In Playstation online shooter games, a “camper” is someone who doesn’t head out to find kills, they just wait for kills to come to them.
Among players they are widely ridiculed.
The passivity of the campers is a bit like the New Zealand economy, for example our:
- Lack of investment in international markets
- Transactional attitude to exporting
- Low levels of R&D.
Instinctively our industries and businesses like to sit and wait.
The opposite of camper countries are ones like China, Singapore and Korea. Old economies such as those in Europe have moved beyond a camper mentality because they’ve had to – they can’t afford to lie around and expect things to happen because they are no longer naturally blessed.
Non-camper countries rely heavily on human capital instead.
Not so much NZ, for the moment anyway.
We’ve basically fluked first world status thanks to enough economic opportunities (kills) randomly popping up in our sights; we haven’t gone on marches, launched invasions, set up ambushes or done anything particularly adventurous.
Our strategy is to lie in wait.
Fair dues though – when an opportunity has wandered into our line of fire, we’ve been particularly deadly.
We were gifted some of the best agricultural land around. On the back of this we developed one of the world’s most efficient farming systems.
We’re also sitting on unknown quantities of oil and precious minerals.
Our second bit of luck was being British. It’s hard to imagine any other imperial power being so benevolent to a nation on the other side of the world. And we milked that for all it was worth.
We didn’t invent frozen meat shipments, but we led the world in developing an industry around the technology.
Likewise with a bunch of dairy technologies that allowed New Zealand to become the world’s largest exporter of milk products.
And aerial top dressing was not a New Zealand first, but again we probably made more of it than any else.
The other big kill to wander into the Kiwi camper’s line of fire was war. World War I resulted in a horrendous loss of life, but the war years and the early 20s were a boom period for Kiwi farmers (till they came a cropper with huge debts).
Similarly World War II sparked a boom, as did the Korean War a decade later.
The most recent of the “strategic kills” above are aerial top dressing and the Korean War. Since then I guess tourism has wandered into our line of fire, but that’d be about it.
So camping has delivered us farming, extractive industries and tourism (which again has been clinically capitalised on). Sounds like we haven’t progressed much since the late 19th century.
As Sir Paul Callaghan says, we are poor (at least relative to countries we like to think ourselves the equal of) because we choose to be poor.
Time for a new strategy.
HT – Tom Booker aged 12
The PM’s science adviser Sir Peter Gluckman is a forthright man, in a recent speech dumping on some Kiwi attitudes and culture .
He says:
• We have a mistaken belief that innovation springs from “frontier inventiveness” rather than from sustained investment in knowledge, R&D and innovation.
• “As an egalitarian and frontier society with its innate anti-intellectualism we have had a limited appreciation of the importance of knowledge for the modern small state.”
• “This country has been inhibited by lack of intellectual discourse…”
Historically, he said New Zealand has had a very low public and private investment in R&D relative to other countries we like to compare ourselves to. “I suspect the reasons for this are largely cultural.”
The cultural dimension – our cultural legacy – has always been a biggie for BigCake in his search for reasons behind our long-running economic plight.
Other cultural blind spots include:
• Short termism
• A lack of appreciation of salesmanship.
In his speech at OECD Symposium and workshops 2010 Gluckman said New Zealand was a frontier society.
“…until Britain joined the Common Market, [NZ] did not think much beyond commodity exports.
“Perhaps with some historical justification it convinced itself with stories about number 8 fencing wire and home-grown problem solving; namely that innovation can come from frontier inventiveness rather than from sustained investment in knowledge, R&D and innovation broadly defined.
“However, once Britain was no longer our customer and the protectionism of the 1970s was removed, New Zealand has struggled to lift its game despite strong commitments to orthodoxy in economic policy.
“That, together with our egalitarian ethos, makes us as a society somewhat reluctant to make active choices. As an egalitarian and frontier society with its innate anti-intellectualism we have had a limited appreciation of the importance of knowledge for the modern small state.”
