The High-Tech Hills?


It's Time for An Economic Boost, Not An Economic Boot

Maybe in order to understand mankind we have to look at that word itself.  MANKIND.
Basically, it's made up of 2 separate words *mank* and *ind*.  What do these words mean?  It's a mystery to me, and that's why so is mankind.

- Weird Wellington Happenings and Links

Yesterday's Reserve Bank announcement to increase the Official Cash Rate to 8.0% will worry all homeowners with mortgages and businesses requiring credit.  New Zealand has the highest interest rates in the developed world and it surely affects our economic prospects.  In contrast, the official rate in Australia is 6.25%.  New Zealand's interest rates have been higher than Australian rates virtually all my life.  The usual reasons put forward for New Zealand's high interest rates are the small size of our economy, the high levels of total indebtedness, the volatility of the economy and the narrow export base.

The Governor of the Reserve Bank has one mission; to keep down inflation.  Low inflation provides certainty in the economy and ensures that inefficiencies are transparent.  Inflation has increased in recent times as a result of buoyant consumer demand, a tight labour market, international fuel prices and a buoyant property market.  The Governor has added a further reason; the high level of government expenditure.

Experience tells us that increased interest rates will also drive our currency up, as international investors purchase more New Zealand bonds.  So far, the increase in the currency has not affected exports too seriously.  Global demand and increased export prices have mitigated the impact for many exporters, but at some point a rapidly appreciating currency will cause real harm.  New Zealand's attachment to our sovereign currency clearly has real costs.  We have much higher interest rates than our neighbour, Australia.  We have greater currency volatility.  We also incur significant currency transaction costs, and the added cost of running the Reserve Bank.

It is not surprising that John Key raised the question of whether New Zealand should, in essence, adopt the Australian currency at the Australia-New Zealand Leadership Forum in May.  If New Zealand took this step we could expect seats on the Board of the Reserve Bank of Australia, which could be renamed the Reserve Bank of Australia and New Zealand.  We should be able to have our own distinct notes and coins, as is the case with the distinctive Royal Bank of Scotland notes for the British currency.  Naturally, they would need to be the same size as the Australian currency in order to be interchangeable.

Some will lament the loss of our unique currency, and will argue that we will be tied to a currency in an economy that follows different cycles to the New Zealand currency.  In fact, the two economies are quite closely in sync, and the two currencies normally rise and fall together, even if the New Zealand currency is a little more volatile than Australia's.  Imagine interest rates being 2% lower than at present, and in fact 2% lower than New Zealand interest rates at any stage over the last two decades.  That would be a permanent boost to our economy.  It may even help arrest New Zealand's continuing brain drain to Australia, which is now at 700 people per week.

The loss of sovereignty exists simply in our imagination.  Are the French any less French by adopting the Euro?  It's time to have a serious discussion on the future of our currency.

Source: 8 June 2007 Column: New Zealand National Party The Mapp Report

This is a very complex issue requiring a lor of thought.  I'm not so sure I agree with the writer.  I wonder why he doesn't seem to want to even entertain the idea of NZ becoming an Australian state.  I'm not sure I'd like that either, but it doesn't seem to me to be all that removed from sharing currency.

Note the Changes the Years Have Brought:

Wellington, New Zealand's capital city.  Looking down at the Railway network and Station, busiest in New Zealand.
More than 15,000 commuters pass through daily at peak times.  Wellington was not the first capital of NZ but the 3rd.
In 1840 Auckland was chosen as the capital after Russell's brief reign and in 1865 Parliament moved south.
Construction on Parliament Buildings began in 1912 and have never been completed.
A famous British architect, Sir Basil Spence, designed a new wing featuring a beehive-shaped dome now under construction.
Source: An old postcard produced by Offset House Ltd Christchurch for Valentine P O Box 19-139 Auckland.
The card originally cost 25 pence, early to mid 1970s

The Sky's the Limit - Wellington's reputation as a progressive exciting city has resulted in a number of new and existing businesses,
particularly in the hi-tech industry, using the Capital as their base.  Photo credit Phil Reid

Workforce in the Global Creative Economy

by Richard Florida

In March of 2003, I met Peter Jackson, Academy award-winning director of the Lord of the Rings trilogy, in his hometown of Wellington, New Zealand.  Jackson did something unlikely in Wellington, a city of roughly 400,000: He built one of the most advanced filmmaking complexes in the world — a “global talent magnet,” he called it.  There, he could attract the best cinematographers, sound technicians, computer graphics artists, model builders, and editors from around the globe.  As we walked past a wall map with pins showing the studio workers’ native countries, the head of digital animation joked that the organisation looked more like the UN than a film studio.  Jackson told me his key lure was to offer exciting, challenging work with a secure future in a city with abundant natural beauty, affordable housing, and an outstanding quality of life for people of nearly every income bracket.

