1990s and 2000s was lowering taxes.

Of course, by the beginning of 2009, the Celtic Tiger was in real trouble. Construction and the increase in home prices had driven much of the economy in the second half of the decade. Reliance on value added tax, stamp duty and capital gains for government revenue does not work when new construction stops, the property market declines and the velocity of transactions slows. But, in many ways, that is beside the point for the current analysis. I am not suggesting that we follow the Irish strategy for growing a developed but stagnant agricultural economy. I am merely observing that the Irish had a strategy. And it involved more than cutting income taxes.

Low taxes are not a strategy.

Low taxes may well be an aspect of a strategy. Similarly, the nonsense that the Business Roundtable, the New Zealand Stock Exchange and the New Zealand Institute are churning out (be global; be entrepreneurial; be innovative; cut taxes; win) is not a strategy. These may be desirable outcomes or, at best, aspects of a strategy. But a strategy requires whole sentences. And it requires that there are some things that we don’t do and that there are some parts of our economy that get left behind.

Again, what do we, as a nation of four million independent economic agents, do for 2,000 hours a year each in order to create value at a faster rate than the rest of the OECD?

The Five Aces of Wealth Creation

Economic activity in any region of the world in the 21st century comes from one of five areas: extraction, agriculture, manufacturing, services or innovation. To determine what we as a nation of four million should be doing, let’s review the options.

Extraction: If your country sits on large deposits of oil, gas and minerals, much of your economic activity will be based upon digging those resources out of the ground and selling them to the global market. When oil is US$147 a barrel - as it was for a short time in the middle of 2008 - you will likely perform very well versus the rest of the world. That has been Norway’s experience in the last few years.

Of course merely having a great deal of natural resources is not sufficient. There are institutional factors involved. Nigeria has plenty of oil and gas too and it is in terrible shape. However, basing an economy around extractive industries is still a good strategy if you have plenty of natural resources. We do not.

There is natural gas off Taranaki. And the Maari and Tui oil fields are expected to yield 100 million barrels of oil between them over a 10 to 15 year period33. To put that in perspective, 100 million barrels of oil is enough to satisfy America’s demand for oil - for about four days. At the current price of oil of US$70 per barrel, that’s US$7 billion or roughly $10 billion. Over ten years, that is $1 billion (less than 1% of GDP) annually. Further, these are expensive fields from which to produce. The oil is waxy, meaning the drilling equipment needs to be heated to ensure the oil will flow properly. If the price of oil declines, these fields cease to be economical.

Extraction is simply not an available option to us as the basis of our economic strategy. That is not to say we shouldn’t do it: it’s not counter-strategic; it’s just not strategic.

Agriculture:

Agriculture has been the basis of our economy for decades. Chapter 2 discusses the difficulty in attempting to outperform the OECD by selling food. Even if we focus on high-margin products with strong brands that can command premium pricing - Champagne being the perfect example - there is scant evidence to suggest we can climb up the OECD league table in terms of GDP per capita.

Manufacturing: The manufacturing sector in New Zealand will always be hampered by three inter-related impediments. First, New Zealand is a long way from its key markets for manufactured goods.

Second, New Zealand manufacturing plants will always be sub-scale. We don’t have massive industrial cities where a tyre factory may be located next to an engine factory, and a chassis factory, and a windscreen factory, and across the road from an assembly plant and around the corner from a car sales yard. We don’t want that kind of large, ugly, polluting industrial city in New Zealand. But, without one, no industry can manufacture at global scale over the long term.

Finally, manufacturing operations requires a cheap workforce. Therefore, we should all hope that New Zealand never becomes an attractive location for large-scale manufacturing. The news here for people who worked at the Fisher & Paykel manufacturing plant in Mosgiel is not good. But they already knew that. The plant was shut down in March 2009 and the jobs moved to Italy, Thailand and Mexico.

