Howard Frederick
Professor, School of Communications and Management
Victoria University of Wellington

New Zealand's Voyage into the Knowledge Economy

Dr Frederick has made his presentation available on his own site. Netscape users can view it here; Internet Explorer users, here.

New Zealanders today face the challenge of how to settle the new territories of cyberspace. In the same way as crossing the oceans, the settlement of new territories requires considerable knowledge, courage and perseverance. I usually use the voyage metaphor here because it speaks to both Maori and to pakeha. No two vehicles can symbolise this more than the cyberwaka and the clipper ship Dunedin.

For Maori the knowledge economy presents challenges as daunting and benefits as unexpected as when the ancestors voyaged into Aotearoa. Once again, using their high technology uptake and drawing upon pride in such knowledge-ware as stellar navigation, Maori have the chance to settle the new territories of cyberspace. Maori are extremely proud of their technology uptake of agriculture, the musket and publishing and now add to these the Internet, electronic commerce and virtual tourism. I use the image of the waka to talk about how Maori are going to settle the new territory of cyberspace and electronic commerce. I like to refer to the cyberwaka as the vehicle that is going to take Maori on this voyage into the knowledge economy.

For pakeha the image is of the economic impact of the new clipper ship Dunedin. Speeding across half the world in 98 days in 1882, the Dunedin brought the first shipment of frozen meat from New Zealand to Europe, opening up new economic vistas for our country. The Internet is the modern equivalent of the freezer ship, because it takes our product to Sydney, to Hollywood and to London. The cyberwaka and the Dunedin are the two voyage images that speak to New Zealand's culture and economic history.

What is the knowledge economy?

A knowledge-driven economy is one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth. We refer to three waves of society - the first wave being the agricultural society, the second the industrial society, and the third being the information age. In each wave we use different material factors to produce our wealth.

New Zealand integrates all three waves of society. We still have the highest proportion of our population in agriculture in the OECD, about 11 per cent. We travelled across the industrial age in a very green fashion. We never had the smokestack industries that polluted the environment as my countrymen did in Pittsburgh and Detroit. Wellington is the most networked capital city in the world and will probably be the first city on the planet to cross 50 percent Internet penetration.

In the third age or wave we use data, information, culture, pictures and symbols. The definition of a knowledge worker is someone who manipulates symbols rather than machines. That definition probably includes all of us in this audience today. 'Symbol analysts' include architects, bank workers, fashion designers, pharmaceutical researchers, teachers and policy analysts. The basic criterion is that a person primarily uses her brain in addition to her hands. Peter Drucker first referred to knowledge workers and the knowledge economy in 1969. By 1977 the U.S. Department of Commerce showed that knowledge workers already led the U.S. labour force and today more than 60 per cent of workers in the U.S. are knowledge workers.

The knowledge economy also includes those value-added, knowledge-driven parts of the agricultural economy for which New Zealand is famous. New Zealand's agricultural economy is becoming more knowledge intensive - from organic farming and specialty olive oils to bio-technology, DNA fingerprinting of trees, digital imaging of fruit, sheep genomics and meat processing robots. We need to reduce our dependency on raw exports of primary exports and to increase the knowledge product of our agricultural exports. Agriculture is very much a part of the knowledge economy and this is something I cannot emphasise too much.

New Zealand's Dilemma

I want to speak about the crisis that is facing New Zealand's economy. We know that we've got the first part right and there is a tremendous sense of optimism. We are among the most competitive nations on earth, always ranked in the top five in terms of liberalisation and deregulation. But there is a darker side to this picture, one that politicians and leaders around the country fail to recognise. Our competitors are now playing a vastly different game, one that is not focused on commodities, while we still play the game of commodity exports.

We aspire to have the standard of living of a country like Spain, but we cannot manage more than the export profile of a country like Kenya. This may go down in history as the New Zealand syndrome, namely, being the one country that did not make the transition from the pastoral economy to the information age. There is another name for it in economic literature and that is the Argentine disease. In 1929 Argentina was the third most prosperous country in the world, even more than Spain itself. But as a result of the stock market crash and World War II it collapsed into a third world developing economy.

New Zealand was also the third most prosperous country in 1960. Now it ranks just above Greece and Portugal and its competitors are no longer Spain, Great Britain or Ireland, but Estonia, Slovenia, and Hungary, who are aspiring to raise their standards of living and join the European Union.

Roadblocks on the Kiwi information superhighway

There are certain cultural and economic roadblocks on the Kiwi information superhighway: The tall poppy complex. We do not celebrate our entrepreneurs the way other countries might. We tend to attribute their success to golden handshakes or corruption, rather than to being entrepreneurial.

The comfy boat syndrome. Like the East Germans, who were not able to compare their economy to others before the fall of the Wall, we think how great our bucolic islands are and aren't able to compare our standard of living to countries like Canada or Finland.

