I’m delighted to be able to speak to you tonight at the launch of the 2011 TIN100 report. I first got involved in technology at age 11 when I built a crystal radio, using a diode, a coil and a tuning capacitor along with an aerial strung across the garden. It made a change from rugby, a sport at which I was particularly dreadful.
So I get 6 layer printed circuit boards but I accept that they are alienating to some and terrifying to others.
That brings me to how New Zealand views the way we make a living. We have a sustainable competitive advantage in food and fibre. We are blessed with strong primary industries, but these have limits to growth. Furthermore, when it comes to innovation, there are few incentives to innovate when you can sell commodities. Companies like Gallaghers or Fisher and Paykel Healthcare or my own company Magritek, either innovate or die.
And innovation is the key driver of productivity and economic growth in advanced economies.
New Zealand has the fundamentals in place. Painful reforms were carried out in the 1980s and 90s. Now we are ranked among the highest countries in the world for property rights, market freedom, free trade, lack of corruption and legal and political rights. And our taxation rate, personal and business, is one of the lowest in the OECD. Only Chile and Mexico are lower. Indeed we clearly beat Australia in all these measures. So when the 2025 task force says that the key to matching Australia’s per capita GDP is to further lower taxation and reduce regulation and constraints to free markets, they are clearly not referring to planet Earth where we already excel by their yardstick. What planet they are referring to I am not quite sure.
My view is that it is right to set a goal to improve per capita GDP to the level of Australia. Prosperity does matter, and the impact of the Christchurch rebuilding on our economy makes that abundantly clear. To achieve that goal we are looking at another $40 billion per annum GDP growth, preferably in exports. What is happening in New Zealand is that there is an underlying part of our export economy that is growing much faster than the total, and that part is the knowledge sector.
TIN100 growth rate, over the past 7 years since the list was compiled, is around 5% per annum. And the higher up the value chain one goes, the higher the growth rate. In the World Bank survey of high tech products, a subset of TIN100, the rate is 10% per annum.
However, the question that must exercise us is why will such businesses stay in New Zealand? It will not be because of proximity to markets, greater availability of skilled employees or deeper investment sources. It can only be because the principals of those companies, and especially their creative people, choose to live in New Zealand. For that reason our policy framework must be geared to ensuring that New Zealand is a place where talent wants to live. For that reason we protect our natural assets, our national parks, our coasts, lakes and rivers. And because creative people don’t like living in gated communities with poverty and crime on their doorstep, we need to address issues of wealth inequity and social justice. We need to look to the quality of our schools and our health system.
So my recipe for growing prosperity is to expand the TIN100 companies. Currently they export $5 billion, half of dairy. Ten times as many and we have achieved our goal. Even if we do nothing, their current growth rate suggests we may achieve our goal in a couple of decades. But we want to accelerate that. And to do that, we as a nation have to change our thinking, to realise that we can live by being smart, that to grow our economy we have to stop looking to our traditional land resources, and start to think like a Singapore or a Switzerland. Growth from here on requires that we innovate.
And nothing has quite so changed our perceptions as TIN100. Greg Shanahan has done an enormous service to New Zealand. Who else measures this? Certainly not Statistics New Zealand. TIN100 tells us how big this sector is. It tells us what we are good at-physical platform technologies, ICT, software, creative businesses like Weta, and a small component of biotech as well.
We will be good at what we are good at, and TIN100 tells us that some of what we are good at is quite surprising. I am not against cleantech, biotech, or any other fashionable area that a politician thinks we should be good at. So long as it is legal and not morally objectionable, I don’t care what it is. But what I am really interested in is where we are the world’s best and where we are profitable.
The other interesting thing we learn from TIN100 is the nature of the innovation system. When we plot numbers of companies against their export value on a log-log graph we find a straight line, a power law in other words. That’s the same power law shown by earthquakes or tree diameters in a forest. In other words our system is complex, interconnected and self-organised. What that means that you can’t have the big companies without the little ones. And to grow a company ten times larger than our largest, you probably need to grow the total number of companies by a factor of ten as well. These are powerful insights.
Let me say now why I think New Zealand has a great future. We have natural advantages in the world with abundant fresh water, renewable energy and robustness to climate change; we have extraordinarily beautiful natural environments, an excellent education system and a civil society. Once we get our on model of our country right, once we project who we are to the world as a smart innovative economy, we are an obvious place for talent to reside, attracting the best of our diaspora home, attracting the best migrants to want to live here. And most importantly we can motivate our most underutilised potential, our kids who know nothing of what is happening in the TIN00 story.
I want to finish with two requests to you all.
First, embrace the paradox. Because New Zealand is 0.2% of the world's economy, that economy is 500 times larger. That means we can succeed in the niche markets of the world, growing businesses that are substantial in the New Zealand context. We have to think like Singapore, not as we have done for 150 years, as a country that can live off its natural resources. And the further a business is from the primary sector, the more the drive to innovate.
Second, tell the story. Many of you are invisible because your markets are almost entirely abroad and what you do, in your niche areas of business, is often mysterious to the public. But your kids are growing up here. Be visible in New Zealand; work with local schools and the parents of the kids to tell them about the opportunities that businesses like yours present. Sponsor locally, even if your markets are abroad.
We have grown a $7 billion a year innovation sector with $5 billion per annum of exports without most New Zealanders even being aware that this is what we can do. Imagine what will happen when all New Zealanders discover what we really are good at. Then we will have bridged the prosperity gap and New Zealand really will be a place where talent wants to live.
