Consider this. New Zealand has sound institutional arrangements and according to the OECD, best practice policy settings. We have the number one “entrepreneurial framework”, an environment almost free of corruption, low bureaucratic barriers and our workforce is one of the best educated in the world. Yet, in the past 70 years New Zealand’s GDP per capita has declined from 130% of OECD average to 80%, and on a longer time frame, from number one in the world in circa 1900 to around 53rd (CIA World Factbook). Economists call it the “New Zealand paradox”.

In 1985, prominent economist Robert Solow lamented in the American Economic Review his profession’s determination to reduce economics to a single, universally valid mathematical model at the expense of understanding cognition. He wrote cognition “… is not just influenced by culture and society, but it is in a very fundamental sense, a cultural and social process”. He meant that cognition is strongly influenced by national culture and it varies in material ways from culture to culture.

There are direct correlations between nations’ national culture and their innovation outcomes and hence economic performance. Further, nations are spread along a continuum from predisposition towards the thinking and behaviour associated with inventing things (initiation), to that associated with creating profit and prosperity (implementation). Nations can either produce their own inventions or acquire them from elsewhere, but only implementation “in-nation” creates prosperity. New Zealand is strong at initiation and weak on implementation yet our approach to innovation and hence economic development relies upon an assumption that our strength in initiation automatically translates into strength in implementation. It does not.

If we want to resolve the “New Zealand paradox” we need to complement our current application of the supposedly universally valid mathematical model Solow referred to, with a far greater understanding of the role that our own Kiwi culture-moderated thinking and behaviour has on the nation’s economic performance.    

For a more detailed discussion of this topic click here.