The haemorrhaging brain drain. Our kids go off on the big O.E. to Hollywood, or Sydney, or London, and they simply don't come back. We have thousands of expatriate Kiwis who are making their livelihoods quite successfully in other parts of the world.

The 'she'll be right, mate' ship is listing and we just rely on our captain, disregarding the weather, and disregarding the fact that the ship has a hole in it. New Zealand is simply not on the radar screen as a country of ideas and innovation. Clinton, for all of his tremendous statements about the tourism industry, did nothing to dissuade the world that New Zealand is a country of extreme sport and sheep and landscapes.

A Shift in Thinking

We are not known around the world as a country of ideas and innovation. We need a fundamental change in thinking about this. We must no longer see ourselves at the edge, but see ourselves as being the edge. We must see ourselves at the centre of the global information economy with our new Dunedin pipes, big digital pipes to deliver our product of services, technology, knowledge and education from the centre of the global universe into other parts of the world. That is a shift from this vision that parents, principals and leaders have as New Zealand being so far away. We are no longer so far away.

The World Bank's 1998 World Development Report states: 'Knowledge has become perhaps the most important factor determining the standard of living.' (Log into worldbank.org/wdr to download this significant document.)

Korea and Ghana had basically the same standard of living in 1970. The Koreans chose a different development path, one that emphasised education and technology and one in which the parents push their children into science, mathematics and commerce. Today, there is more than a sevenfold difference in the standard of living between these two countries, and more than 60 per cent of that is attributed to this knowledge strategy approach. Other countries don't take 25 years to achieve this. Singapore and Finland have followed this track and turned themselves around in ten to15 years. I believe we have ten years to do this and New Zealanders can do it in ten years.

More than 55 percent of global trade is now in the high and medium technology area. What is medium technology? The Fisher and Paykel drawer dishwasher is a good example of medium technology. Basically, you put your dishes into a Pentium computer with two drawers. Interestingly it is being marketed in a very niche advantage in New York to highly computer literate Jewish families in Manhattan. Why? Because it has two drawers and you never mix your kosher dishes with your non-kosher dishes in the Jewish tradition. You have separate dishes for dairy products and for non-dairy products. The drawer dishwasher is positioned at the high end of the market at about $US1650. In other words Fisher and Paykel have added value to a medium technology product.

New Zealand has only 5 per cent of its trade in the technology arena whereas our competitors are experiencing a tremendous and accelerating increase in terms of their technology contribution to exports. In Australia the knowledge economy strategy is called the new silk road. In Europe it is called the information society and in the United States it is called the national information infrastructure. In New Zealand there is no name for it because there is no policy, there is no strategy, there is no institutional champion. We have no clue. New Zealand has no plan.

Finland and Ireland seem to be our closest examples. Ireland is experiencing a tremendous resurgence of culture and economic prosperity, transforming itself from an ailing, virtually bankrupt economy into one of the fastest growing dynamic economies in the world. Young minds are staying rather than emigrating. Major investment in upgrading education and training is now paying dividends. Between 1970-1993 Ireland increased its percentage of high tech exports from 12 per cent to 44 per cent. New Zealand increased its percentage of high tech exports from approximately 1 per cent to 5 per cent over the same time.

More than a thousand expatriate Irish are returning to their homeland a week. A chartered 747 leaves Boston's Logan airport weekly taking back Irish high-tech workers to work again in their home country. The Business Roundtable will say that's largely due to the subventions from the European Union financed out of the pockets of the German taxpayer. That may be true, but it is certainly not the most important factor.

Finland does not have those subventions. It is already a wealthy country and there, for example, Nokia, the Fletcher Challenge paper of Finland, is totally transforming itself from an exporter of pulp and paper products into one of the world's leading electronic exporters. Many of Finland's agricultural firms have converted to the new knowledge industry. Their GNP has jumped fivefold in its high-tech percentage.

Aotearoa New Zealand is certainly the most beautiful country in the world. Where does a knowledge worker want to live, if not in the most beautiful country in the world with no capital gains tax? It is ideal. New Zealand has a high potential to attract knowledge workers, if we would only get the prerequisites right. We have an excellent reputation with the potential to be one of the world's leading knowledge export platforms in everything from services to agriculture to high technology.

We currently have low costs and low business operating costs and we can see ourselves as a platform for this new economy. Why? Innovation equals Kiwi. Why is a Kiwi so innovative? Even in the American West we were able to order spare parts for the railroad from 1868. In New Zealand there were no spare parts. You had to use number eight wire. There were all those expressions such as: 'A Kiwi can make an engine run off a pile of oily rags'. The rural environment, single family units, an infrastructure that was not developed, and the nature of the topography itself meant that Kiwis had to innovate to survive.

Our Kiwi-genuity has led New Zealanders to develop a number of niche products that distinguish themselves around the world. These include control systems, software, wireless communication, the human interface, security encryption and payment systems, multimedia, radio, earthquake engineering, EFTPOS financial services, logistics, distance education, and the list goes on. We don't need to fear that we will have too many competitors because we have niche advantages in these areas. Companies like Ericsson and IBM are here in New Zealand setting up test programmes and innovating new programmes because we have that demographic profile they're looking for - the forward-thinking, educated, English-speaking, high-technology uptake.