The perennial proposal to devalue our “artificially high” currency to revive the manufacturing sector is no answer. There are a variety of reasons why devaluing the currency is self-defeating as a tool of economic growth. But the shortest one is this: the primary objective of this book is to find a way to raise our GDP per capita as measured by the OECD. The OECD performs this measurement in U.S. dollars. Accordingly, lowering the value of the New Zealand currency is counter-productive. Said differently, lowering the value of one’s currency makes you less wealthy. It is therefore counterproductive to the goal of becoming more wealthy.

Services:

The service category is something of a catch-all, including, among other things, financial services, professional services and tourism. For the most part, for a region to base its economy around services, there needs to be a large number of people nearby who want those services. Before banking was globalised, Switzerland had a banking system based on secrecy and its location in the heart of Europe. Ireland is a popular choice for the European headquarters of American corporations because of, among other things, proximity to Europe. Call centres in India and the Philippines breach this proximity rule - but only because of the emergence of inexpensive telecommunications services and an extremely low cost, English-speaking workforce.

For New Zealand, outside of tourism, the service industry does not offer much opportunity because we are not close to a large population base and we are a developed country with a high-cost workforce.

Until very recently, that was the end of our list of options. A hundred years ago, as my great-grandfather looked out at the Otago Peninsula for the first time, those were the choices: mine, farm, make something, or work in an industry that directly supports one of those activities.

Today, there is one more option for us individually and as a country: innovation. Dream up new ideas, turn those ideas into a product or service that consumers want, and sell it.

Innovation:

Innovation used to be a side-business of extraction, agriculture, manufacturing or service companies. Now, for the world’s best companies, innovation is the business. Anyone can do the manufacturing. The difficult part - and therefore the value creation - is generating the ideas.

Apple is based in Cupertino, California. It used to be called Apple Computers because it used to make computers. Now, it enriches the lives of creative people. The iPod and the iPhone were invented there. But no iPhones have ever been manufactured there. iPhones are manufactured by Hon Hai Precision Industry Company in Shenzhen, China. In 2007, the Wall Street Journal described Hon Hai as the “biggest exporter you’ve never heard of”. At Apple’s offices in Cupertino, they just think about iPhones.

Nike is based in Portland, Oregon. The Swoosh, the shoes, the clothes and the very idea to “Just Do It” were created there. But they don’t make any of that stuff there.

And this isn’t just a trend for Apple and Nike and a handful of other consumer-products companies that immediately spring to mind. Even mundane manufacturing companies now operate in this fashion. Ever heard of First Solar? First Solar is an American solar module manufacturer. FSLR was the fastest growing stock on the NASDAQ in 2007. Its biggest customers are in Germany, its largest manufacturing plants are in Malaysia and Germany, its administrative and R&D functions are in Ohio and it is headquartered in Arizona.

Of course, customers and manufacturing should ideally be located nearby or else manufacturing facilities should be in a jurisdiction that is so cheap as to compensate for transportation costs. But the place where the ideas are created can be anywhere. And, ideally, the idea-creation function should be located where all the best idea-creating people are.

And that is the strategy I will discuss in the rest of this book: how to make New Zealand the place where the idea-creating people want to live - not holiday for a few weeks after university, or honeymoon, or mountain bike once they retire, or move back to once they have made some money in London - but live.

The two biggest impediments to our economic development over the last 150 years have been scale and location. The simple message of this book is let’s start making the things that do not require proximity and do not require scale. For want of a more elegant term, let’s do the creating and the innovating here.

And there is one final argument to be made for why innovation and creativity should be our area of national economic focus, rather than agriculture - even value-added, premium agriculture. In Chapter 2, I discussed why the margins available for ideas are far greater than the margins for agricultural products. In short, food is plentiful in the rich world and therefore you can only charge so much for it.

But there is more to it than that: not only are margins higher in the innovation sector; growth prospects are much better. And to prove the point, I return to the Champagne-Ardenne region of France. In 2008, total champagne sales worldwide were 300 million bottles. Impact Databank, a market research firm, estimates the global champagne market in 2006 at US$5.4 billion34. Champagne has been developing its product for several centuries to become a multi-billion dollar business.