A Ministry of Economic Development report makes a strong plug for the farm over pharm path to our economic salvation.
Ummm…unless the pharmaceutical ingredients come from the farm. (Using pharm as a term to describe the knowledge economy path).
The report, done by Coriolis consulting, makes the case that we need to add more value and processing to our food and beverage exports, building on our competitive advantages in growing and breeding stuff.
BigCake has in recent times (ie once he got out of the grip of the Knowledge Wave, memorably described by Vincent Heeringa as being similar to a Youth for Christ rally) favoured the farm path. While obviously not an either or situation, NZ has have limited science dollars so we need to aim where we’ll get our biggest bangs for bucks.
And that I’m afraid is concentrating on leveraging off our natural and human competitive advantages in things like the life sciences and food and beverage value add.
And the Coriolis report claims there is a lot of slack in our F&B performance. On a export per capita basis we do okay, but we perform poorly when it comes to F&B exports per square kilometer – “…we would appear to have ‘spare capacity’ to export more.”
Denmark achieves around $600,000 of export dollars per sq kilometre; we manage around one tenth of that.
Less available farm land and falling overall animal numbers, Coriolis says strongly suggest that the path to exporting more F&B in the future is not just ‘more of the same’.”
And there’s been a bit of that going on.
Coriolis says that “despite sending meat to the U.K. for over 120 years, we own no major in-market processors.
“In many traditional sectors, New Zealand has failed to forward integrate along the value chain, as this example from the meat industry shows.”
BTW – The impact of the Knowledge Wave with its focus on a weightless economy has been pretty dismal, at least in terms of changing the makeup of our exports. According to Corialis, food & beverages as a percent of New Zealand’s total export value rose between 2000 and 2009 from 44% to 53%. (In 1940 they were 67%).
Coriolis also makes the point that F&B is the only way we are going to get the scale needed to hit our target of matching Australia’s income by 2025. To get there we need to at least double our exports per capita and that means adding another US$40.1 billion in export sales by 2025 at an annual growth rate of at least 6.2% per year (more than the past 15 years – 4.9% – but less than historical rates).
“We don’t need to invent an industry from scratch. Processed foods are happening. They are a trend achieving solid double digit export growth over a long timeframe (i.e. they are not a fly-by-night fad).
“There is currently a shift underway towards more value-added processed foods.
“Processed foods exports to Australia are not just large, they are also growing rapidly; interestingly, our Australia processed food exports took-off in around 1999.
In general, New Zealand processed foods are growing faster in Australia than elsewhere; many of these categories represent huge potential opportunities for New Zealand if we can “crack the case”.
BigCake’s four big themes have been:
1. Economically we are in a hole
2. We need to recognise we are in a hole
3. We can extricate ourselves if we get our act together
4. NZ is still a pretty sh!t hot place, so while climbing out of the hole, we need to protect what’s great about living here.
Regarding numbers 1 and 3, the NZ Institute thinktank has been a major influence.
Following up on yesterday’s post. Below I’ve cherry picked facts from the institute’s latest paper, A goal is not a strategy, to show that NZ is in a hole. Many challenge the way we like to think of ourselves:
Innovation and education
• New Zealand has the highest proportion in the OECD (equal with Ireland) of highly skilled people living in other OECD countries.
• None of the 10 MBA programmes offered around the country focuses on developing the skills needed for international business success.
• In New Zealand innovation is often confused with inventiveness. As a result there is a tendency to think that if R&D output is increased then innovation will increase. Unfortunately for New Zealand, which is quite good at inventiveness, innovation also depends on successful commercialisation of the new way of doing things, and New Zealanders are not so good at this.
• New Zealand’s innovation and business sophistication score is low relative to the scores for many other advanced economies indicating there is great potential to improve innovation, and that doing so would lift economic performance substantially.
Agriculture
• In 1990 New Zealand had around five hectares of agriculture and forestry land per person; today it has less than three hectares per person. Population growth will reduce that further.
