Government has major role says OECD

By BRIAN FALLOW economics editor

Governments have a central role in the emergence of the vaunted "new economy", says Sally Shelton-Colby, a key speaker at this week's Catching the Knowledge Wave conference.

Ms Shelton-Colby is deputy secretary-general of the Organisation for Economic Cooperation and Development.

A study by the OECD has tried to figure out whether there is a "new economy" and if so what the new ingredients are. What has enabled some developed countries, such as the United States and Ireland, to record the strong economic growth rates of recent years?

"The OECD tends to have fairly strong pro-market views, but as a result of this new economy study we are coming to the conclusion that there is a role for Government, not only in getting the policy and regulatory framework, and the Macro-economic fundamentals, right, but also in ensuring that the education system produces the skills that the economy needs," she says.

One of the hallmarks of the new economy model is the rapid uptake of ICT (information and communication technologies).

The Government's role, says Ms Shelton-Colby, is to ensure the regulatory environment is pro-competitive and in that way supportive of ICT investment and applications.

No less important is education.

The need to look for labour from countries like India suggests that New Zealand is not the only OECD country with skill shortages.

It is not just a matter of getting the hardware, teacher training and curriculum right in schools, Ms Shelton-Colby insists.

This is an area where there can be gender issues, which countries can ill afford given the importance of small and medium enterprises to economic growth, and the high proportion of such enterprises headed by women.

A third conclusion from the OECD work is that there should be more collaboration between the research and development efforts of the public and private sectors.

"Often there is not enough sharing of results," Ms Shelton-Colby says.

"And we cannot forget that it's important to keep the economic fundamentals right. It's a lesson we have learned from the Japanese experience.

"It has a very high ICT content in its economy, but it hasn't had the economic fundamentals right for nearly a decade."

Finally, it is important to create a venture capital culture that encourages start-ups and ensures they have access to capital. Countries cannot afford to balk at the fiscal costs of pursuing these policy directions.

"The investments in the short term are not inconsequential, but when you amortise them out the return is substantial.

"And you have to ask, can you afford not to do it? The whole world is going in this direction. A country can be left behind if it does not invest in ICT."

Ms Shelton-Colby, a former US aid official, is a fan of biotechnology as a way to feed the world's hungry.

"There are millions of people alive today in developing countries because they have had access to genetically engineered seeds. That tends to get lost in the debate as people focus on food safety and environmental concerns."

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