Liam Dann: Dumbing down - New Zealand economy not getting smarter

Rocket Lab has gone stratospheric but our tech sector is currently floundering. Photo / Supplied

COMMENT: For those hoping New Zealand is on a high-tech path to becoming a wealthier nation, our slide down the rankings in the Global Innovation Index should be cause for great concern.

Back in 2012 we ranked as the 13th most innovative economy in the world.

In the 2018 survey (just released) we rank 22nd – down from 21st place in 2017.

We're supposed to be going in the other direction aren't we?

Xero, Rocket Lab, LanzaTech – we've created some billion-dollar tech and innovation giants in the past decade.

Are we fooling ourselves? Dazzled by a few shining lights while the rest of the sector flounders? What gives?

The Global Innovation Index (GII) is the heavyweight survey of every nation's economic performance in science, technology, innovation and creative industries.

It is published by Cornell University and the World Intellectual Property Organization and measures everything from the number of patents a country generates to the number of research scientists it has.

It compiles almost 100 different measures of innovation capacity for 126 different countries.

It filters the measures on a per capita basis and with weightings based on relative wealth of each nation to get its rankings.

It's qualitative, quantitative and very thorough.

A comparison between our 2018 and 2012 numbers makes pretty grim reading.

It also looks like a damning indictment of the last Government's efforts to promote innovation in the economy.

Under National's watch the R&D tax credits were removed and the Government tried to be more targeted – picking winners through the Callaghan Innovation grants scheme.

Rocket Lab is going up in the world but where are the other Kiwi high fliers? Photo / Supplied

The results – in the black and white of GII data – don't look flattering.

For example, the number of locally generated patents per billion dollars of GDP fell to 6.1 – it was 13.1 in the 2012 survey.

Cultural and creative services exports have slipped from 0.5 per cent of total trade to just 0.3 per cent.

High-tech exports as a percentage of total trade have fallen from 2 per cent to 1.4 per cent.

The growth rate of GDP per knowledge and technology sector worker has slipped from 1.6 per cent to -0.6 per cent.

We're going backwards on almost every measure.

There are possibly charitable interpretations for the results.

Progress in these surveys is relative. Perhaps the rest of the world has seen a surge of renewed tech and innovation post-GFC.

Well, not really. The survey notes that, globally, investment remains below pre-GFC levels despite signs for optimism based on the strength of growth this year.

Another way for our tech sector rankings to fall in relative terms is simply that growth in the sector has been overshadowed by faster growth in other parts of our economy.

This is certainly true.

Since 2012 the New Zealand economy has surged ahead of global averages based on immigration, house-price growth, tourism and dairy.

It's not surprising that things like exports of ICT services or creative services fell as a percentage of overall exports.

We know from the annual TIN 100 stocktake that the revenue generated by our tech sector continues to rise.

Last year revenue of the top 100 tech companies in NZ topped $10 billion for the first time. In 2012 it was $7.3b.

But this shouldn't excuse our slide in the rankings.

Our economy desperately needs the productivity gains and high-wage jobs that only the tech, innovation and creative sectors can drive.

Biofuels developer LanzaTech is a New Zealand success story. Photo / Greg Bowker

We know that. We talk about it all the time.

There is something deeper and more fundamentally out of balance in our economy.

We could take heart that New Zealand has not slipped much on the "inputs" side of the GII measures.

Inputs are things like stable political and business environment, the quality of our education system, our infrastructure, market sophistication.

We continue to hold up well on the input side. We rank fourth in the world for institutions – like effective government, ease of starting a business and regulatory environment.

But this just highlights a deep disconnect between the resources New Zealand puts into its knowledge economy and the economic results we get back.

At 22nd New Zealand is still ranked by the GII as an innovation leader.

"Most economies have a linear relationship between innovation inputs and outputs," the reports says. "But there are important outliers that strongly over or under-deliver with respect to obtaining 'bang for their buck'."

New Zealand is one of those outliers.

In short, we're already doing the stuff we need to do to promote the knowledge economy but we are failing to fire.

This is not an easy dilemma to resolve. I hope the new Government has experts working hard on it.

But for my two cents: I think it is hard to look past the failure of our capital market to attract new listings in the past few years.

Xero's stellar run has masked a dearth of tech success stories on the NZX. Many companies – like Rocket Lab and LanzaTech – have skipped listing altogether.

And look at the other countries that the GII lists as failing to get bang for their buck – Singapore, Australia, Canada, Hong Kong.

These are the countries that, over the past decade, keep cropping up as our peers in discussions about overheated property markets.

While New Zealand remains a nation of property investors we will continue to make hard work of developing a knowledge economy.

Read the Global Innovation Index reports here