• Productivity per hour worked in agriculture is not very different between New Zealand (NZ$40) and Denmark (NZ$50). But in New Zealand the productivity of agriculture is around 83% of the average for the whole economy (NZ$48) whereas Denmark’s agricultural productivity is only around 47% of Denmark’s overall average productivity (NZ$106). Despite outperforming New Zealand in agriculture, agriculture is not the powerhouse of the Danish economy.
• Denmark and New Zealand have almost identical food and agriculture, beverages and tobacco exports per capita. However, New Zealand uses a greater share of its total workforce (6.8%) than Denmark (2.6%) to achieve the same result.
Entrepreneurship
• Two-thirds of New Zealand entrepreneurs are home based and tend to be ‘solo’ operators with few employees. Many of these people are satisfying their desire for independence, to be their own boss. These small independent businesses are likely to have quite low productivity. The relative abundance of these small businesses is therefore likely to be contributing to low overall relative productivity.
• New Zealand has too few highly skilled entrepreneurs targeting international business success. The shortage means the product of New Zealand’s inventiveness – large research output, inventions, and new business opportunities – is not being converted into international business success.
Exporting
• New Zealand’s exports have grown much more slowly than the OECD average partly because global trade in commodities (where New Zealand exports are concentrated) has grown more slowly than trade in differentiated goods and services.
• New Zealand’s most important sectors for exports are tourism, agriculture, and manufacturing. All three have average or lower than average productivity so simply growing these activities without also substantially lifting productivity would not lift GDP per capita materially.
• Commodities are well known for their cycles, and reliance on them would mean New Zealand would continue to be exposed to volatility and price shocks.
General
• New Zealand and Denmark have similar small populations yet the institute calculates that Denmark’s GDP per worker (NZ$170,386) is more than twice New Zealand’s GDP per worker (NZ$83,842).
• New Zealand’s manufacturing labour productivity is the same as that of agriculture, at NZ$40 per hour worked. In comparison, Denmark’s manufacturing labour productivity is almost 90% higher than New Zealand’s, at NZ$75 per hour worked.
• Despite strong doses of economic liberalisation, New Zealand’s GDP per capita remains lower than the OECD average and much lower than Australia’s. New Zealand’s private economy labour productivity is 57% of Australia’s.
• New Zealand scores relatively poorly on measures of infrastructure development, placing 35th in the world with the quality of roads, railways, and electricity ranking worse than the OECD average.
It’s a pretty big hole, but it’s one that we can get out of if enough of us accept we are in a hole. We also need to accept that something more needs to be done to get us out our hole than we are seeing at the moment.
In A goal is not a strategy, which everyone interested in the above issues should read, the Institute again sets out the case for change and the bare bones of an economic growth strategy. It says New Zealand needs to:
• Focus on the internationalisation of high value,differentiated export sectors
• Prioritise labour productivity improvement efforts on these sectors, and
• Reallocate resources from low to high productivity sectors.
[Photo credit - horslips5 via Flickr]
Only just got around to reading the Sunday papers.
Amid the usual crap that makes BigCake want to cancel his subscription (‘cept for sport, ummm well actually not always) was a very angry piece by columnist Rod Oram which mirrored the frustration BigCake feels about the short sightedness and lack of ambition among many in the Kiwi business community.
Rod, a polite logical chap, rips into what he calls the “strategic ineptitude of NZ businesses. They are happy with a few crumbs from selling a bit of stuff to the real players.
“They are incapable of becoming big, long-term value creators themselves.”
Exactly.
A couple of weeks ago I did a post on how I’d mindlessly started tapping out something along the lines of there being a lot of examples of Kiwi companies who’d invested heavily in R&D, and as a result, were doing nicely in various international marketplaces.
True – there are heaps of little businesses that fit the bill, but as I asked: Name more than a couple that are household names?
Hamilton Jet and Fisher & Paykel Appliances maybe. The Gallagher Group? F&P Healthcare?
