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Despite the lip-service delivered by successive governments to the goal of making this country a strong player in the global knowledge economy, we're still largely a primary producer who ships huge volumes of logs, wood-pulp, milk powder, crops and other low value-ad products over long distances to their markets.

We have a few notable stand-out players in the area of knowledge industries but they are very much the exception rather than the rule and their percentage of contribution to our total export earnings is tiny.

As a result of our geographical remoteness from key markets and minimal presence in the knowledge economy, we run the risk of being really hammered by the current rise in oil prices. Although I'm no economist, I think it's safe to make the assumption that the effects of this will flow through to all aspects of our lives including things like mortgage rates.

But what's behind the recent record-prices for oil and the steep upward trend that shows no sign of leveling off?

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The most obvious one is concern over the effect that terrorism might have on continued supply -- although some experts claim that these fears are largely unfounded.

Another cause, which is far more likely to have an ongoing long-term effect, is the massive industrial and economic growth being experienced in China.

Right now China is buying up huge amounts of oil and many other raw materials such as iron, nickel, chrome etc. This is placing massive pressures on prices and has resulted in warnings that even things like steel will probably double in price fairly shortly.

This, of course, would be good news for New Zealand -- since we seem to refine export quite a bit of steel. Unfortunately we may not be in a particularly good position to exploit the increase prices that steel will fetch.

For a start -- we don't have a lot of energy to spare right now so it could well be difficult to increase our production.

Secondly, steel is made from a non-renewable resource so we only have a limited amount to export.

And thirdly, the cost of shipping that steel to the target markets will be proportional to the cost of the fuel-oil used to do so, hence some of the benefits gained from higher prices will be lost in higher freight charges.

So once again we're snookered.

The bottom line is that our dependency on primary products leaves us still on the back foot from the perspective of international competitiveness.

I fear that the sad reality may be that when the next global recession hits, driven largely by a massive hike in oil and other commodity prices, New Zealand will be hit harder than most. What's worse is the fact that the very people we need to haul our arse out of the fire will likely do what they've always done when times get tough -- disappear off to greener pastures.

While the government seems happy to wax lyrical about how so many highly skilled NZ ex-pats have been returning home in recent years, I suspect they'll remain quite muted when the next generation of our "best and brightest" disappear off to the USA or Europe when local interest rates hit 10% again and we start feeling effect of not actually driving our own knowledge economy hard enough.

I suspect that as a nation we have no more than a couple of years to get our act together before we find ourselves in a quite deep recession and increasingly isolated from our markets by astronomical freight costs.

My question today is: are we really doing enough to kick-start the local knowledge economy or are we simply coasting on a wave of global prosperity and ignoring the looming danger signs?

If you've got an opinion, why not tell us all in Aardvark Forums.

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