By way of contrast, in 2008, Google’s total revenue was US$22 billion - four times the total revenue generated by champagne sales. And Google barely existed a decade earlier.

In New Zealand, we don’t have a product that approaches champagne in terms of brand or prestige and we don’t have a company that approaches Google in terms of scale and scope and innovation. But if we want to build a national economic strategy around one model or the other, why on earth would we choose champagne?

Follow Me Into the Desert, As Thirsty As You Are

So far, everything I have said is a standard recital of the realities of the global economy. Ideas trump resources. Manufacturing activity will migrate to low-cost regions.

Knowledge workers are in global demand and move freely across borders. Innovation and creativity are the keys to success. New Zealanders would like to be climbing up the OECD income ladder rather than stumbling down it.

All these are obvious statements to anyone who reads a newspaper. Now I want you to follow me into the desert.

We are kidding ourselves if we think that an improved and re-branded kiwifruit is the answer to our economic slide. We cannot get rich selling food—no matter how delicious, addictive or expertly marketed.

We are kidding ourselves if we think that lower taxes in isolation are the answer to our economic decline. Tax cuts will stimulate more of whatever kind of activity is already going on. As an economy, we do not need more of what we already have. We need something new.

We are kidding ourselves if we think that we will become champions of innovation without a world-class university. We currently don’t have one. The basis of innovative companies is a well-educated and ambitious workforce. We need to excel at that.

Finally, we are kidding ourselves if we think that climbing back up the OECD will be easy, quick or - at the outset - cheap.

So, what do we actually do?

Here is my strategy in long form:

Use a pool of highly-trained innovation and knowledge workers, together with the New Zealand lifestyle, strong intellectual property laws and no capital gains tax to attract foreign corporations and venture-capital funds to New Zealand to establish R&D centres and invest in start-up companies.

There’s an identified market, an identified product and a unique selling proposition.

That is how to “win in the global economy”.

But it’s also incredibly dry. So here is the elevator pitch:

Let’s re-create the Northern Californian economic experience of the last 50 years here in New Zealand.

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26. OECD Health Data 2008 - Version: December 2008

27. Ministry of Economic Development website, viewed November 2009

28. NZX website, viewed November 2009

29. Mercatus Center, George Mason University website, viewed November 2009

30. Ministry of Economic Development website, viewed November 2009

31. Heritage Foundation, 23 June 2006, How Ireland Became the Celtic Tiger, Sean Dorgan

32. U.S. Department of Commerce, Bureau of Economic Analysis, "U.S. Direct Investment Abroad: Balance of Payments and Direct Investment Position Data," updated 15 March 2006, at http://bea.gov/bea/di/di1US$bal.htm (21 March 2006).

33. NZ Herald, 26 February 2009

34. www.seekingalpha.com, "Does LMVH Rule the Champagne Market?" 3 January 2008

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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 »

If you would like to buy a copy of the full book, you can do so by credit card here » (Visa or Mastercard only.)

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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. This book was originally published in 2010.

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2 Comments

NZManufacturing is vital.
 
Great, positive read Mr Parker.
 
In the current and upcoming worldwide scenario, we don’t need more academics in this country, but diversity - skilful highly trained people – good, decent jobs - employment among the wider NZpopulation.
http://www.youtube.com/watch?v=lZxV-7l6SCM
 
..productivity in important niche - markets.
http://www.youtube.com/watch?v=fXCjQxslqK8
 
 

I would like to know how Mr Parker sees this process in the light of Andy Groves' position (ex Intel CEO) who maintains you still need a key parts of an industry to stay in the front of development.
Obviously his position is US centric but I think there are some lessons in there for NZ as well.
http://www.businessweek.com/magazine/content/10_28/b4186048358596.htm