The thing is, the largest of these innovation-led, exporting businesses is under the radar resin maker Nuplex which comes in as NZ’s 21st largest business (by revenue). Then comes F&P Appliances (24th ).
The rest are nowhere.
As Oram says, the handful of big companies we do have – Fonterra, Fletcher Building – are legacies of earlier eras.
“Where are the next generation’s?
“…if we don’t figure out some way of turning this around “we don’t stand a hope in hell of building a prosperous, resilient economy”.
The things you write without thinking.
I’d tapped out something along the lines of there being a lot of examples of Kiwi companies who’d invested heavily in research and development and as a result were doing nicely in various international marketplaces.
Okay, it’s true because there are heaps of little businesses that fit the bill, but try to name more than a couple that are household names.
Hamilton Jet and Fisher & Paykel Appliances maybe. The Gallagher Group? F&P Healthcare?
The thing is, the largest of these innovation-led, exporting businesses is under the radar resin maker Nuplex which comes in as NZ’s 21st largest business (by revenue). Then comes F&P Appliances (24th ).
The rest are nowhere though F&P Healthcare is steaming up the rankings.
If you have a look at these Kiwi companies’ counterparts in other small countries we get:
o Israel – Teva Pharmaceuticals #1
o Finland – Nokia #1
o Denmark – (drug company) Lundbeck # 3
o Ireland – (technology focused food group) Kerry Group #6
Australia’s list is full of finance and mining companies, but you get the picture.
If Kerry is there as an innovation-led exporter, why not Fonterra for NZ?
Well here’s Kerry describes itself:
“…a leader in the global food industry. We develop, manufacture and deliver technology based ingredients flavours and solutions for the food and beverage industry worldwide.”
Technology is all over the Kerry’s market positioning.
And Fonterra:
“Dairy is our life’s work and our strategy is to lead in dairy. We’ve built strong partnerships with other leading global dairy companies and we are co-operatively owned by 11,000 New Zealand dairy farmers.”
Mmmm.
I’ve posted before on Fonterra’s lack of commitment to research and development.
This is not pushing the idea that we need a multi-billion dollar high-tech exporter to match the size of Fonterra – a big bunch of companies doing $100 – $200 million will do just as well, and this is more feasible.
But these comparisons show how far NZ has got to go for the economy to escape the clutches of a commodity-focused export sector.
What type of activities do we spend our research and development cash on?
This is the last question (I think) in my R&D series looking at who are NZ’s big R&D spenders (the little guys) and international comparisons (not good but with a hint of promise).
So where’s the money being spent? I can’t find any real nailed-down evidence of this, but according to a couple of people who keep their eye on this type of question, most of our R&D dollars still go on increasing agricultural production.
According to Ministry of Research Science and Technology 2007 figures, about $100 million a year was invested in food and beverage research. (That’s not all the agricuture- based research.)
The Ministry says about a third of this money is targeted at innovative food products and technology.
How appropriate is this now?
Our scientists focusing on increasing production – extracting more from a finite land resource – served us fine when we could lay claim to being one of the world’s most efficient agricultural producers and had a reasonable expectation that this would continue for sometime. Obviously we did well in part because our science was so sh!t hot at making the most of the country’s already hefty advantages in growing conditions.
But that was then, this is now and aiming to remain a low-cost commodity producer is not the best way to get the most out of our natural competitive advantages.
As BigCake has written a number of times before, we’re going to get smashed by producers from China, Russia, Chile, Brazil and Argentina if we continue to try to play the low-cost game because they can produce food more cheaply than us.
Maybe we are already getting smashed. Fed Farmers head John Nicolson says he’s only made the average wage three times in the last 30 years.
That’s not to say food commodities have no place in the export mix, but they need to have a much smaller place.
Our opportunity is at the high-value end of the market, building on our established reputation as a producer of high quality and innovative food and beverages. And on our clean green image.
There have been small steps taken on the science path to back this up, for example the Nutrigenomics project looking at diet-gene interactions in the gut.
