Dialogue page, NZ Herald, 24 August 1999

While the Government last week made a commitment to the "knowledge economy" we can already see on the horizon the next big change - from the knowledge economy to the creative economy.

This change is happening rapidly and chaotically, so rapidly that there is less time to replace the jobs that become redundant.

In the creative economy, as in the knowledge economy, soft assets are more important than hard assets. Processes, people, ways of doing business, relationships, ideas, energy and feelings among groups of people are what count.

Getting the right mix of people working harmoniously in the right way will make things tick. Managing smart organisations will bring the payoff. The computer universe will get bigger. Perhaps most daunting of all, machine creativity will take over from people creativity, seizing many jobs and positions we now deem "skilled."

The operational structure of the world has shifted. Companies are becoming more important than nations; brands more important than governments; efficient production more important than jobs; individuals more important than society.

The axiom that information is power is being replaced. Information was power but with greater access to information, power will lie with those who can harness and apply knowledge. This is becoming the distinguishing factor in competition those who know and who can add value will succeed.

In the creative economy the world will be divided into two groups: those who know and those who don't - the talent group and the commodity group.

The talent group is the restless, choosy, innovative intelligentsia. They know they're for sale to the highest bidder. They know they could work as easily in Auckland, Tokyo or London - or all three in a week.

The talent group can respond to unstructured knowledge and produce structured knowledge. Then they connect the two.

These people don't believe in a job for life but in employability for life. They're restless and demanding. A study of workers in the high-tech industry in Canada showed that these types of workers aged 29 years or under expected to change employers within two years.

In New Zealand, the talent group is strong, as evidenced by a recognisable group in their late 20s who travel, often to Britain, driven by their earning potential and the desire for experience. While they may be hard to keep at home in the short term, the group is also bolstered from offshore by professionals seeking a lifestyle in New Zealand.

The commodity group will be working in a new environment The physical location of expertise is becoming increasingly irrelevant to information technology. For example, India has more electronic engineers working on Y2K problems than any other country.

In New Zealand there are businesses providing technology-related services such as money market information, voicemail technology, computer and video graphics to clients around the world.

As we become more cemented in the knowledge economy, smart companies have to face the challenge of managing knowledge workers.

Knowledge workers must continuously update their knowledge with specialised education and training. Their core competencies need to be learning (sourcing, questioning, sensing); improving thinking (analysing, creating, reflecting); and social (networking, team working, communicating).

Money isn't necessarily the most important thing to them. They seek personal growth, interesting projects with interesting people and autonomy. Increasingly, they also seek leisure, because the other key factor in the creative economy is that those who are employed work harder and for longer hours than ever.

Young people today thirst for knowledge. But their enthusiasm to take and use information is not necessarily met by corporations. In 10 years it will he. Only those which can organise their operations to foster creativity will survive. The best leaders and managers for these new teams may come from outside today's typical structures.

Smart companies will eagerly seek ways of using knowledge. They will ensure the talented share knowledge and stay with the organisation. The talent group, hugely aware of its own value, will need to believe they are contributing to their own careers before they will share knowledge.

The smart company will create pleasure in work; it will reward, appraise and motivate. It will ensure balance in life and work for its employees. Either that, or the talent group will pack up their tents and go to the competition, taking knowledge, contacts and customers with them.
 

by Keith Rankin, Dialogue page, NZ Herald, 24 August 1999
 

The Government's re-election strategy - codenamed Bright Future - is to convert New Zealand into a "knowledge economy." Ireland and Finland are seen as pioneering models of small-country knowledge economies.

The concept of a knowledge economy is ambiguous and National Party strategists are probably fully aware of that. It is difficult for potential critics to oppose a knowledge economy. Few of us would own up to preferring an "economy of ignorance".

Orthodox (neoclassical) economics assumes that, under textbook conditions of perfect competition, both consumers and producers have "perfect knowledge." But that only means that consumers know all the spending choices available to them, know what competing firms are charging for identical products and know about the qualitative differences between similar products.

For firms, perfect knowledge means knowing resource prices, knowing the alternative techniques for making their product, and knowing what other products they could make with the resources they command.

Thus, to a neoclassical economist knowledge is of use only to the extent that it serves the interests of producers or the utility of consumers. Investing in more knowledge than is needed for that purpose is seen as wasteful.

Nevertheless, knowledge in economics is a public resource. It belongs in the public domain. Attempts to inhibit the dispersion of knowledge - through patents, for example - are regarded as forms of market failure. Political proposals to create a "knowledge economy" today, however, are as much attempts to privatise knowledge as to expand it. This is to happen on two dimensions.

The first is the creation of a "knowledge elite" within New Zealand. Knowledge is to be rationed to those most equipped to profit from it. This is not a matter of creating scientists instead of entrepreneurs, as Roger Kerr (this page, August 20) worried. Max Bradford wants to create applied scientists who sell for high prices the products of patented knowledge.

Creating a knowledge elite is a matter of picking winners, which means picking losers. Mr Bradford would like four of our seven universities and all of our institutes of technology to do less research, not more. Those outside the elite three, as "teaching universities," would be spoon-fed only the knowledge that is deemed good for them.

The second dimension of the policy to exploit privatised knowledge is for New Zealand Incorporated to gain market share in the world economy by being more knowledge-rich than are New Zealand's rivals.

This view - of the opportunistic nation state fails to appreciate the nature of globalisation, which diminishes national borders and national economic plans. In practice, New Zealand's knowledge elite will have far more in common with the knowledge elites of other nations than with the knowledge-poor majority in our own land.

Ireland's success is due in large part to opportunistic behaviour on the part of Irish policy-makers. Ireland has chosen to make itself more attractive than its potential rivals to transnational corporations. It is paying them huge subsidies in the form of tax concessions - to set up in Ireland instead of somewhere else. Ireland's success has depended on it pursuing tax policies that differ from other nations.

If the majority of nations choose to emulate Ireland's strategy, then Ireland's miracle economy will disappear. It will not reappear elsewhere. Rather, the shareholders of the companies that get worldwide tax breaks will be the winners, and everyone else will pay through the loss of their tax-enabled social wage.

The solution that is best for the world as a whole, and therefore best for each nation in the world, is to treat knowledge as a free public resource. Knowledge creation would be understood as a component of social investment, funded by taxes.

The public knowledge economy should yield an improvement to the social wage that represents a return to each of us from our past social investment. Our social wage includes our health system and our social security system.

In an internationally cooperative public knowledge economy, nations do not seek to undercut each other by offering corporations tax subsidies and non-unionised labour forces. Rather, moderately high income taxes are seen as the price that all producers pay for public knowledge.

The person who has done most to develop the theoretical underpinnings of knowledge based growth this decade is American economist Paul Romer, building on the early 20th-century writing of the Austrian-American economist Joseph Schumpeter.

Schumpeter's hero was the entrepreneur in a century when entrepreneurship has been an unfashionable concept in economic theory. While Schumpeter's entrepreneurs thrive on uncertainty, people like Roger Kerr, who pay lip service to entrepreneurship, push for policies that give businesses certainty. There is no certainty in an "economy of ideas."

The writings of both Schumpeter and Romer are dominated by visions of publicness, of inclusiveness. It is unfortunate that their fine writings should be interpreted by our Government as the basis of a recipe for a divided national community and as a means by which we as a nation can gain a competitive advantage over knowledge-poor rivals.

New Zealand touts free trade as a cooperative international solution to the world's economic problems. A policy that seeks to profit from the knowledge poverty of other nations while also creating internal divisions represents a very different ethos. We need to create an economic order that values knowledge as public property.