Market litany worships false idyll

By Chris Barton

Between the lines

If we accept that the knowledge economy is the next big thing, we also have to ask whether it's a place where free market competition rules.

If it's not, then the market reforms that New Zealand has been dragged through for the last 15 years won't help us get there.

In the drive to make our country more efficient in capital intensive and labour focused industries, we may have been aiming for the wrong goal.

But to accept such a notion is heresy. Which perhaps explains why the Government has such a limp knowledge economy handshake.

In the high-tech world different market forces apply. Take Microsoft. It's hard to believe that one man could become the richest in the world by getting lucky with a horrible piece of PC software called Dos. Equally, it's hard to comprehend that an empire as complete as Microsoft's could suddenly be threatened by something called an internet browser.

But these sorts of massive market disruptions - where monopolies can rapidly form, and then just as rapidly break apart - are the new rules of the game. High-tech organisms aren't spawned in the midst of a highly competitive free market. They thrive on the periphery where no one sees them coming.

New Zealand has been so busy with market reform that it missed the obvious: the market itself has changed. But it's hard to admit you were wrong.

Hands-off, free market advocates like IT Minister Maurice Williamson have described the experience as like "swearing in church."

The rude words Mr Williamson and Commerce Minister Max Bradford can't yet say are: tax-breaks, capital grant, incentive - or to really blaspheme, subsidy.

Mr Williamson's IT advisory committee, ITAG, is clearly having the same problem. Its Knowledge Economy report, billed as "a call to action", has been so watered down in the editing that its key messages have become soggy.

The "business sector response" goes further than National's Bright Futures programme - particularly in the areas of the tax regime's impact on R&D spending; immigration policy; Maori issues; and the Government's role. But the calls to action also get bogged down in free market platitudes - as in "ensure our tax regime is not a disincentive to investment in R&D".

Similarly, calls for the Government to "champion the development of the knowledge economy" fail to suggest practical steps - such as the setting up of a government office to drive the change.

On the positive side, the report can be seen as an encouraging sign that opinions on the direction New Zealand is taking are changing.

But to avoid being part of "the New Zealand syndrome" - a phrase economists may soon be using to describe countries that fail to make the transition to the new economy - ITAG, like the Government, still needs to learn how to swear in this fundamentalist church.