The development of New Zealand's advanced manufacturing sector should complement and integrate with its already internationally competitive primary sector industries. As last year's export receipts show, these are the "cash cows" that will help pay for diversifying into the inappropriately labelled "high tech" firms. New Zealand needs state-of-the-art manufacturing plants across sectors and to exploit the obvious synergies that lie between them.
The notion that "high-tech" firms do not exist in the primary sector is both untrue and unhelpful - a quick visit to any of Fonterra's or Silver Fern Farm's processing plants or a wood manufacturing mill such as Claymark or Red Stag (to name just a few) will quickly dispel this myth. It is equally fallacious to follow the "high-tech" fad and pick winners in that space.
Contrary to Sir Paul's view, the forest industry has been one of New Zealand's most successful growth sectors. Further, it has much more to offer over the next few decades as climate change, peak oil and other resource constraints begin to bite more strongly.
It is easily New Zealand's third largest export earner, has grown GDP on average at 3 per cent a year over the past decade (one of the best rates across all sectors); provides more than 22,000 jobs critically important to many of our regional economies; has aggregated value chain sales within New Zealand of about $11 billion a year and is a major element in meeting our national greenhouse gas reduction target.
Forestry is a big contributor to New Zealand's "clean and green" image and is going to play an even more important role in that sphere in relation to water quality and biodiversity in the future.
In the Bay of Plenty each full-time worker in forestry generates an estimated $213,000 of GDP, right up there with the target range needed to lift New Zealand's overall economic performance.
While about half of the logs harvested are exported in raw form (too many, I agree), the remainder are processed through advanced manufacturing plants such as those referred to earlier. Wood fibre mills such as Carter Holt Harvey's Kinleith plant in Tokoroa and Pan Pac's plant north of Napier (who last week announced a $70 million upgrade) generate six to eight downstream jobs for each employee. Both supply growing markets in Asia in particular.
They are well positioned to take advantage of emerging changes to global packaging standards that increasingly demand renewable materials and in market segments as diverse as clothing (rayon), resins and adhesives (and other so-called "green chemical" substitutes for increasingly expensive oil-derived analogues).
While it may be true that China (and Germany) will dominate the rapidly emerging renewable energy and "clean tech" sectors, New Zealand has capability in distinct niches within the biologically derived renewable technologies domain.
Growing company investment in these areas, such as we are experiencing at Scion, confirms New Zealand's advantages in these domains. Unsurprisingly, a number of opportunities in this area have arisen through the application of biotechnology. Whether these are labelled "clean tech", "biotech" or "green growth" is immaterial - the essential thing is they present high margin growth opportunities for New Zealand firms and investors.
It is convenient to overlook the fact that many of New Zealand's specialist technology development and service firms have been spawned by the primary sector. Consider, for example, Kawerau-based Allied Engineering, a leader in heavy engineering and fabrication built on the backbone of the local forestry cluster.
They employ more than 70 highly skilled engineers who use sophisticated precision equipment to now also service the rapidly growing and nationally significant geothermal sector (an important part of the Government's latest energy strategy), exports into Australia and the South Pacific; and to machine things as diverse as keels for America Cup racing yachts.
Or consider the new food innovation pilot plant at Manukau, which will be officially opened this month. This novel food industry / public sector collaboration will make available to the food processing sector a range of highly sophisticated new processing technologies that will help to spawn step-change growth in New Zealand's added value processed food exports, on top of the already impressive 18 per cent a year growth achieved over the past decade.
Critically for New Zealand, these firms and pilot plant are not going to be whisked overseas (often after considerable taxpayer support) when they have reached mid-size and either become a competitive threat or valuable to a large multi-national.
It is worth contemplating why more advanced manufacturing firms have not established in New Zealand. Relative to our competitors our cost of capital is high, exchange rate more volatile and level of R&D investment lower.
The former two characteristics in particular are challenging for investors.
