Wool to Weta

Wool To Weta transforming New Zealand's Culture & Economy. Photo / Supplied

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.

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, but the long-term trend for commodities - as graphed by The Economist - shows localised peaks when times are good, but the overall trend is relentlessly down.

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.

To match Australia's per-capita prosperity, we would need to lift our GDP by US$30 billion a year. Where might we earn that money?

Ideally we would earn it from additional exports. We are just 0.2 per cent of the world's economy. Our local market is very small, and much of what we want to buy is made offshore. What that means is that our extra productive capacity will need to be directed to exports. Everything we want from offshore, whether pharmaceuticals or iPods, we can buy only if people elsewhere in the world want to exchange their dollars, euros or yuan for our goods, our land or our dollars.

Tourism is now our number one export industry, with manufacturing close behind. Dairying continues to be a great New Zealand success story. Adding US$30 billion per year would mean, on the face of it, multiplying our dairy exports by five, or our tourism by four. Of course there are economic multipliers at work that deliver additional "downstream" benefits for every extra dollar exported. But we do get a measure of the scale of our problem by the ratios I am quoting. And even if we could increase dairying or tourism, there are problems.