Speaker by Various Artists

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The Voyage: Dutch Disease – Fatal to Innovation

by John Walley

The term “Dutch Disease” was first used to describe the situation in the Netherlands in 1959, when the discovery of a large natural gas field increased revenues in that sector, overvaluing the exchange rate and causing a decline in the manufacturing industry; imports became cheaper and export margins evaporated.  In New Zealand this is caused by our primary sector.

A similar situation occurs with mining in Australia, on two levels; locally wage inflation ravages associated industries like trucking, and nationally overvaluing the Australian dollar makes other Australian exports uncompetitive.

Broadly, the term describes the negative impact of a dominant part of an economy on the rest of the economy. Farming in New Zealand has become more of a property development game; production is a secondary issue, there to service debt up to the point that the current owner cashes out to the next tax-free.

Macro-economic settings drive behaviour. Innovation needs investment and predictable margins to fuel experimentation and to fund failure. Without the oxygen of margin innovation either fails or fails to happen.  Highly innovative businesses must export and run on the smell of an oily rag. 

New Zealand’s macroeconomic settings support low revenue to asset ratios activities like those found in dairy farming, and as exchange rates escalate the same settings poison activities that have high revenue to asset ratios like manufacturing and software companies. 

How long will we remain hostage to the ideas that bind us to our low value version of the Dutch Disease?  What would we need to do to start transitioning to a more logical economic situation?

I will be exploring these issues and more at the Voyage of a Lifetime event held at the Q Theatre in Auckland on the 10th of June. The passage is already fully booked, but those keen can go onto the waiting list by registering at www.thevoyage.co.nz and watch it live streamed on http://www.ustream.tv/channel/voyage-of-a-lifetime   Follow @voyagenz on Twitter to keep updated.

John Walley is the Chief Executive of the NZ Manufacturers and Exporters Association (NZMEA).  

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