Picking "high-tech" or any other area as a winner without addressing these fundamental macro-issues is likely to see us continuing to contemplate why our economy has not diversified and caught up with our transtasman neighbours by 2025. Our future lies in finding complements too and building on our well-proven strengths in the primary industries, not denigrating them.
Michael Corballis: The money or the truth?
Michael Corballis is emeritus professor of psychology at the University of Auckland and a member of the council of the Royal Society of New Zealand.
Sir Paul Callaghan is an eloquent and passionate advocate of the potential role of science in expanding the country's economy.
He is himself an outstanding example of an academic scientist who has combined cutting-edge science with commercial success. And there can be little doubt that science underlies most of the achievements of the modern industrial world. As Sir Paul has observed, New Zealand lags well behind other developed countries in the support of science from both government and industry.
In many respects, though, science and commerce are often uneasy bedfellows. Science is dedicated to truth, commerce to profit.
Although many scientists are would-be entrepreneurs, scientific progress depends ultimately on verifiable evidence, and not on entrepreneurial hype, and science has generally held to accepted scientific standards rather than commercial possibility.
The keepers of scientific purity in New Zealand are: the Marsden Fund, set up to support "blue skies" research; fellowship in the Royal Society of New Zealand, based primarily on international scholarly recognition; and the Performance Based Research Fund, allocated to universities based on the international standing of their scholars. These are the gold standards for academic advancement, but they are not framed in terms of commercial success.
For all that, commercial imperatives are also infiltrating our universities, where courses in entrepreneurship and commercialisation have spread from business schools to faculties of science. It is beginning to work reciprocally, too. In the US, the National Science Foundation, traditionally responsible for the funding of basic research, recently established an Innovation Corps to turn promising university research into start-ups for business. The idea is not so much to train scientists in business, but rather to encourage scientists to approach business projects using scientific principles, rather than business ones.
Part of the reasoning is that scientists are better trained to deal with failure and use it to their advantage. In some industries the idea works well. In Silicon Valley, the first three companies to go public were founded and run by scientists and engineers. They adapted quickly to marketing, sales and executive roles. The company founded by Sir Paul in this country is another example.
The injection of commerce into biology seems much less promising. As Sir Paul has pointed out, we have overinvested in biotechnology, but the overall return has been zero.
In some areas of science, commercial motives may be downright negative. One warning sign is the trend to forbid scientists working on commercially funded research to publish their data. Science is by its very nature open, and any scientific claim should be available to possible refutation.
In his book Bad Science, Ben Goldacre gives several examples of US drug companies filing claims to block publication of studies that show their products to be no better than placebos, or actually a danger to health. In some cases, the drug companies were even supported by the universities where the studies were carried out.
It is in the human sciences that the discrepancy between truth and profit is perhaps most glaring. Given the power of suggestion, placebos and human desperation, it is all too easy to devise therapies or potions than can bring easy profit, but at the expense of empty promise. There are no easy cures for conditions such as dyslexia or attentional deficit disorder, and even relatively normal behaviour patterns are sometimes reified with labels so that suggested "cures" can be imposed - and charged for. This is not to denigrate those who try to find genuine ways to alleviate psychological or medical distress, but it is important to ensure that such work is governed by the search for truth rather than profit.
By all means let's use science to boost the economy, but let's also understand that the only way science can legitimately do this is by revealing what is true, and what actually works.
And the focus should not be limited to narrow commercial or applied projects; it is basic, curiosity-driven science itself that brings the longer-lasting rewards, whether commercial, cultural, or simply mind-expanding.
The world would be a poorer place without the profound discoveries and insights of Newton, Darwin, Einstein, or Watson and Crick, or of such eminent New Zealand-born scientists as Vaughan Jones, Alan MacDiarmid, Lord Ernest Rutherford, Maurice Wilkins or Allan Wilson.
Sir Paul suggests that there is a special place in New Zealand for "weird stuff", which is in fact a fair description of much of basic science, but we have let many of our most talented basic scientists escape.
And if we can profit from weird stuff, let's ensure that it's not only weird, but also true.
