COMMENT : Riding The Transformation Wave

In the wake of last year’s worldwide financial crisis and the ensuing deep recession, New Zealand has the opportunity to emerge stronger and more competitive. Economist Carl Steidtmann says that the world economy is on the brink of “great transformation”, where the loss of the American consumer as the spender of last resort will affect every individual, industry, exporter, and country. To claim foothold in the transforming economic world, New Zealand should exploit its comparative advantages including its most recent ranking by the World Bank, as the leading OECD country to start new business.
Among other efforts, it must catalyse the public and private sectors to create the growth and innovation that bring jobs and prosperity, invest in technology, and attract the knowledge, talent and capital necessary for new era of growth.

Foundation wave
Are we ready? New Zealand leaders could compare our position relative to the three waves of “The Big Shift” developed by John Hagel III, John Seely Brown and Lang Davison at the Deloitte Center for Edge Innovation.
First, assess where the country stands on the “Foundation Wave”, seen in two fundamental global trends: the trend of expanding digital infrastructures to enable vastly greater productivity, transparency and connectivity, and the trend towards economic liberalisation.
Despite its top ranking as best place to start business, New Zealand is falling behind in network readiness, ranking only 22nd. This is largely due to lagging investment and procurement of information technology in the public sector. However, the 2009 budget accelerates broadband investment with funding for the Kiwi Advanced Research and Education Network, and provides capital for research, science and technology.
On the second trend, economic liberalisation – economic freedom, lack of corruption and ease of doing business – New Zealand has consistently been one of the world’s leading countries. The most recent WEF index ranks New Zealand as the fifth country in the world in terms of economic freedom, after Hong Kong, Singapore, Australia, and Ireland. However, for the quality of the regulatory regime, New Zealand has fallen relative to other OECD countries.

Flow wave
The second wave examined in the Big Shift is the “Flow Wave” – the flow of knowledge, talent and capital that increases productivity and creates jobs, building on strong infrastructure and regulatory foundations. Professionals, scientists and investors will continue to migrate to “clusters” where they collaborate, share and invent. While millions share information online, creators and innovators will gather with like-minded people in specific regions to be near opportunity, experimentation and productivity. Businesses and workers will relocate there, as well.
Measures of potential “clusters” include patent applications, patent grants and patent intensity. According to the World Intellectual Property Organization (WIPO), New Zealand was number five in 2007 patent intensity, with about 521 resident patent applications per million population.
Concentration of scientists also matters. According to the WEF index, New Zealand is slightly below the mean for “clusters” of innovation, while Taiwan, the US and Singapore rank the highest. In order to improve the quality and amount of research, the Ministry of Research, Science & Technology is undertaking reform to simplify the investment processes.

Impact Wave
As the transformation runs through the world economy, the effects will be seen in the “Impact Wave”, including additional government reforms to increase electronic transfer payments, strengthen cyber-security measures and multiply the number of electronic health records. We will see the consequences of stronger foundations and knowledge, talent and capital flows, as countries harness these forces and adapt economic policies to make way for the new.
The paradox is that large governments and companies that have had the most influence in the past may be the least able or likely to change and lead in this new future. The Big Shift Index has found that big companies are losing leadership positions twice as fast as they used to. This suggests that those who don’t respond swiftly face the greatest risk of being left behind, and this will be as true of governments with static economic policy as it is of companies. With the appropriate strategies and focus, nimble, smaller country like New Zealand is in an ideal position to gain from global economic transformation.
In some senses, the timing could not be better. The recession and transformation presents an opportunity for New Zealand to re-invigorate an economy that has been struggling under low export and productivity growth, and rising government debt.
As John Key has said, “… we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with”.
To be up and running faster will demand that leadership balance the constant pressure to reduce government spending while faced with the demand to modernise its technology infrastructure. Capturing the forces of innovation and growth will require focusing on knowledge, talent and capital flows, on developing innovation clusters and technology investment, ratcheting up scientific achievement and careful reassessment of regulatory regimes. In world economy in the midst of great transformation, these efforts will be required, not optional.

Greg Pellegrino is industry leader, global public sector, Deloitte Touche Tohmatsu.

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