Shaun Coffey: It's time to create favourable climate for R&D

Opinion

It is encouraging to see the New Zealand Institute wading into the debate around science and its role in the economy through the paper it released late last year, Standing on the Shoulders of Science.

Its title suggests correctly that science is the foundation of the economy and while I couldn't agree more on this point and on many of the problems it outlines regarding the need to improve the innovation ecosystem, the paper is somewhat lacking when it comes to the details of how to do this in practical terms.

While it advises that the innovation system needs to be addressed in its entirety rather than in discrete segments, the report addresses each segment separately, which I find somewhat contradictory.

The analogy of an ecosystem, however, is a good one. In the natural world an ecosystem will only be vibrant and healthy if it is afforded the right conditions - adequate rain and sunshine, fertile soils etc. The same can be said for the innovation ecosystem - without the appropriate climate real innovation will struggle to gain a foothold.

Countries like Finland, Denmark and Singapore have for years worked to cultivate these conditions and nurtured a healthy, thriving innovation ecosystem. Such an ecosystem is critical for a country like Singapore, which relies solely on innovation as it has no natural resources. Despite this disadvantage it is far wealthier than New Zealand. A major difference between our two countries is that Singapore has encouraged a strong culture of innovation via a systems approach that has allowed the country to become one of the world's most advanced and wealthy economies in a few decades.

In the mid-1980s New Zealand and Singapore were on an equal footing in gross domestic product per capita - adjusted for purchasing power parity (PPP) - but since then Singapore has streaked ahead to be ranked sixth in the world by the International Monetary Fund, with New Zealand a lowly 32nd.

By 2014 the IMF predicts Singapore's GDP per capita will be roughly double that of New Zealand.

An important part of the innovation ecosystem in Singapore is the favourable environment it has created for private investment in R&D. This has been achieved largely through initiatives like Biopolis, a sprawling 200,000sq m biotechnology R&D hub in which the Government invested more than $500 million to set up last decade.

Biopolis has attracted significant local and foreign private sector investment from multinationals such as Novartis and GlaxoSmithKline, which have set up shop there.

Biopolis follows the clustering model made so famous by Silicon Valley in California, where rapid growth of spin-outs results from an innovation-friendly environment.

Improving private sector investment in R&D is a salient point and something that Standing on the Shoulders of Science pays little attention to. While New Zealand's public sector investment in R&D is lower than the OECD average, its private sector investment is even lower in comparison with other OECD countries.

If we are to climb the OECD table, more of our private companies need to invest in R&D but they will only be encouraged to do so if the right conditions are apparent.

The major omission in the report is that it pays little attention to the main lever New Zealand needs to develop to improve its rate of economic growth - encouraging existing large and medium-sized New Zealand companies to improve their investment in R&D and uptake of innovation and advanced technology.

Fisher & Paykel Healthcare grows by approximately 15 per cent each year and is on track to double its size in five years. It has achieved this through considerable investment in R&D.

The report makes no recommendations on how the country is going to get more innovation, through increased investment in R&D, from some of our largest companies. While there has been general agreement from the private sector that the cancelled R&D tax credits would have gone a long way towards achieving this, it still waits for new policy incentivising business investment in R&D from the Government. Recommendations from the Tax Working Group argue for a tax regime that encourages more investment but at first glance the proposals appear piecemeal.

We know from last year's experience in running IRL's What's Your Problem New Zealand? - a competition offering up to $1 million in IRL R&D spend - that there is no shortage of companies with an appetite to embark on R&D. The main barriers are access to capital and the sorts of conditions that encourage innovation.

Standing on the Shoulders of Science's assessment of the structure of Crown Research Institutes and universities as the providers of most scientific research in New Zealand is somewhat shallow. While I agree that longer-term, larger-scale investment is required and that CRIs need to be bigger to support the innovation ecosystem, statements like "Focusing investment where research output has potential commercial and economic benefit is good strategy" seems to me to be pointing out the obvious and is something that is already happening across the board.

I applaud the intention of this report and agree wholeheartedly with many of the suggestions it puts forward. However, it touched only lightly on several key aspects of the innovation ecosystem that need to be addressed in the wider debate.

Most critically, it provides little on how to encourage the private sector to raise its investment in R&D. In my opinion, this fits hand-in-glove with raised levels of investment from the public purse and is a model that has been shown to work time and time again in high-performing, technology-intensive advanced economies the world over.

* Shaun Coffey is the chief executive of Industrial Research Ltd.