Radical change is needed – Productivity Commission

Productivity Commission chair Ganesh Nana. Photo / Mark Mitchell

The Productivity Commission is calling on the Government to be bolder and more focused in the way it supports exporters to innovate and become world-class firms.

In a report released on Monday, the commission said government initiatives such as industry transformation plans (ITPs) and national research priorities were underfunded, too “top-down” in the way they allocated resources and too disconnected from the industry.

The report follows on from its 2021 inquiry, ‘New Zealand firms: Reaching for the frontier’, into the country’s most-productive ‘frontier’ firms, such as Fisher & Paykel Healthcare.

The 2021 report found NZ’s frontier firms lagged on average up to 45 per cent behind the productivity of high-performing small, advanced economies and recommended the government overhaul the country’s innovation ecosystems to enable firms to innovate and export at scale.

A key recommendation was that government investment should be focused on areas of existing or emerging economic strength, with a competitive advantage as the only way a small country can achieve critical mass and support sustained world-class competitive performance.

Radical enough?

Less than two years after the report was published, the government asked the commission to revisit its inquiry to see whether sufficient progress was being made or whether “more radical change” is called for.

Commission chair Ganesh Nana told BusinessDesk that you don’t often hear the word “radical” in a minister’s request and said the country’s current approach is certainly not going to shift the productivity dial.

“Not in any way that we need or are expecting and definitely not in the way I think that the government is after.”

Nana said there doesn’t appear to be any sign that our research and science efforts are moving towards clear areas of focus – which was the core recommendation from the frontier firms report.

‘Sub-therapeutic doses’

He used the term “sub-therapeutic doses of effort” to describe the current approach, which spreads resources too thinly across almost every sector of the economy. For example, industry transformation plans were “very small, not attracting any non-government dollars, and don’t have connections to the researchers”.

Rather than looking at productivity from a fairly narrow industry perspective, the government should be asking what sort of focus areas they would be able to contribute to. The tricky part is to get the right governance structure, where you don’t have government ministers attempting to pick winners, but you bring the scientists and the business innovators together – the best and the brightest from all parts of the community – while asking them to park their vested interests at the door and not make a pitch that their industry is the most important.

Nana feels that the current approach, whether it is through ITPs or the research, science and innovation (RSI) strategy, tends to have the various players disconnected from each other and funding tends to be captured by the vested interests of the day.

“We are still in the old model of looking at R and S, separate from I, and it needs to be a coordinated, cohesive system.”

He said the government needs to build an innovation ecosystem that recognised that there are roles to play for the science institutes alongside the innovators and the entrepreneurs – government funding alongside private funding, and engaging with Māori and unions, too.

“Everybody needs to be recognised for their role in that broader system, rather than having a framework which accentuates the silos.” BusinessDesk asked Nana about the example of the Primary Growth Partnership, which had attracted what had surely been a “therapeutic” dose of funding and included such projects as Precision Seafood Harvesting which had resulted in a radical new approach to trawl fishing.

He said the project was an example of things that had been done right that we can build on – another is the application of robotics in the horticulture sector.

“So, those things are happening, but if we’re serious about that step change, or, dare I say, whether a more radical change is needed to move [productivity], then we do need that sort of step change in our approach to research efforts, science efforts, commercialisation and innovation.”

- BusinessDesk