How do we get a ‘rock star’ economy?

OPINION: In the 1800s, opera singers were the celebrities of Europe. Surprisingly, despite their fame they were not particularly wealthy.

The reason was simple: as an opera singer your income was directly related to the number of evenings you could pack out an opera house. Despite their undoubted talent, even the best opera stars struggled to deliver more than five performances a week.

If you got sick, retired, or died, the music stopped, and so did the income.

Fast-forward to 1888 and Emil Berliner invents the gramophone. Berliner’s invention transformed the music industry. An artist could now give a single performance, record it and make it available to anyone who owned a gramophone (an audience massively larger than an opera house) at effectively zero additional cost to the artist.

Instead of reaching a few hundred aristocrats, artists could now reach thousands of middle-class music lovers every night without any extra effort. As a result, artists began to become wealthier.

But it was in the 1950s that another invention, the portable radio, truly brought music to the masses. Low-cost radios led to an explosion in the audience an artist could reach, and with it a change in musical tastes: out with high-brow opera singers, in with Elvis – the rock star was born.

The Beatles played to packed stadiums globally, but their real reach was via the airwaves, enabling their songs to be heard by billions of people. Today, Here Comes the Sun has been played 781 million times on Spotify alone – that’s equivalent to filling the MCG 7810 times. For the record, The Beatles managed “only” 1410 appearances over the band’s entire career.

These two inventions, the gramophone and the radio, led to massive increases in an entertainer’s profitability: The Beatles could record a three-minute song once and sell it millions of times, leading them to become the wealthiest musicians of all time. Even in death, the estates of John Lennon and George Harrison still earn tens of millions every year.

What has all of this got to do with New Zealand?

What’s really going on here is the difference between tangible or physical assets (such as the opera singer’s nightly performance) and intangible assets (such as music recordings, software, data or brands).

If you look at New Zealand’s economy, it is largely tethered to physical assets. Of our top 10 exports, the top seven are physical products (dairy, meat, wood, fruit, cereal, beverages and fish).

The problem with these tangible assets is that they don’t scale the way intangible assets do. Tangible asset growth is limited by physical constraints: the speed at which grass grows or fish multiply. You can’t make one fish, put it online and download it 50 million times in a week. But intangible assets like a Beatles song can be scaled infinitely.

Hence, over the past 50 years, global agricultural production has increased roughly 1 per cent per year, while on the other hand semiconductor power has increased approximately 5 billion per cent. In fact, semiconductor power doubles roughly every 18 months – a phenomenon called “Moore’s Law”, named after Intel co-founder Gordon Moore.

With agriculture you are constrained by physical assets, while with semiconductors you are leveraging an intangible asset – the knowledge of how to pack more transistors onto a silicon wafer – and that asset can scale vastly faster. In short, there is no Moore’s Law for agriculture.

This is relevant to New Zealand because our focus on primary sector products and tourism (which likewise is largely a function of physical assets: there’s a limit to the number of people we can crowd into Milford Sound before we destroy it) places an inherent limit on the speed we can grow our economy. That speed limit means there is less money to pay for more hospitals, schools and police.

Despite being christened a “rock star economy” in 2014, in reality the New Zealand economy is more like an 18th century opera singer: we might be extremely good at what we do (growing great food), but there is a limit to the amount of growth that can be squeezed out of our physical resources. We are still focussed on singing for our supper night after night.

Meanwhile, peer economies such as Israel, Singapore, Finland, Taiwan and Ireland have progressively focussed on leveraging intangible assets that enable radical increases in scale and profitability to accelerate their growth while not compromising their physical environment.

Unlike the opera singer, these economies figured out the secret to using technology to take a single day’s work and scale it out to billions of customers.

New Zealand’s businesses and government needs to focus on developing intangible assets that can be scaled infinitely at zero or close to zero cost. We need more Xeros, Rocket Labs and Fisher & Paykel Healthcares.

In short, if we want to succeed in the 21st century, we need to take a page from John, Paul, George and Ringo’s playbook. Or as Chad Kroger, frontman of Nickleback, put it: “I wanna be a rock star.”

By Paul Adams, CEO, EverEdge Global

As published on Stuff.co.nz