Pat Pilcher: NZahead report is right - we could do better

New Zealand is lagging behind in the potentially golden areas of science, tech and innovation.

Us Kiwis could be doing a whole lot better according to the New Zealand Institute, which scored New Zealand a disappointing 'C' in its annual "NZahead" report.

While this "could do better score" it is a long way off the A+ we all crave, and we can take some comfort by the fact we were awarded a B- for effort. This said, at the end of the day it's results that really count.

Even though the report gave positive ratings for New Zealand's cultural and educational capabilities, we scored abysmally across 7 of the 16 measures used to grade our national performance, with innovation and business sophistication; labour productivity; household wealth attracting particularly poor scores.

NZ's Economic Future

What are implications of this unfortunate showing? While there's little doubt that New Zealand enjoys many advantages in agriculture, horticulture, viticulture, and tourism continues to boom, the reality is that there is only ever going to be so much wealth that can be generated on a national basis by exporting dead animals, bits of wood and bottles of wine.

Unless New Zealand can continue to diversify and grow its economy beyond these low value primary sectors, future generations of New Zealanders could find themselves doomed to decreasing living standards as we continue to slide down the OECD ladder.

Ironically, New Zealand's booming tech sector has remained largely unrecognised. According to one of New Zealand's leading scientists, Sir Paul Callaghan of Victoria University, there has been significant growth in New Zealand's tech sector; "over the last five years a significant high technology industry sector has emerged, as evidenced by the TIN100 report, with over $6 billion in sales per annum.

Most New Zealanders, and most politicians, are unaware that this sector now represents our third biggest export sector after tourism and dairy."

Tech sector growth aside, the New Zealand Institute gave innovation and business sophistication in New Zealand a measly D. So if tech is so big, where does the problem lie? It's not as if us Kiwis are stupid. We ushered in the nuclear age, arguably flew a heavier-than-air machine before the Wright brothers and gave the world the electric fence. So if we're so darned clever, how come we got a lousy D for innovation and What can be done so our next report card at least has an A or even a B?

Unfortunately, New Zealand tends to compare poorly with other OECD nations, especially when it comes to science. While the quality of the science done in New Zealand is high, New Zealand doesn't do enough of it, especially in the private sector. Compared to other countries such as Finland or Denmark, New Zealand businesses have long tended to spend less on research and development by almost a factor of ten. This has a big affect on our productivity, which is why the New Zealand institute scored us so poorly on innovation.

New Zealand's GDP per capita has now been overtaken by Spain and Greece, and is about to be overtaken by Slovenia and will soon be overtaken by Israel, Korea and Taiwan. These are all countries that have made science and technology the focus of their economies. Perhaps its time New Zealand gave science and technology some more attention?

Traditionally our Nobel Prize winners (Ernest Rutherford, Alan MacDiarmid et al) did much of their work overseas. Thankfully eminent scientists, such as Sir Paul Callaghan, are increasingly choosing to conduct research in New Zealand.

The importance of this cannot be emphasised enough, especially as exporters increasingly look to R&D based innovation to remain competitive and differentiate themselves in increasingly competitive global markets.

While there's nothing wrong with exporting commodities and tourism per se, they're often low high volume, low margin activities. Remaining over-reliant on them will continue to see New Zealand slip further down OECD rankings of whilst our wealthier counterparts such as Australia continue to prosper.

Big benefits

To turn this around, New Zealand needs to start appreciating the value of an idea. Generating innovative ideas and taking them to the world will add yet another string to New Zealand's bow, generating additional national wealth as a result.

According to Industrial Research scientist, Shaun Hendy, the problem is not so much about getting inventive ideas to market "...when we have a good idea, we're as good at taking that idea to market as any other country. The problem is we're just not generating enough ideas."

His sentiments are echoed by Sir Paul Callaghan, who says that there is "a lack of comprehension of the nature and importance of the knowledge sector by both the centre left and centre right of politics, and hence a lack of goal-setting or leadership around these issues.

Hence the failure to invest in higher education, science and technology at a per capita GDP level comparable with OECD norms, or those of small tiger economies we wish to emulate. Young New Zealanders, and their parents, have little idea that this sector represents the future of our economy, and this is reflected in poor educational choices and a continuing focus on finding overseas professional opportunities."

Clearly there is a need for increased funding for science, education and innovation. Doing this would ultimately allow New Zealand to produce more people with the skills needed to generate ideas and turn them into exportable products.

Doing so could leave New Zealand less exposed to fluctuations in global commodity prices as well as creating a more diversified economy that is ultimately more sustainable.

This will also potentially help New Zealand pay its way in the world by lessening its long term reliance on foreign borrowing.

Equally important are the potential environmental benefits (the NZahead report scored New Zealand's treatment of the environmental a dismal collection of C's and D's).

As it stands, New Zealand's economy continues to be dominated by the export of primary goods. This in turn means New Zealand is faced with the delicate task of balancing stress on the environment by overexploitation of natural resources against maintaining the clean, green image which is vital for tourism and exports.

If our economy were to develop a stronger science, technology and innovation component, chances are that we wouldn't be reduced to turning a fast buck by mining conservation areas.

High tech industries can have a very small environmental impact, and produce very high economic returns. As energy and transportation costs continue to rise, staying reliant on an economy based on exporting lots of low value commodities simply isn't likely to remain economically sustainable longer term.

What's holding NZ Back?

If the benefits of science, tech and innovation are that compelling, what's holding back innovation in New Zealand? Shaun Hendy believes that reluctance to invest in science, technology and innovation is the single biggest impediment; "Both businesses and government need to invest heavily in science, both in funding research and in training the next generation of scientists and engineers," he says.

Unfortunately, overall awareness of the need for more investment in science, technology and innovation by the average new Zealander remains low, and this in turn means there's little pressure being placed on public and private sector leaders to focus on innovation.

Sir Paul also believes that this "requires a shift in focus away from further attempts to build prosperity based on expansion of dairy output and the distraction of seeking mineral wealth.

"Neither can provide the $30 billion exports per annum that we seek. By contrast 100 more companies like our top ten technology firms will meet those objectives while maintaining brand New Zealand."

New Zealand currently trains about a sixth of the number of engineers annually compared to Finland (50 per cent of the board members of Finland's Nokia have engineering degrees).

Science and innovation needs to be placed in a position of prominence instead of the current economic focus on tax and regulation which is akin to shifting deck chairs on the Titanic.

Whilst we've made some major progress in stimulating innovation recently through the creation a Chief Science Advisor for the Prime Minister and the Government appears to be adopting many of the recommendations of the CRI taskforce report, these moves are only a small start and New Zealand needs to find ways to boost investment in research and development, particularly in the private sector but also in the public sector.