Let 'nerds' drive us all into future

World leaders in science have been meeting in Wellington this week but, SIMON COLLINS reports, NZ is well off the pace in research.

It's not polite to call someone a "nerd" in New Zealand - which may be one reason we're in danger of slipping out of the ranks of developed countries.

Since we started trading with the rest of the world 200 years ago, we've lived mainly off the resources of the land and sea. Getting those resources out to market required more brawn than brains.

Our cultural identity was formed then. We play rugby and race horses; we drink beer. We regard ourselves as practical people who can make do with the proverbial number-eight wire. We have no time for airs and graces: we are natural egalitarians.

But in a world of instant "dotcom" millionaires, Science Minister Pete Hodgson warned this week, this culture is under threat.

"As our economy internationalises, globalises, and there is increasingly free movement of capital and labour, a large chunk of any economy is not free to move, and the tendency, therefore, is for a nation to have a technological elite," he said.

The elite, being free to move, can command world-class pay rates. Those who can't move must take what they're given.

"You might characterise that as the revenge of the nerds," he said. "We need to guard against that."

But in the same speech, he said New Zealand needed to "transform its economy ... from a reliance on primary industry commodities to more added-value and knowledge-based production.

"This transformation is more than a shift in economic strategy. It is also about creating a society that recognises and rewards innovation," he said.

The challenge of rewarding innovation - encouraging the "nerds" - without leaving everyone else behind has become a key issue in most of the 27 countries that sent speakers to the world research and development conference in Wellington this week.

As the graph shows, New Zealand has dropped behind the pack of most other developed countries when it comes to spending on research and development (R&D) as a percentage of national income and that failure is reflecting in average pay packets.

In 1997, the latest figures available, we spent 1.1 per cent of our national income on R&D, exactly half the developed countries' average of 2.2 per cent. And our average income was worth only $US17,583 ($40,453) each in real purchasing power, against the developed country average of $US21,544.

After a period of decline, many developed countries have responded to the surge of new information-based businesses by boosting R&D spending. US federal R&D spending is up 9 per cent this year; Japan doubled its basic research spending between 1996 and 2000; Singapore, with the same population as New Zealand, is spending $S5 billion ($6.5 billion) on a "Science Hub" to house 200 high-tech companies and institutions such as America's Johns Hopkins University.

Last week, Australian Prime Minister John Howard unveiled a five-year, $A3 billion ($3.7 billion) "innovation package," which doubled grants for private sector R&D, announced "world-class centres of excellence" in information technology and biotechnology, and topped the existing 125 per cent tax deduction for R&D with a 175 per cent offer for the labour costs of additional research spending.

In its own way, New Zealand's Labour/Alliance Government is paddling hard to catch up. Last year's budget boosted R&D spending by 10 per cent, to $474 million. And Mr Hodgson plans to use crown research institute's profits and private sector capital to launch a "seed capital fund" for new high-tech businesses.

Some speakers at the conference believe we need to do much more if we are to achieve Mr Hodgson's goal of "transforming the economy."

Dr David Bibby, of the crown institute, identified common factors in five small countries which had transformed themselves into high-tech success stories (Singapore, Taiwan, Ireland, Finland, Israel).

All five, he said, started with a sense of "crisis." For Taiwan and Israel, it was a crisis of military survival; for Singapore, it was the loss of the British military base in 1970; for Finland, the collapse of its market in the Soviet Union; and for Ireland, a determination to end decades of decline and emigration.

Then success came from:

Vision: All five "had a vision that technology was the solution."

Focus: "They picked winners, put money into a few categories rather than trying to do everything."

Commitment: "Ten years is not a long time when you are trying to turn a country around."

State-led investment: "They recognised that the only party with pockets deep enough to make a major investment is the Government."

Arguably, New Zealand has had the required "crisis" ever since Britain restricted our farm exports when it joined the European Community in 1972. Last year's collapse of the kiwi and this week's news of a worsening haemorrhage of skilled people across the Tasman are just the latest symptoms.

But as yet there is no consensus even on Dr Bibby's proposed vision, let alone on such sensitive issues as state-led investment.

In 1999, for instance, Business Roundtable director Roger Kerr said there was "no particular reason why R&D undertaken by people wearing white coats should necessarily yield a higher return to the nation than, for example, the analysis of sales figures for a firm's markets to get a better understanding of consumer demand."

"We benefit from Microsoft's R&D regardless of where Bill Gates sites his business or develops his software," Mr Kerr said.

The free market is already providing the high-earning signals which are enticing young New Zealanders into studying information technology and starting their own high-tech businesses.

Many small software firms, and big companies such as Fisher & Paykel's healthcare business, have won world markets simply because that is where they can make the most money.

Sectors which have not kept up with market wages, such as farming and forestry, are seeing young people abandon them as a result.

Yet even in market terms, there are reasons society, through the state, might choose to push this process along faster by supporting research and development.

The opening keynote speaker at the R&D conference, Professor Barry Bozeman from Georgia Tech in Atlanta, proposed a "new paradigm" for evaluating R&D based on valuing the knowledge and experience the researchers get from their work, which they may later take with them into businesses.

The key to a "successful" research project, he said, was bringing people together from business, research institutes and universities so that the knowledge arising out of the project spreads as widely as possible.

In economic terms, this is another way of saying that R&D may have wider benefits for the whole society as well as financial benefits for the companies that invest in it. It is worthwhile for society to invest in R&D as long as the total return to society is greater than the returns available on alternative investments.

Right now you can get around 6.3 per cent if you put your money in the bank. If you're prepared to take a slightly greater risk, finance companies are offering 10-13 per cent.

In contrast, Ministry of Research, Science and Technology chief executive James Buwalda says the total returns to society from R&D "are generally of the order of 30 to 60 per cent." In the US, estimates range from 123 to 270 per cent.

The director of the Australian Expert Group in Industry Studies, Professor Jane Marceau, warned the conference that Australian-style general tax deductions for R&D allow businesses to "use public money for any goal, whatever its social rate of return."

She recommended getting more "bang" for each state R&D buck by working with each industry to plan the areas where they could get the highest returns.

In the industries she has worked with, "what they mostly wanted was testing facilities and training institutions and mechanisms for exchanging information."

Daniel Sarewitz from the Centre for Science, Policy and Outcomes in Washington, noted that on a national scale, extra investment in R&D seems to make little difference to average incomes beyond a certain point. As the graph shows, income rises steeply with rising R&D spending at first, then levels off.

He drew a similar graph for health spending, showing a steep rise in people's average longevity as their incomes increase - but again levelling off at high incomes.

Yet, he said, 90 per cent of medical research in the United States was aimed at developing expensive drugs which only people on high incomes could afford, because that was where the private returns to drug companies were greatest.

Research on Aids, for example, was concentrated on developing drugs which "turned Aids from a killer to a chronic disease if you are affluent." There was relatively little research on prevention.

"Science policy is no substitute for social policy," he said.

The "vision" that Dr Bibby says we need has to be chosen carefully. If Mr Hodgson has caught the national mood correctly, there will be no consensus for a vision of an affluent, well-educated elite which fails to lift the wellbeing of those who are not "nerds" too.

When a questioner at the conference challenged him, saying there was nothing wrong with elitism in science, Mr Hodgson agreed.

"Elitism in science is to be valued. Entrepreneurship in science is to be valued," he said.

"As we do that, we want to make sure that the rich/poor gap does not lead to a situation where ... rich and important people have to take their children to school in a security van."

That, at least, is a vision of a world we don't want. Turning that around into a positive vision of a society that is both innovative and in line with our culture may be the first step on a distinctive New Zealand road to economic success.

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