COVER STORY: High Tech, High Hopes – Transforming New Zealand

New Zealand’s future rides on our ability to earn more on global markets. Everyone knows it even if survival, not growth, is the big business issue of today. Paul Callaghan – eminent physicist, businessman and passionate Kiwi – wants us to think, not just about weathering global recession, but also about becoming fundamentally more prosperous country through growth that is based on world-class science and engineering.
In these gloomy times, Callaghan has emerged as the new voice of optimism on New Zealand’s long-term future. The much-honoured scientist – he has been at the international forefront of condensed matter physics for 35 years – predicts prosperity and social progress for this country if we can seize the opportunities all around to develop and grow high-technology business.
New Zealand, he says, has become “imprisoned by myths of our own making” – myths about the importance of economic deregulation, the earning power of pastoral farming and horticulture, and the real quality of life in this country. His recently published Wool to Weta: Transforming New Zealand’s Culture and Economy is an impassioned call to shed such myths, and to unleash the potential of Kiwi brainpower, hard work and entrepreneurial talent.
Callaghan sees New Zealand economy based on agriculture and tourism, but also on dynamic sector of high-tech companies that is much bigger than today and generating the foreign exchange earnings New Zealand so needs to reclaim prosperity. Companies like today’s Fisher & Paykel Healthcare, Gallagher Group, Navman, Rakon and Tait Electronics – each an internationally successful business born of New Zealand scientific and engineering expertise and of determination by technology entrepreneurs.
Callaghan is convinced the seeds for many more such success stories are to be found right now in New Zealand’s universities, research institutes and business incubators. “Those five companies prove that we can do it,” he says. “If we had 200 of them, New Zealand would be more prosperous than Australia!”
Over the past 18 months, Callaghan has ventured out from his day job (professor of physical sciences at Victoria University) to interview leaders in high-tech business, entrepreneurs, technologists and commentators, and to do national speaking tour. Along with the Wool to Weta book he has made television documentary. The experience – he calls it “doing the Al Gore thing” – has left Callaghan more enthusiastic than ever about New Zealand’s potential.
“Many of the kinds of companies I’m talking about are not in recession … I know some that have full order books,” he says. They are companies developed on physical sciences platform: They own technology and intellectual property (IP) built into devices, equipment or appliances that are sold to industries, governments, hospitals, educational institutions and consumers across the globe.
Tait Electronics, for instance, makes radio communications systems used by utility companies and emergency services from Dublin to Sao Paulo. Fisher & Paykel Healthcare makes respiratory care and other hospital equipment sold in 110 countries, while Gallagher, Navman and Rakon are among global leaders in their respective fields of electric fencing and security, global positioning and frequency control technology.
High technology is obviously broad term. Callaghan defines it as products that have “relatively intensive R&D inputs, either at the final manufacturing stage or through the components used in their production”. More simply, he says high-tech companies are those that “turn ideas into valuable products”.
The great appeal of these companies lies not just in the high profit margins and rewarding job opportunities associated with their valuable technology and IP, but also in their relatively low demand for capital and natural resources. They have little or no carbon footprint. They are generally indifferent to New Zealand’s long distance from markets. And of course, they can be earners of valuable foreign exchange beyond agriculture and tourism.

Economic diversification and technology-based enterprise
Have we not heard it all before? Recall the Knowledge Wave conferences of eight years ago and the Labour government’s Growth and Innovation Framework with its elevation of biotechnology, ICT and creative design.
In fact, Wool to Weta is whole new take on the science-business connection in New Zealand, delivered by someone who really understands it and who has drawn together the ideas and experiences of New Zealanders working every day on the connection. The Wool to Weta narrative is largely comprised of interviews with Mike Daniel (Fisher & Paykel), Michael Chick (Tait), Stephen Tindall and Neville Jordan (technology investors), and 14 others.
To this, Callaghan has added his own provocative views on how New Zealand has, or has not, developed over the past two decades. Here are five of his points:
Biotechnology R&D is not the great winner we like to think. More than 60 percent of the major government R&D contribution goes into biotech, with outcomes in science, intellectual property and business activity that are significantly poorer than those for physical sciences and engineering.
Callaghan writes: “While we are clearly good at agriculture, the assumption that this will translate into other areas of biotechnology is an heroic act of faith.”
New Zealand is indeed good at agriculture but can never produce enough milk, meat, fibre and fruit, even with new technology input, to generate the earnings we need. The same goes for tourism. Callaghan says it would, for example, take five-fold increase in annual Fonterra revenues to close the current gap with Australia in GDP per capita terms. If nothing else, the environmental implications of such massive growth in pastoral production, or in tourist visitor numbers, would rule out these scenarios.
Scientists have obligations to help deliver economic return on the money invested in their research. Even those doing basic science in universities should think about creating knowledge and technology that will give financial return for public dollars invested.
Says Callaghan of his own research: “The public funding for my work since the early 1990s would have paid for 600 hip replacements … I really should think about what I’ve been doing for my fellow New Zealanders!” Callaghan says some research will always be worthy without any prospect of commercialisation. It is matter of ensuring that some at least delivers levels of return that are sufficient to justify the whole funding system.
We squander potential through institutional rivalries and through inaction over the loss of so many educated Kiwis to other countries. Callaghan writes: “We have business suspicious of government, engineering suspicious of science, Wellington resenting Auckland, the University of Auckland pretending the other universities don’t exist, CRIs jealously protecting research grants from universities, the Ministry of Research Science and Technology disjoined from the Ministry of Education, the Foundation for Research Science and Technology disconnected form the Tertiary Education Commission. We just can’t afford it.”
On the brain drain, he asks why New Zealand cannot follow the example of other developed nations and actively entice home some of the most talented, productive members of its global diaspora.
We largely ignore the successes of existing companies built on physical science and engineering, even though their returns have been better than those from new businesses in biotechnology. “I think that we can generate many more start-ups of the Rakon/Navman variety, and if fraction of them succeed we may do far better than via the biotechnology route favoured by the Government.”
Wool to Weta is wake-up call to this country’s scientists, engineers, entrepreneurs and policy makers. Callaghan wants them all to see more potential in the basic science research and R&D alr