Stephen Ward: Economics for art's sake

Reading various economic theories can be a little like watching competing experimental artists fling paint at their canvases.

The colours land, create shapes - some even look "beautiful" in an abstract sort of way - but it's a miracle if they create an image that everyone can instantly recognise.

However, an opinion piece entitled "Becoming More Globally Competitive" - from Ministry of Research, Science and Technology principal adviser Peter Morten - is a much more straightforward piece of "art" than some.

While the picture it creates doesn't exactly make me think, "yeah, that's it, this is the way ahead", the article does raise important issues (particularly for agriculture).

Morten focuses on increasing our global competitiveness through innovation in the products we export.

Among his conclusions: "We should emphasise productivity and added value to our existing comparative advantages through strengthening and extending primary sector innovation. Enormous potential remains to add more value and build market demand for existing and new primary sourced products."

Better links between Crown research institutes, academia and the private sector would help, he opines.

Diversification into breakthrough new technologies "where manufacturing economies of scale are not the crucial factor" is another of his suggestions.

Not exactly bold new "art" you may think, but he made some provocative points in the lead up to this summary and in an interview last week.

New Zealand's export of goods rose at a real rate of 2.4 per cent a year between 1965 and 2005, much less than the OECD average. It was not enough to try to copy the success of others to get back to the top half of the OECD in GDP per capita terms.

"We need to forge our own path," Morten writes.

"New knowledge aimed at productivity gains or new export goods is best commercialised or applied by competent locally based businesses."

Innovation policy overseas focused on businesses developing "codified" intellectual property. In New Zealand's rural sector, "We don't tend to bother to patent things, although Fonterra does to a certain extent". Often ideas were let out to all farms which could benefit in a sort of New Zealand Inc approach.

"You hope that the new idea doesn't immediately get copied by all our competitors, some of whom would find it very difficult to copy anyway," he says.

I find this co-operative approach in the primary sector appealing for both social and business reasons, particularly given another of Morten's points.

No matter how promising a brand new sector is, he argues, steady, smaller gains in an existing huge sector will count for more over time. For example, 3 per cent per annum real growth in a $5 billion sector will add about $800 million over five years. Twenty per cent real growth in a $50 million sector will add $75 million - "definitely worth having but less than a tenth as much".

I also endorse his call for links between researchers and end users of research results to be made more effective. While it is argued that pure research - not driven by a need to produce an outcome - leads to some of the best ideas, there is absolutely no reason why rural sector researchers should not have a very solid understanding of what farmers need.

Morten praises Fonterra as a "pretty class act" but notes opportunities for building New Zealand meat and fruit multinationals "have not been seized".

For example, he says it could be argued with hindsight that meat companies historically missed an opportunity to create a "common marketing pool". He wants to see more New Zealand enterprises - probably from the primary sector - "establish some sort of global presence".

AgResearch chief executive Andy West has argued it is "fanciful" that New Zealand can build another Nestle-sized global food company and that we should instead create small, innovative food companies with new technologies that we then sell off.

Morten begs to differ: "If you keep on flogging off small companies ... I don't think that's a path to big GDP growth."

While he agrees it can be hard to extract the full value of some new ideas by keeping them in New Zealand, he feels we have to grow some big ones of our own at home to get the most benefits.

Whoever's right about the way ahead, it is positive to see increased high-level acknowledgment of the primary sector's central role in our economic future - and the need to get a much firmer grip on how to assist farmers to benefit the nation.

* Stephen Ward is agriculture editor of The New Zealand Herald.