Evaluating the competitiveness of New Zealand's current economy, this authoritative analysis argues the need to switch from agriculture and tourism as the economic backbone of the country and suggests that the emerging industries of science, technology, and intellectual property will offer more prosperity. Highlighting interviews with entrepreneurs who are creating successful science- and technology-based businesses—including Weta workshop, the cinema special effects company that worked on the Lord of the Rings film trilogy—the study explores vital topics regarding sustainable wealth and cultural change. Interviewees include physicist Andrew Coy, professor Bill Denny, entrepreneur Stephen Tindall, and Weta workshop creator and director Richard Taylor.
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Wool to Weta
Transforming New Zealand's Culture and Economy
By Paul Callaghan
Auckland University PressCopyright © 2009 Paul Callaghan
All rights reserved.
Beyond the Farm and the Theme Park
Over my lifetime New Zealanders' lifestyles have changed in many ways. In the 1950s men died in their fifties of heart attacks, teenage girls disappeared for nine-month periods to stay with distant relatives and people who had travelled abroad were regarded, at least in my Wanganui East street, as slightly scary. Food was meat and three veges and drinking coffee was something risqué and done at night in darkly lit places called coffee bars. Life was good but a bit boring, and I couldn't wait to escape New Zealand. You certainly couldn't be an international scientist or a concert pianist with New Zealand as your base. All that has changed, remarkably. But most of the world has moved on as well, and New Zealand is not the only place where the coffee is great and the food sophisticated. Our measures of life quality tend to be formed relative to those around us, and so our children will make comparisons not with the world of their parents' childhood, but with the world of today, a world that offers them global opportunities.
When I was a child, the New Zealand dollar was always worth more than the Australian and our gross domestic product (GDP) per capita was higher than Australia's. Now our family members head across the Tasman for a better standard of living. New Zealanders like to think that we enjoy a good quality of life, and in many ways we do. But we see that our roads are, by First World standards, poor, and that people die unnecessarily. Auckland is congested, and we don't know how to afford to build Wellington's new northern motorway through Transmission Gully. Pharmac can't afford to provide the pharmaceutical treatments that Australians and Canadians take for granted. We can't help but notice that many of our houses are dilapidated. In fact, our national housing stock, when it comes to insulation and interior warmth, is substandard given our cool and damp climate.
Even if you are prosperous and think that you can avoid all these problems, there is another reason to be worried. Our children go to London or Sydney or New York, and they like the lifestyle, they like the high salaries and they have plenty of Kiwi mates on hand. Our diaspora is around one million. Of course there are plenty of people with brains and talent who want to migrate here to exchange places with our kids. There are plenty of countries on the planet less prosperous than our own. But when our grandchildren are growing up on the other side of the world, when we have to Skype to read a bedtime story, we feel a pang of grief. Our prosperity gap, and especially our prosperity gap with the English -speaking world, causes a disconnect from children and grandchildren. Prosperity matters to families.
The graph below shows how our per capita GDP has changed, relative to the United states, Australia, Finland and Ireland, over the last 35 years. It is not surprising to see that the US is the richest country. However two small countries, Finland and Ireland, turned their economies around and built significantly higher levels of prosperity in the space of a decade.
Australia has maintained a GDP per capita of around 110 per cent of the Organisation for Economic Co-operation and Development (OECD) average since 1970, while New Zealand has declined, improving its performance over the last few years, but by now significantly poorer than Australia. The gap between us and Australia, the extra amount that we would have to earn annually to match Australia's level of prosperity, now represents US$30 billion, around five times Fonterra's export earnings. That is the scale of our problem. And while we are dealing with OECD rankings, we compare poorly in quality of life measures such as imprisonment rates (24th worst out of 30), life expectancy (16th worst) and infant mortality (22nd worst). Are these social factors related to prosperity? I don't know for certain, but I can't see how a declining per capita GDP ranking can help.
It is not as if we don't work hard in New Zealand. In fact we work very hard indeed, compared with most OECD countries, as the graph below shows. Only Icelanders work harder than we do, although that work rate didn't protect Iceland from becoming one of the first casualties of the 2008 global credit crisis. By contrast, the French manage to work fewer hours per person than most OECD citizens. But look at what the French earn per hour. They are at the top, while we are near the bottom. Understanding this comparison is central to understanding New Zealand's recent economic predicament.
Does it really matter? Do we really want to be as prosperous as our Aussie neighbours? Perhaps the answer to that question depends on where we want our children and grandchildren to end up living. But I want to start from the premise that it does matter, and that we would like to bridge the prosperity gap in a sustainable manner that preserves all that is best about New Zealand. I am going to make the assumption that we would rather be wealthy than poor, although we are aware that there are measures of a nation's well-being that cannot be expressed in per capita income.
