By DANIEL RIORDAN
The knowledge economy may be the key to New Zealand's prosperity in the 21st century. But right now, it's a myth.
So says the head of the Government agency responsible for dishing out research money to the smart people whose smart products are supposed to make this country rich.
Neil Richardson, chairman of the Foundation for Research, Science and Technology, might have had a twinkle in his eye when he made his statement at the foundation's biennial futures conference this week, but his point is both well made and a rallying call.
We hear a lot about Kiwi can-do, the innovative spirit and the international successes of our scientists and entrepreneurs in electronics, biotechnology and information technology.
But rated on most of the criteria that matter in the knowledge economy, we lag behind the rest of the developed world in a race we cannot afford to lose.
Our report card, as measured by the Organisation for Economic Cooperation and Development, is more like Bart Simpson's than Ernest Rutherford's, as knowledge economy evangelist Professor Howard Frederick of Auckland's Unitec has no pleasure in pointing out.
Some of the knowledge indicators are healthy. In ownership of personal computers, the cost of international phone calls and mobile phones per head, we rate well against our developed peers in the OECD. Especially favourable are our number of internet hosts per head and public expenditure on education.
Throw in some other pluses. We are an attractive place for knowledge workers. We have no capital gains tax and no estate duty.
We have one of the most advanced telecommunications networks in the world.
And for many scientists and high- tech workers, living here is cleaner, greener and a whole lot less frenetic than Silicon Valley and other high-tech clusters.
That's the good news. The bad news, unfortunately, is really bad.
We rank abysmally low in perhaps the three most important indicators of a knowledge economy: the percentage of exports that are high technology and high value-added, the number of technical graduates (computer science, mathematics and engineering) per head, and the amount of money spent on research and development.
Around half our total exports are commodities whose prices fluctuate widely on world markets. Their real returns will continue to decline.
Only 11 per cent of New Zealanders have a university-level education, well below OECD averages.
We turn out more lawyers than engineers and struggle to keep talented technical people at home.
Although our researchers are a highly productive group (responsible for as many scientific publications per head as the Americans), our share of researchers in the labour force is low by international standards. Our schools have a low penetration of computers and internet facilities and too many of our teachers are technology neophytes.
While Government investment in R and D is higher than the OECD average, private investment in R and D is so low that the total public and private spend trails every OECD country bar the Eastern European countries, Spain, Portugal, Turkey and Mexico.
Okay, so we don't all have access to the latest bells and whistles, but aren't we the original risk takers with No 8 wire who can get the job done however limited our resources?
Well, to a point.
Although New Zealand's science-based business history is peppered with world breakthroughs, the men and women who run our biggest companies tend to take a conservative approach to the brave new world.
In a 1998 Ernst & Young survey of chief executives of our top 500 companies, nearly 70 per cent said they adopted new technologies late or went without them altogether. Only 7 per cent said they saw their organisations as innovators.
All of which leaves us a long way distant of the knowledge economy success stories we would like to emulate such as Ireland, Finland and Singapore.
Ireland's stunning growth rates of the past decade (more than three times the European average) came after economic liberalisation, fiscal restraint, tax and labour market reform.
Sound familiar?
Admittedly, the Irish had a big hand up from European Union funding designed to help disadvantaged regions.
But now Ireland has a thriving information technology industry, with electronics and software exports worth 40 per cent of total exports.
Thriving Finland had an economy like New Zealand's, heavily dependent on primary commodities. Its biggest company, electronics giant Nokia, was once a pulp and paper company and changed direction in the late 1980s.
Many of Finland's agricultural firms also converted to the new knowledge industries. The key to Finland's success was the decision by its Government, as recently as 1994, to try and capitalise on existing high levels of information technology penetration and expertise.
The Government developed a national strategy and backed it by deregulating the telecommunications sector and launching programmes to stimulate the economy.
Closer to home, Singapore was one of the first countries to convert to a knowledge economy, its Government launching from 1981 a succession of programmes to boost the uptake of information technology. Singapore's Government is spending $1.8 billion over three years to promote just electronic commerce and online administration. Our Government is spending $28 million over four years.
Funding new ideas has never been easy, but life is improving for small firms with bright ideas looking for venture capital funding.
Some of the biggest institutional investors now run risk capital arms, a raft of companies investing in information technology and e-commerce ventures have listed on the stock exchange, and privately raised funds have lifted the profile of the Kiwi venture capitalist.
But it's still hard going. In the words of software innovator John Blackham: "The VC scene in New Zealand looks a bit like the Kalahari Desert. If there's risk involved, there are no reliable capital sources in New Zealand."
That may be the situation for a while yet.
Kiwi backyard inventors may look longingly to the US market, where fat wads of the billions of dollars dished out by VC firms go to start-ups in search of low percentage home run returns, but local investors lack the resources to take the kinds of chances needed to support genuine early-stage venture capital investment.
It is one of the roadblocks to be pondered by Mr Blackham and eight others named last Wednesday to Prime Minister Helen Clark's Science and Innovation Advisory Council, an independent think-tank charged with leading the way to the knowledge economy.
Stephen Tindall, also named to the council, has been there before.
Managing director of The Warehouse and backer of around 20 private innovative projects, Mr Tindall served on the Enterprise Councils of previous Prime Ministers Jim Bolger and Jenny Shipley.
He is impressed by this Government's determination to embrace the knowledge economy.
"They're trying hard, they've got the right attitude and [Research, Science and Technology Minister] Pete Hodgson really impresses me. But we need a couple of winners in New Zealand to put ourselves on the radar screen of all the people that need innovation and R & D done from the Northern Hemisphere, and then the opportunities for us as a country are just huge."
Perhaps the circuit breaker will be a giant overseas company like Motorola deciding to set up here. The Chicago-based company has scouted Christchurch as a possible site for a software research facility that would create initially about 150 jobs and generate secondary benefits measured in the tens of millions of dollars.
The Christchurch City Council says it has an assurance of Government assistance in tempting Motorola. The Government will not say what form that will take.
Rest assured that the countries we measure ourselves against in the global knowledge economy would not be so bashful.
Finland, Ireland, Singapore, Israel with its high-tech incubators - business in those countries enjoys a greater sense of leadership from Government.
The money this Government is distributing to the knowledge economy through its various funding schemes - including Industry New Zealand's incubators - is not intended to move mountains.
But its decision to help finance private sector research and development spending with grants rather than the tax breaks it had earlier promised tarnished any vision it might be seen as offering business.
Treasurer Michael Cullen says tax breaks would have cost the Crown $100 to $120 million a year in lost revenue, helped fledgling unprofitable businesses not one bit, and opened a Pandora's box of tax loopholes to be exploited by the smart men and women running the smart companies.
Some of our biggest research-based industries, including biotechnology, would settle for tax neutral treatment of R & D.
NZ losing knowledge race
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