Fonterra’s discovery of the bacterium that causes botulism in a batch of whey protein concentrate has alarmed many.  As the whey protein is an ingredient in popular infant formulas, many parents will be worried that they have inadvertently exposed their children to potentially fatal bacteria.  Hopefully, the recall of  products that use Fonterra’s whey ingredient will prevent any illness, even if it appears that these recalls may have been tardy.  One would also hope that Fonterra learns from the experience, because when Fonterra stumbles, so does the rest of the country.

Get-Off-The-Grass-08.inddThis latest incident illustrates once again how important it is that New Zealand diversify its economy.  In fact, this is the subject that I address in my upcoming book, Get Off the Grass, co-authored with the late Sir Paul Callaghan.  I’ll be launching the book with a public talk at Victoria University of Wellington on August 15th (register here if you would like to come along), with the paperback hitting bookstores the following day.

In Get Off the Grass, Sir Paul and I investigate why New Zealanders work harder and earn less than most other people in the developed world.  In Sir Paul’s previous book, Wool to Weta, this was framed as a choice:  we choose to be poor because of the types of industries that we prioritise, such as farming and tourism, earn us relatively little per hour worked. In Get Off the Grass, we use ideas from economic geography and the study of complex systems to investigate why it has been so hard to innovate our way out of these low productivity industries.

To illustrate just how specialised New Zealand’s economy is, I have borrowed a figure from Dr Helen Anderson, which compares the diversity of our exports with those of Denmark.  Like New Zealand, Denmark has a strong agricultural base.  Unlike New Zealand, Denmark has made concerted efforts to diversify its economy over the last few decades.  We are constantly told that New Zealand is too small to do everything, yet Denmark, a country with a population of only 5.5 million people, manages to do a heck of a lot more.

image(Figure courtesy of Dr Helen Anderson; Sources: Statistics NZ, StatBank Denmark, DataStream, NZIER, July 2012)

With a title like Get Off the Grass, it won’t surprise you that we argue that New Zealand can and should look to do an awful lot more than just agriculture.  Some of the points we make in the book are:

  • There is a deep flaw in our reliance on the 100% Pure brand.  We need the edge our clean, green brand gives us to sell our agricultural commodities at good prices, yet the production of these commodities actually damages the environment.  See this piece I wrote for Unlimited magazine last year.
  • Economic diversity is crucial for long-term economic stability, and this in turn is crucial for growth.  The fluctuations in our dollar caused by the contamination of one of our major exports illustrates why.  The volatility caused by such crises in turn hurts other export sectors, making it even harder to get off the grass.
  • Diversity is regarded as a crucial ingredient for innovation, so our strong focus on agricultural research actually makes us less innovative as a nation, whether in agriculture or otherwise. Physics and chemistry have contributed an awful lot to agriculture, but agricultural science has not returned the favour.
  • Specialisation in a single industry is just not a good long term strategy.  No industry stays on top forever, and if your favoured industry becomes too important to fail, it will prevent you moving into other industries before it’s too late.

Detroit, with its dependence on car manufacturing, is a classic example.  Although Detroit’s car industry has vast scale with the three biggest car makers in the US, the city is now a basket case because its mono-cultural manufacturing sector has failed to reinvent itself in the face of strong competition from overseas manufacturers.

As I said when the National Science Challenges were announced, our dependence on the primary sector leaves our economy perilously exposed to volatile commodity markets. Jacqueline Rowarth told Radio New Zealand that previous attempts to diversify our economy had failed.  Get off the grass – we’ve yet to make a serious attempt!