What follows are my thoughts, illustrated from time to time with data. Mine is only one perspective. The interviews I have held with the other New Zealanders who appear in this book offer other perspectives, some which align with my own, and some which diverge. What we all have in common is a passion for this country and a desire to see it rise to a greater level of prosperity.
FOUNDATIONS OF PROSPERITY
I am interested in economic history and in what makes nations wealthy or poor. A widely held view is that the keys to prosperity are effective markets, legal frameworks, property rights and an honest work ethic. But those factors, in themselves, are not enough. If they were, then New Zealand would be one of the most prosperous countries in the world, since few countries can better us in our openness of markets, legal transparency, hard work and lack of corruption. Since 1984 New Zealanders have debated the roots of economic success. The economic liberals, as they like to call themselves, say that all we need is a level playing field. With low taxes, minimal government involvement in the economy and deregulation, the markets would work their wonders and we would all prosper. But strangely, for over two decades, we have watched ourselves slip behind countries that are less pure, less economically virtuous than we are; countries like Finland or Sweden or Ireland or Israel, places where governments meddled.
Like Harvard economic historian David Landes, who has looked at the way societies prosper or fail, I think that effective markets, legal frameworks, property rights and an honest work ethic are essential to prosperity, but they are not in themselves enough. Landes explains how innovation, based on science and technology, substantially lifts prosperity. In his book, The Wealth and Poverty of Nations, Landes cites the case of Nathan Rothschild, the richest man in the world in 1836, who developed an abscess on his lower back and died at 59 years old from streptococcal septicaemia. Why? There were no antibiotics in those days. To quote Landes, 'The man who could buy anything died of a routine infection, easily cured today for anyone who could find his way to a doctor or a hospital or even a pharmacy.' in that sense, the poor of today's world are richer than the richest person alive in 1836. That is how Landes sees prosperity, not so much dependent on exploiting resources as in using knowledge, especially scientific knowledge. I am interested in the New Zealand side to that story. In the New Zealand context, technological innovation has progressively transformed our lives, improved our standard of living and broadened the scope of our lifestyle choices, with particular local benefits driven by science, from refrigerated shipping and pastoral farming to, most recently, the internet and cheap air travel.
THE EFFECTS OF SCIENCE
Part of the story I want to tell is about science and technology, and their place in our society. First and foremost the role of science is cultural. When Galileo built the first telescope he observed the moon and found it was not a perfect sphere but had mountains and craters. He observed the phases of the moon, as well as the phases of Venus, and he realised the universe was not earth centred but that we were in orbit around the sun. And looking at Jupiter he saw its moons and realised that orbits took place around many different points in the universe. For that heresy, he was silenced by the church. For similar apostasy, Giordano Bruno was burned at the stake. But despite efforts at suppression, the enlightenment had begun and the old earth-centred universe was finished.
Thomas Hooke used lenses to observe the micro-world and a plethora of living organisms was discovered. Humanity learned that most of life was microscopic, single celled and unfamiliar. Charles Darwin gave us an extraordinary new insight regarding the origins of life on earth and from Ernest Rutherford's understandings of radioactive decay, we learned that our planet was not thousands of years old but 4600 million years old. From the X-ray diffraction work of Rosalind Franklin and Dorothy Hodgkin, we learned about the structure of DNA and proteins. The age of biological insight began, insight that enabled New Zealand geneticist Allan Wilson to discover the links between humanity, using the method of mitochondrial DNA tracking. We now know that the average genetic difference between people of different races is insignificant compared with normal genetic diversity in any single monoethnic group. We are all part of a closely related human family.
The place of planet Earth in the universe, the origins and nature of life itself, the connectedness of humanity, these are our philosophical insights from science. But in economic terms science has also driven a rise in prosperity that has permitted the human population to grow. Let me give you just a few ways in which the real wealth of nations has been immeasurably changed over the past five hundred years. Optics gave us the eyeglass and, through Galileo and others, its further descendants the telescope and magnifying glass. Nothing has so increased human productive potential as the ability of those beyond forty to use eyeglasses to continue to apply their skills and contribute to their craft. The telegraph, radio waves, the science of electromagnetism, due to Faraday and Maxwell, gave us modern communications and allowed New Zealand to move from isolation to sudden connection to the world. The discovery, by Fritz Haber, of how to fix nitrogen from air enabled the synthetic manufacture of fertiliser, allowing the world dramatically to increase food production and negate the Malthusian prediction of mass starvation. Fleming and Florey's discovery of penicillin gave us the science of antibiotics and the means to counter the many diseases caused by bacteria. The discoveries of the electron by J. J. Thomson, the atomic structure by Rutherford, the laws of quantum physics by schrödinger and others gave birth to chemical understanding. This was followed by the later discovery by Bardeen, Brattain and shockley of the transistor, leading to modern electronics and the computer age. The development of the contraceptive pill completely changed social relationships, empowered women and gave a new impetus to our productive potential. Contraception has allowed us to manage fertility so that we have the capacity to achieve a levelling of human population on the planet.
