by Gilbert Peterson

For the past six years New Zealand’s innovation landscape has been littered with dithering and waste as the country’s investment in science and R&D failed to rise to an average OECD performance.

With that in the background this week’s announcement of the new ‘National Science Strategy’ and Building Innovation plan, must surely be Minister Steven Joyce’s last shot at gaining traction in this the economy’s weakest performing, and most critically exposed area.

The launch of the new way forward for science and innovation is at least as important, if not more so than the announcement of the TPP agreement though totally eclipsed by it.

But the question remains: Will the new approach prove the most efficient and effective way to move science investment and its commercialisation significantly forward?
Science and Innovation Minister Joyce deserves congratulations for hearing what business and the science community had to say, and coming up with a plan to address their concerns.

For the first time I can recall the minister articulated clearly the economic value contribution made by science and R&D to the nation.

In launching Building Innovation he said: “Successful innovation improves competiveness, increases our output, drives productivity growth, and creates successful exports by introducing new or improved products, processes, or methods into the economy.” Bravo for that. Our future prosperity depends on innovation and the science and R&D that underpin it.

The chief economist of the Ministry of Business, Innovation and Employment, Roger Proctor, spelled this out in a blog earlier this year. In answering the question, ‘Where does income growth come from?’ he said it comes from increases in productivity that occur when new things are produced that people are willing to pay more for than they cost to produce, and by producing new things we already produce with fewer resources. In a word, it requires innovation. And where does innovation come from? Answer: ‘The business environment can have a lot to do with it.’

The National Science Strategy and the Building Innovation plan represent Minister Joyce’s big drive to make our business environment a place where innovation can flourish. In his words: “Our aim is to create the conditions that allow businesses to be ambitious and innovative.”

The importance of building our capacity to innovate cannot be overstated, and while boosting investment in science and R&D is not the whole answer, they are certainly the major cornerstones for it.

The discovery of this truth goes back to Nobel prize winning economists 30 and more years ago, but New Zealand has been very late to recognise it, and our investment in science and R&D has been very poor.

Last year the OECD’s annual Main Science and Technology Indicators backed by US National Science Foundation data ranked our commitment to R&D at 21st. We invested 1.3 per cent of GDP in R&D, below the world average of 1.6 per cent, and behind countries such as Portugal (1.5 per cent) and the Czech Republic (1.9 per cent) though ahead of Russia (1.1 per cent), Turkey (1 per cent) and Morocco (0.7 per cent). Israel and Korea jointly topped the rankings at 4.2 per cent.

Recent figures from Statistics NZ revealed the extent of the ground we have to make up. New Zealand business investment in R&D has been increasing more slowly than GDP, with most of it going into R&D on IT.

A survey by Grant Thornton International late last year found New Zealand was indeed slipping further behind our trading partners in our commitment to R&D. It reported a net 20 per cent of New Zealand companies expected to increase their investment in R&D, much less than our major trading partners China (36 per cent), Australia (31 per cent) and the US (27 per cent).

All of these countries offer their businesses hefty tax incentives to offset their R&D spend; we are amongst the very few in the developed world that don’t incentivize R&D through the tax system in this way.

A reason most countries apply tax incentives is that R&D invariably creates both private as well as a public benefits. The whole value derived from science and R&D is rarely captured by the entity undertaking it. In the same way the innovation that boosts productivity often spreads rapidly from the organization that initiated it throughout the wider, global community.

(Adding trouble to these oily waters is that our tax funded grants schemes to date have often enriched overseas interests when the companies awarded them are bought and move offshore. But more on them in a future column)

The question hovering over Minister Joyce’s new plans is, will they deliver more science investment and, in the absence of more direct and broadly based financial incentives strategically on tap in most other OECD nations, will they boost private sector investment in R&D?

At the time the National led government came to power Minister Joyce cancelled the R&D tax incentives that Labour had just introduced and the value of which had had no time to be demonstrated. He replaced it over time with the elaborate system of grants funding administered by the gold plated Callaghan Innovation.

Now he is ramping up the approach with more funding for business growth grants administered by Callaghan along with a more intense scrutiny of their impact, in an effort to double private sector R&D by 2025.

This, despite feedback from the business community that it would rather get the tax breaks.
Minister Joyce also committed to raise government spending on R&D from 0.65 per cent of GDP to 0.8 percent, and to raise private sector R&D from about 0.6 percent of GDP to 1 percent by 2025, an ‘aspirational goal.’

The most valued part of the changes announced for the science undertaken largely in CRIs and universities is a recognition of market failure in investigator-led or discovery research. This will address a perceived shortfall in the funding available for investigators to pursue ideas discovered as part of their scientific investigations.

Overall, the intentions are sound, all pointing towards lifting our science and R&D investment. But there is to be no turning away from the grants funded approach focussed on the high tech sectors, no sense of the value of what broad based, tax incentivises could do to drive innovation as a national campaign throughout the whole business community.

And a lack lustre performance from Callaghan Innovation to date is to be rewarded with more funding and responsibilities.
-from the mscnewire reporters desk.http://www.mscnewswire.co.nz