But at the moment sales of high-value food and beverage products are tiny compared to the commodity big boys. However the high-value segment is an incredibly vibrant space with huge numbers of small innovative export-orientated companies having a go.
Bizarrely, unlike most OECD countries, these companies didn’t have access to facilities in New Zealand to help with product development and testing.
The $21 million Food Innovation Network is designed to close that gap, opening up better access to R&D services for these little guys.
Adjusting to this new world will require a shift in what we spend our R&D money on. It will also require a change of mindset away from serving the trader mentality to one where the whole food and beverage sector thinks about what the world wants and how it is going to give it to them.
More evidence that being big makes a difference.
According to MacDiarmid Institute deputy director Shaun Hendy, the difference between Australia and New Zealand patenting rates (we’re 40% below Australia’s) is down to the relative size of the two countries’ cities.
Specifically we can’t match the grunt of Sydney (population 4.5 million) and Melbourne (4m plus). Bigger cities generate higher rates of patenting.
Where our cities are of a comparable size – Auckland and Adelaide – patent rates are much the same.
Compared with the OECD average, we’re very poor at generating triadic (filed in US, Europe and Japan) patents. The latest World Intellectual Property Office stats I can find (till 2007) show the number of NZ patent applications increasing over the 10-year period, though with a substantial drop in 2006-07.
The number of NZ patent granted has pretty much flatlined, apart from a spike in 2003.
I’ve blogged before on how our littleness holds our economy back. Economist Paul McCann says being small and far from markets is the worst position to be in.
In Australia’s case, size can help overcome the limitations of isolation.
McCann talks about “global regionalism”, fed by the rise of huge trade blocs, investment and taxation treaties, and world-changing stuff like computers, the internet, modern transport, communications technologies and off-shoring.
Global regionalism, he says has favours big urban centres.
One of McCann’s ideas to combat this is to increase the size of the Auckland-Hamilton-Tauranga triangle. The easiest way of doing this, he says is to increase immigration to the region.
MacDiarmid Institute’s Hendy, as reported in today’s Herald, has a bigger plan.
He says New Zealanders need to act like they live in a city of four million.
The city size-patenting rate relationship is about the size of businesses in cities of certain mass, he says. Larger cities were more collaborative and the larger the city the more collaboration went on.
“When you have … high degrees of specialisation, people really need to collaborate to have an impact,” he says. “It’s larger cities enabling these larger collaborations or teams of researchers that can make progress.”
So, New Zealand needed to think and act like a city of four million people.
“We need to look at putting together multi-disciplinary, multi-institutional collaborative research networks, whether they’re in business or academia.”
A follow up on the last two posts regarding who’s not pulling their weight in research and development spending.
The graph below shows, by comparison with Finland, Denmark, Australia and Ireland:
a) the relatively strong commitment to R&D spending of our smaller businesses and in particular those with less than 50 employees
b) the shocking under investment by our largest companies.
LEVEL OF BUSINESS EXPENDITURE ON R&D BY FIRM SIZE
Sources: Statistics NZ and OECD surveys (Finland, Australia and Ireland data 2006, Denmark 2005 and NZ estimated from 1999 – 2005 trend)
Just checked out the research and development spend of NZ’s next two largest companies after Telecom and Fletcher Building:
- Telecom – 0.18% of revenue ($5.6 billion) in 2008-09. It’s R&D spend has been steady for the last three years.
- Air NZ – can’t find any figures on R&D spend in their accounts, but they do some through the Air New Zealand Environment Trust which funds research and development into alternative fuels. Note: The trust is funded by donations from passengers and other members of the public and a one-off payment by Air New Zealand.
The next lot of NZ’s largest companies are: Woolworths, Shell, BP, Foodstuffs (Auckland), Chevron, Exxon, Foodstuffs (South Island), Foodstuffs (Wellington)…
You get the picture? Food and gas sellers the lot, the latter all overseas owned. Not much R&D going to come from there.
