New Zealand companies would be able to reach for the stars from home if there was more investment. Photo / Twitter, Rocket Lab
Chris Keall's Herald article of December 2 on the high value of New Zealand tech being sold to overseas interests was thought-provoking.
The article discusses a report commissioned by Callaghan Innovation on the NZ tech sector, from Clare Capital. Their report notes approvingly the steep increase in the value of NZ tech being sold abroad.
Clare and other commentators cited in the article all strongly support the high value and number of NZ tech businesses being sold offshore.
Their case is stated: "The investment community argues that overseas sales are a good thing because they give ( ... the tech company which is sold) ... the wherewithal to attack global markets - and much of the ... ( sale proceeds) ... are reinvested in the local ecosystem".
Rocket Lab's Peter Beck is quoted in similar terms: "…as Kiwis we are good at tech. But we ... are a small country ... when our tech companies are successful, we also have to be cognisant that they need to go global. And when they go global, we should celebrate that and not lament that we lost another NZ company."
So the NZ tech sector sees itself as developing ideas; and when some of those ideas turn out to be world-leading, they should usually be sold off to overseas interests, to exploit.
How disappointing, that our ambition as a country is so low. What is NZ's highest aim - to remain a nation of small business, owning coffee bars and childcare centres?
F&P Healthcare is the main tech company that has remained in NZ. It proves locally based tech can mature here, and succeed handsomely.
The NZ commercial sector would be dramatically ahead if we had retained 20 comparable tech companies.
Why are we selling off our brightest and best commercial opportunities, so offshore interests can exploit them? What needs to change, so we retain and exploit these valuable opportunities ourselves?
The problem originates from 1975, when Sir Robert Muldoon's Government abolished funded superannuation. Without institutional savings, NZ has ever since lacked a pool of money from which to fund our commercial sector.
KiwiSaver started much later and is still voluntary. It has low contributions, and inadequate tax concessions. Had NZ retained compulsory superannuation from 1975, total funds accumulated by now would possibly have exceeded $1 trillion. Part of this, invested domestically, would have provided plenty of capital for tech to develop.
But without adequate local capital, our commercial sector has often listed overseas, or been sold overseas.
It's a tragedy for NZ, which can only start being reversed by making KiwiSaver compulsory, and steadily increasing contribution rates to match Australia.
If this was done, and substantial local capital created, horizons of tech investors may lengthen. They may be less inclined to look overseas, as soon as their latest startup shows promise.
Without savings, how have New Zealanders accumulated wealth? Answer- by buying houses; and paying them off over their working lifetimes. Then they retire, downsize, and live off the remaining sale proceeds as their retirement nest egg. Housing is NZ's main "investment".
Unfortunately houses (once built) do not create wealth for the country. They only generate capital gains for their owners. NZ would be much better off if its houses were worth half as much, and the other half of that value was instead invested in world-leading local businesses.
What the Herald tech article highlights is the need to rebalance the whole NZ economy. This would require major change on several fronts.
Firstly, NZ house prices should ideally reduce significantly (rising interest rates may be the catalyst). Lower house prices would mean smaller mortgages, leaving people with funds available for KiwiSaver.
Then make KiwiSaver compulsory, and build a substantial pool of local capital. Major value needs to move from houses to commerce.
Finally, we need altered attitudes.
Average Kiwis should aspire to having half their wealth in their house; and half in superannuation savings.
With significant new local capital thereby becoming available, NZ business should lift its horizons and start thinking beyond taking a quick profit on the latest tech startup.
We need to change as a country, so we strongly encourage NZ ownership of our commercial sector rather than offshore ownership.
If we continue - indeed encourage the sale overseas of our best commercial opportunities and don't fund and retain much of our tech and business sectors, our grandchildren risk being paupers in their own country.
• David Schnauer is an economist and retired lawyer. His free book "Covid, Catalyst for Change" is available at rethinkingpolicynz.com.