Digital skills like we’ve all glimpsed during lockdown, coupled with big ideas and better productivity, will be the cornerstone of NZ’s future, writes economist Paul Conway

New Zealand is a unique country. Being small and far away from major global markets impacts on our economy and society in many ways, both positive and negative. But our isolation and strong sense of community are clearly serving us well as we fight Covid-19 and we are well ahead of the curve at this early stage.

In an article for Newsroom, Rod Drury makes the point we should not waste the Covid-19 crisis and our strong initial response. Instead, we should use it as motivation to be more ambitious as a nation and to lead the world with some big economic and environmental ideas. In short, Rod encourages us to “think differently, get coordinated, act with urgency and go for it”.

It is worth saying up front that being world-leading from New Zealand has never been easy. Expanding into international markets is tricky at the best of times, but even more so for businesses located in a small and distant economy.

Fortunately for us, digital technologies are steadily reducing the cost of being far away and making it more likely that good ideas get noticed internationally. Xero – the accounting software business Rod Drury founded and led – is a quintessential example of a digital New Zealand firm making the most of these opportunities.

But being world-leading is about much more than just a good internet connection. In our case, as Rod maintains in his article, it also requires a sustained focus on big ideas with the potential to genuinely improve the lives of New Zealanders 10 to 15 years down the track.

Of course, this focus needs to be in areas of economic activity where New Zealand has existing strengths and the possibility of global visibility. Rod’s pick is renewable energy, given our unique geographic advantage of having abundant rain, hills and lakes.

Working to build an economy powered by renewable energy would certainly be of strong international interest, as the window for combating climate change steadily closes. It also ticks the ‘highly ambitious’ box, with electric aviation and autonomous bus networks within scope. Of course, there are also other possible areas of focus.

As well as the right focus, we would also need to get better at working together if we are to create clusters of world-leading firms. For instance, our science and innovation systems would need to develop deep pools of knowledge and expertise in areas that are relevant to these firms.

To be clear, this agenda is not about the Government picking winners at the level of individual firms. Instead, it is about supporting specific areas of activity, with complementary investment in research and information sharing, regulation, skills and infrastructure to world-class standards.

This is also not just about selling more stuff to people living in other countries. World-leading firms operating in New Zealand would act as conduits for new technologies, new ideas and better ways of doing things to flow into our economy. The expectation is these would ‘rub off’ on other firms, providing an additional lift to productivity and wellbeing.

Building clusters of world-leading firms in specific areas of economic activity is an important part of the puzzle. But it is not the only thing we need to get right if New Zealand is to achieve its potential. Another key ingredient is encouraging the legions of small firms operating in our domestic markets to lift productivity.

Digital tools and technologies can help with this too. As well as lowering the cost of being remote, these technologies also make it easier for small firms to operate internationally. For instance, cloud-based services allow small businesses to rent ICT as and when required, rather than having to buy it outright. Platforms like Alibaba and Amazon also provide fast easy ways for small firms to engage internationally.

By the same token, ICT allows firms to grow their market within New Zealand, which improves competition and gives them more scope to grow. Digital tools and data also encourage innovation, generate efficiencies and improve products, lifting the chances of success for firms operating in larger markets.

Despite clear and obvious benefits, the uptake of digital tools is not something that just happens automatically. Instead, digital adoption depends on a host of economic, legal and social considerations. For example, having highly capable management is important, given that many aspects of a firm’s operation need to be rearranged to get the best out of digital.

Having access to people with digital skills is also obviously critical. Digital technologies improve a firm’s productivity more strongly when its workers are digitally capable. Digital skills also shape the impact the digital transformation has on workers. If people lack digital skills, then the rollout of digital technology carries a very real threat of greater inequality. This was clear in the Covid-19 lockdown, with people in digitally intensive jobs more likely to keep working remotely.

New Zealand is already invested in digital in the form of our excellent ultrafast fibre broadband network. Courtesy of the lockdown, we are also having a crash course in going digital, giving us a glimpse of its potential to make life a little easier and to lower our greenhouse gas emissions. Building on this will deliver widespread improvements in wellbeing and future proof New Zealand workers for ongoing technological change.

As we rebuild our economy in the wake of the pandemic, we have a unique opportunity to build a stronger economy that delivers for all New Zealanders. This will require a long-term focus and courage us to make substantial changes, as opposed to tinkering at the margin. In many ways, our uniqueness as a country and an economy make us uniquely suited to a digital future. Embedding digital technology in our economy and building digital skills needs to be a cornerstone in our recovery efforts.

Paul Conway is an economist working at the Bank of New Zealand. He was previously the Director of Economics & Research at the New Zealand Productivity Commission. Paul has also worked internationally at...

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