Jackson's accomplishment in tiny Wellington hasn't factored into any of the recent debates over business competitiveness, jobs or economic growth — but it should.  American economic experts and policy-makers are rightly preoccupied with the emergence of behemoths like India and China, which offer huge markets, capable workforces, and cost advantages.  Unfortunately, they overlook a subtler but even more profound shift in the nature of global competition.  In the past 2½ decades, this shift has taken us from the older industrial model to a new economic paradigm, where knowledge, innovation, and creativity are key.  At the cutting edge of this shift is the creative sector of the economy: science and technology, art and design, culture and entertainment, and the knowledge-based professions.

The US is at the forefront of this global creative economy.  Over the next decade, it’s projected to add 10 million more creative sector jobs, according to the newest numbers from the Bureau of Labor Statistics.  At the present rate of increase, creative jobs alone will soon eclipse the total number of jobs in all of manufacturing.  Already, more than 40 million Americans work in the creative sector, which has grown by 20 million jobs since the 1980s.  It accounts for more than US$2 trillion — or nearly half — of all wages and salaries paid in the US.  Such remarkable job growth goes far beyond technology and engineering.  While the US economy will add 950,000 computer jobs and another 195,000 in engineering, the biggest gains by far will be in health care and education, which will add more than 3.5 million. Jobs for college professors alone are projected to increase by more than half a million.  Arts, music, culture, and entertainment will contribute some 400,000 new jobs.  That’s twice as many as engineering.

The rise of this global creative economy changes the rules of international competition in 4 crucial ways.