Of course we still face issues of sustainability, issues that we will need the power of science to address. That is a subject for another essay. Here, I want to stake my position as a humanist – one who believes that we should not leave nature alone but instead harness science and technology so that humans may prosper, while living in harmony with nature. Those who seek to return to some mythical, Arcadian, pre-industrial past better reckon on reducing the world's population to 100 million and being prepared for a brutal, precarious existence. Unless we relish the thought of some sort of Armageddon where 98 per cent of humanity will be struck down, we humans have no choice except a future based on science and technology.
NEW ZEALAND'S ECONOMIC BASE
If you go to the Rangitikei district of the North island you can go on a tour of stately homes. Many were built in the early 1900s when New Zealand's poor economy went through a rapid growth in prosperity. Newly wealthy families developed delusions of grandeur. The growth was brought about by the science of thermodynamics and the development of the refrigerator. Refrigerated shipping lifted New Zealand from subsistence trade to relative wealth. When I was a schoolboy we all learned the name of the ship that carried New Zealand's first refrigerated cargo, the SS Dunedin. New Zealand children have no longer heard of it.
Agriculture became New Zealand's source of wealth generation. To achieve this we converted most of our forest into greenhouse gas, giving us an abundance of grass. This use of our land has been a springboard for present prosperity. Jared Diamond writes of the importance of a biodiversity buffer of indigenous forest – about a third of a country's land area is necessary to be effective. On that basis, and given that we no longer cut down our native forest, we seem very balanced at present. However, we cannot claim the moral high ground in telling developing countries that they shouldn't cut down their rainforests or use their coal resources.
The story of our bedrock, land-based industries is an impressive one. Our science innovation gave us world-class agriculture, so that, by the time I was born, New Zealand had one of the highest per capita incomes in the world. We have become a big international player in agriculture and we are a 'superpower' in dairy exports. And of course, our absolute prosperity has increased as we all share the fruits of international science and technology discoveries. So why has our per capita income relentlessly slipped behind countries we used to better? Why do we work harder for less than the rest of the developed world?
To understand that problem we need to go back to some historical indicators. We export commodities and recently that's been a pretty good thing to do. But look at the long-term trend for commodities from The Economist (below). There are localised peaks when times are good, but the overall trend is relentlessly down. To illustrate the point we need look only at the ratio of meat exports to pharmaceutical exports, the number of sheep carcasses needed to buy a quantity of aspirin or chemotherapy treatment. Forty years ago our meat exports paid for our pharmaceuticals bill eighteen times over. Now it pays for it four times over. Even in the past few years, while we have enjoyed a commodity boom, that ratio has stayed fairly flat. The long-term prospects are clear: relentless decline.
Why then do we have a US$30 billion per annum GDP per capita shortfall vis-à-vis Australia? in part, the Australians are lucky. All they have to do, when they are feeling poor, is to dig another hole and sell the uranium or bauxite that they find to China. Or at least, that's how our myth goes. But of course the truth is more complex. Their productivity is better than ours, in large part because of a better superannuation savings record and consequent investment over the past decade. They seem to have managed their economy better and of course they have greater economies of scale. But their large market is ours as well, thanks to the Closer Economic Relations (CER) agreement.
Excerpted from Wool to Weta by Paul Callaghan. Copyright © 2009 Paul Callaghan. Excerpted by permission of Auckland University Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
1 Beyond the Farm and the Theme Park,
2 Our World-class Success Stories Michael Chick, Mike Daniell, Peri Drysdale and Richard Taylor,
3 The Aspirants Murray Broom, Hans van der Voorn, Bill Denny and Andrew Coy,
4 The Challenge for Science Andrew Wilson and Di McCarthy,
5 Maori Perspectives Craig Rofe, Ocean Mercier and Wayne Mulligan,
6 New Zealand's Prosperity David Skilling, Rod Oram and Stephen Tindall,
7 Our Capacity to Succeed Sally Davenport, Neville Jordan and Stephen Tindall,
Epilogue: From Wool to Weta,