Path to prosperity lies in technology niches

Paul Callaghan: We are poorer because we choose to work in low-wage activities.
Shane Wenzlick
Paul Callaghan: We are poorer because we choose to work in low-wage activities.

New Zealanders can become more productive but it is not about how hard we work but the nature of the work, writes New Zealander of the Year Paul Callaghan.

New Zealanders are in no doubt about why we love this place. So why are we so melancholy, so pessimistic? Living next door to Australia, with its vibrant economy and brash self-confidence, emphasises our sense of unease. We worry about our social cohesiveness, our children seeing better opportunities overseas, our decrepit infrastructure and our access to the best possible medical treatments. We work hard, we have a good quality education system, but we lack prosperity commensurate with our effort.

Some argue that we are held back by too much taxation, or by the Resource Management Act preventing use of our natural assets. And yet, when we look at countries more prosperous than us, we often see much higher taxation rates, much more bureaucracy, and much higher value currencies. Per capita, Australia is richer than us by 30 per cent and Sweden by 31 per cent.

The widening gap with Australia is such that the extra annual earnings required to match its level of prosperity is about NZ$40 billion, equivalent to about five times Fonterra's export earnings, or nearly four times our tourism earnings.

So what is the cause of our "prosperity deficit"? In my view it is not because of our lack of mineral resources, nor because of how hard we work. New Zealand is one of the hardest-working societies in the Organisation for Economic Co-operation and Development.

We are poorer because we choose to work in low-wage activities. Our current gross domestic product per capita corresponds to $120,500 of revenue per employee. To match Australia, we need $174,000 a job. By contrast, tourism in New Zealand earns $82,800 revenue per employee, a mere two-thirds of what is needed to maintain our current per capita GDP. Tourism may provide valuable employment for underskilled New Zealanders, but it cannot provide a route to greater prosperity.

Productivity is not about how hard people work. It is about the nature of the work they do. Samsung, which makes silicon chips and consumer electronic products, earns NZ$850,000 a job while Apple Inc earns $1,700,000.

The backbone of our prosperity is dairy farming, with $350,000 a job, but environmental limitations prevent us from scaling up.

By contrast, Fisher & Paykel Healthcare comes in at $400,000 per employee a year. Export businesses like that consume little energy. They do not emit significant greenhouse gases or dump nitrates in our lakes. The Resource Management Act is no bother to them at all. There is no limit to the numbers of such companies, except to the degree that our brains and enterprise make such businesses possible.

Therein lies a future path for New Zealand. Our top 100 technology companies export $4b a year. We need 10 times that, a goal we are capable of achieving. And to ensure all New Zealanders share in the benefits, every child must have a chance at taking part in this future.

WHAT is holding us back? First and foremost, we fail our children through defeatist advice at school, encouraging kids to drop maths and physics because it might be "too hard". This not only ensures that those children will never be part of the emerging New Zealand technology sector, it also deprives them of the chance to be an engineer, pilot, veterinarian, scientist, doctor or architect.

Second, we who have destroyed two- thirds of our native forest and driven hundreds of species to extinction, wallow in self-serving and dishonest mythology, lecturing Indonesians about rainforests and palm oil, while failing to address our own environmental despoliation. Finally, when we attempt science and technology investment, our thinking is too often mired in fashionable cliche rather than serious analysis. Ten years ago we went for "biotech" because that's where the world was going. But only two of our current top 100 technology companies are biotech. Now politicians tout "clean-tech".

There is no reason why we will be effective in major areas of world investment in innovation, any more than it is likely we will make flat-screen TVs or smartphones. Our future lies in the niches of a world economy 500 times bigger than our own. We will be good where we happen to be good. We will creep up on our competitors in the odd spots, in respiratory humidifiers, in crystal-controlled oscillators for GPS on a chip, in magnetic resonance sensors for the oil industry.

If a New Zealand technology business does something that sounds familiar, it will probably fail. If it does something that causes you to ask "what on earth is that?", it is probably on to something.

Our way forward must be based on honest analysis, ditching self-serving myths, and embracing a long-term vision with relentless commitment to make this a just, equitable and prosperous country, worthy of our children, and a place where talent wants to live.

Paul Callaghan is Alan MacDiarmid professor of physical sciences at the School of Chemical and Physical Sciences at Victoria University. He was named New Zealander of the Year last week.