Maori also face the challenge of how to deal with the knowledge economy. It is the Maori dimension that differentiates our products from other countries such as Australia or Ireland. Maori have a new phrase 'matauranga tauhokohoko', which is the knowledge economy or knowledge that is traded. Maori face tremendous challenges in licensing, copyright and ownership. But it is this that provides that distinctiveness. The famous Maori proverb, 'the old net lies in a heap while the new net goes fishing' is attributed to the high technology uptake of Maori.

I testified on behalf of Maori before the Tribunal in the Maori radio claim. The Crown maintained there was no such thing as a radio spectrum. Judge Savage asked me at the very beginning whether there was a radio spectrum and if so if it existed in 1840. I said that as surely as there are such things as solar flares, aurora borealis, lightning and static electricity, which Maori undoubtedly chronicled in karakia and chants, a radio spectrum existed at that time. But Maori had neither the people nor the ability to decode it. Maori had their national hui on telecommunications and information technology at Otaki three weeks ago. One hundred and fifty software engineers were amongst the wide range of people attending.

What prevents the take-off?

We have all the infrastructural variables.

The first is the school system. It is the weakest link. The average school is the end of an analogue switch, with teachers who are 51 years old. Forty percent of new teacher graduates have never touched a keyboard and more than half of all school principals admit to never checking their e-mail. This is a travesty of the highest order, not limited to primary schools, but including the tertiary sector.

Telecom is one of the greatest obstacles to the rise of the knowledge economy in New Zealand. What other modern country with a deregulated and liberalised economy still has the former monopolist with 99 per cent of the customers? In fact Wellington is the only territory in New Zealand with a competitive telecommunications environment. I don't denigrade Telecom, it is an excellent company and it is doing exactly what an excellent company would do in a policy vacuum.

Immigration. We need to have a knowledge worker-friendly immigration policy and to begin to bring back expatriate Kiwis who have these talents in the United States and elsewhere. The deficit of information workers is quite obvious. The United States has a special visa category to bring in knowledge workers.

Research and development has been shown throughout the world to be a significant factor in prosperity. Every dollar invested in research and development has a multiplier effect. Research and development of the IT sector in the United States led to the most explosive economic growth the world has ever seen. Hundreds of billion-dollar companies were created. Here only 1.3 per cent of PGSF funds go into information technology. Fifty-five per cent of this is captured by primary research in the agricultural sector via the Crown Research Institutes.

The substantial tax disincentive. Every dollar a private company invests in its own research costs that company $1.13 in New Zealand. Let's not talk about tax incentives until we can eliminate the tax disincentives on private research and development. Other countries have national offices, they carry out high-visibility demonstration projects, governmental services on-line. They promote electronic commerce.

The bottom line is that New Zealand has no strategy. The National Party has just issued its bright future declaration. Mr Cullen has come up with some very interesting ideas in today's paper, focusing on the knowledge economy and tertiary education. Mr Anderton has proposed a multimillion-dollar fund for technology investments. Mr Prebble still calls this whole thing the cargo cult. Basically, what we need is a new approach. We need leaders to stand up and say: 'Let's move towards a learning economy, one that bridges the gap with business and focuses on the tertiary sector.' We need to make some tough decisions. For example, do we need Russian instructors at university, when there is not even a bursary certificate in computer science in the seventh form? You can get a bursary certificate in sculpture, but you can't study computer science in high school.

I am calling for the immediate appointment of an ambassador to lead this charge. I am not talking about top-down subvention schemes or that big bad 'I' word - intervention. But we need an office that coordinates all this. We need to get our electronic commerce legislation in order. We need to immediately start doing procurement, as many other governments are doing, and so forth. These are not expensive solutions. We need a smart government in order to generate smart communities.

The government has a role to play. It already intervenes in immigration, research and development, education and many other sectors. We need to have a strategy. We need to reduce our dependency on commodity exports and increase our knowledge-driven agriculture industry. We need to drive up the GDP share of all of these knowledge-intensive industries. Education and lifelong learning for all of us makes a big difference. We need to focus on science and technology, but that doesn't mean no more commerce graduates. Most scientists have never written a business plan and they need help to take their product from mind to market. We need to exploit those niche advantages that we have and address these market failures in education, immigration, venture capital, research and development, and exporting.

Most importantly we need champions to propel these developments. We need people such as yourselves who stand up wherever you are, whether at the Cabinet level or at district council or even at the community trust level. (Community trusts have $5 billion in assets that could be invested in school computing and stimulus funding for technology.)

We are not at the edge, we are the edge. We need to get ourselves on the radar screen as a technology nation, as a knowledge export platform. To correct this misperception we need to see ourselves as a country of innovation and ideas. Our greatest national resource is not sheep, as valuable as they may be. It is our brains.