bulletFirst, it makes talent the fundamental factor of production.  Economic advantage no longer depends on natural resources, raw materials, trade of goods and services, giant factories, or even growing consumer markets.  The real source of value creation, and therefore of international competitiveness, is creative talent.  Put simply, the places that can produce and mobilize their own creative workers, and attract creative talent from outside, win.  Attracting such talent, from inventor-entrepreneurs David Sarnoff and Andy Grove, to scientists Albert Einstein and Enrico Fermi, was the key to America’s edge in science and technology throughout the 20th century.  Today, this global talent pool continues to help drive US growth, with cutting-edge companies from Google and Yahoo to eBay and Sun Microsystems all founded or co-founded by foreign-born Americans.
But as Jackson’s success in Wellington illustrates, places around the world have stepped up their efforts to skim off talent.  China and India are stepping up their efforts to attract back their own top scientists and entrepreneurs, while Canada, Australia, and many European and Scandinavian nations bolster their efforts to attract leading graduate students, scholars and cultural creatives from around the world.  The US should not be worried about losing out on the low-cost, low-skilled end of the global labour market; it should be worried about other countries slowly chipping away at its ability to grow, attract, and retain top creative talent.  Any attempt at immigration reform has to make America more friendly, and certainly not any less friendly, to this crucial source of talent and economic advantage.
bulletSecond, the new playing field makes regions the fundamental economic and social organising unit of the world economy.  True, technology enables the diffusion and decentralization of economic activity, leading to what Tom Freidman likes to call the “flattening” of the world economy.  But the tremendous productivity and creativity gains that spring from high density give shape to a powerful counterforce: geographic clustering and concentration.  As a result, the cutting edge of the world economy is taking shape around a relatively small number of regions — places that Bill Gates has aptly dubbed “IQ magnets.”  Some of these are enormous and established creative hubs such as New York, London, Paris, and Tokyo.  Others are centers of science and technology (the San Franciscos and Bostons of the world), powerful regional centres (think Taipei and Singapore) and diverse talent magnets (from Sydney and Melbourne to Amsterdam and Dublin, Toronto and Vancouver).  This clustering of talent is just as prevalent in the emerging economies, especially India and China, where economic and technological activity is becoming far more concentrated than in the advanced world.  A small number of booming mega-regions like Bangalore, New Delhi, Shanghai, Beijing, and Guangzhou are sucking talent from the countryside, connecting to the world economy, and leaving the rest of their countries behind.  Within these regions, too — as within US metros — the economic divide between high-skilled and low-skilled is growing.
bulletThird, the very forces of concentration fueling the growth of the global creative economy are also creating powerful new social, cultural, and political divides in the United States.  UCLA economist Ed Leamer has dubbed this division “geeks versus grunts.”  But it’s more aptly seen as a growing divide between those who enjoy higher-paying higher-skill work in the creative sector and those who do lower-wage lower-skill service work.  It’s no coincidence that these are the two sectors of the US economy enjoying rapid growth.  Alongside its 10 million new creative sector jobs, the US economy will add another 5 million, mostly low-paying, service jobs over the coming decade—including 735,000 retail salespeople, 550,000 food service workers, 470,000 customer service representatives, 440,000 janitors, 375,000 waiters and waitresses, and 230,000 landscapers and groundskeepers.  Impressive figures: until one considers that these jobs pay a third of those in the Creative Economy, and half of what manufacturing workers make.
As the US loses another half-million high-paying manufacturing jobs over the coming decade to automation, improved efficiency, and outsourcing, its labour market is essentially cleaving into two distinct economic classes: high-skilled, high-paying creative work and much lower paying, low skill work in the service economy.  The task facing economic leaders of the 21st century is not simply how to spur technology and innovation, but how to recreate the large pool of high-paying but relatively low-skill jobs that were once the hallmark of our broad middle-class society.  Since not everyone can be a scientist, artist, or professional, and since a large number of manufacturing jobs simply will not be coming back, the best strategy may be to elevate the millions of new service-sector jobs our economy is generating into secure, respectable, high-paying jobs.  When I asked a group of my students whether they would prefer to work in good, high-paying jobs in a machine tool factory or lower-paying temporary jobs in a hair salon, they overwhelmingly chose the latter, for its more psychologically rewarding, creative work.  Indeed, while vocational training programs for machinists go begging for students, cosmetology classes are overfilled.
The point is not that hair-cutting jobs are somehow inherently better than factory jobs, but that our only choice for avoiding a two-class society is to make these sorts of service economy jobs better, higher-paying middle class jobs.  And these personal service jobs — manicuring, landscaping, massaging, and so on — are the ones least likely to be vulnerable to outsourcing.  There are those who say that market forces conspire to keep wages for these jobs low, and others who say that the only way to improve them is with massive government intervention.  But companies all across the US and the world — from Starbucks and Whole Foods to Target and the Container Store — are devising strategies to upgrade service work.  They are bumping up pay and benefits, and enabling employees to use their creative talents to serve customers better, not to mention add to the bottom line.
bulletFourth, the creative economy is giving rise to even more extreme divides globally between the relatively small number of advantaged regions and the rest of the world.  Friedman writes that: “You no longer have to emigrate in order to innovate.”  But for the vast majority of the world’s population, that doesn’t hold true.  Even as world-class scientists return to exploding creative centers in China and India, the poorest countries and regions around the world continue to export more than half of their scientific and engineering talent to the advanced economies, according to a recent World Bank study.  Economic disparity is rising as powerhouse creative regions like San Francisco register rates of income and housing inequality unseen since the 1920s.  Incomes in Beijing and Shanghai have risen at 3½ times those of rural China.

So while it’s crucial to spur investment in science and engineering, and to lessen the growing gaps in the international technology talent base, business and government leaders must also recognise that the leading sources of job growth in the creative economy come from sectors outside of high-tech.  To continue down the current path will mean far greater regional concentrations of wealth, mounting economic inequality, growing class divides, and eventually worsening political tension and unrest within countries and on a global scale.

It’s time to wake up to the new realities of the creative economy, and stop developing policy for a bygone industrial age.  Our only path forward is to make the creative economy work for us — by undertaking regional, national, and global efforts to harness the creativity of each and every human being, aligning the further development of human creative capabilities with the further growth and development of our economies.  They did it in Wellington; the challenge of our time is how to do it not just in one region or even one country, but on a truly global scale.

Richard Florida is the Hirst Professor in the School of Public Policy at George Mason University, and the author of The Flight of the Creative Class (with a new edition in paperback from HarperCollins, Fall 2006) and The Rise of the Creative Class (Basic Books, 2002). Visit for more information.

Source: 4 June 2006

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