KEY POINTS:
The New Zealand Institute has called for a more cohesive, long-term strategy on research and development funding, broadband development and growing the ICT industry with the aim of embracing the "weightless economy".
The Government's $700 million agricultural research and development fund announced this month has been criticised as too little too late and targeting a wealthy sector buoyed by high commodity prices. The National Party plans to scrap the Fast Forward New Zealand fund if it takes power next year.
New Zealand Institute's outgoing chief executive, David Skilling, said the fund needed to be the start of substantial new investment in R&D across the economy, but particularly in the languishing ICT sector.
"Agriculture is not a silly place to start but my concern is that there'll be a view in Wellington that we've fixed R&D," he said.
"If it is the first of five equivalent funds designed to supercharge the growth profile of sectors of the economy I'd be a lot more relaxed ... "
He is also advocating better incentives to encourage foreign investment in the ICT sector and a return to the principles laid out in the 2002 Growth and Innovation Framework document, which he contributed to as an economic adviser to the Government.
"What was lost in that is that having a New Zealand ICT sector is a reasonable ambition to have," said Skilling. "The framework didn't have any sharp policy implications.
"New Zealand has historically underinvested in R&D compared to other small countries. To go from 1.2 per cent of GDP to 3 per cent [spending on R&D] would require an increase of $2 billion to $2.5 billion year on year."
Skilling says there are obvious reasons for the low R&D spending. Our two biggest industries, agriculture and tourism, aren't typically big investors in R&D, while our biggest companies, by world standards are small.
Until last year, when the Government introduced tax credits on R&D, there was little financial incentive to invest more money in innovation.
"We're reasonably productive given we don't spend much on R&D," said Skilling. "But being productive on a small amount is not the same as investing at an appropriate level."
While New Zealand had one of the highest rates of inward foreign investment in the OECD, it was limited to a few sectors and foreign ownership of some of our largest companies.
"It's very difficult to identify scale investments in the IT space," said Skilling. "[IT multinationals] have got branch offices here but not the very significant employment-rich activities you see in Ireland and Singapore."
New Zealand, said Skilling, had failed to adopt a strategic approach to investment in the ICT sector, which should include "headhunting" firms to locate high-value R&D here.
Value was increasingly generated by ideas, intellectual property that can move around the world in seconds, but New Zealand was missing out due to its "ad hoc" approach to ICT industry strategy and broadband.
The New Zealand Institute will on April 2 unveil details of a proposed funding model for building a national fibre optic network.
It sees broadband development as going hand in hand with efforts to grow R&D, economic development and new industries in the ICT arena.
Skilling said he was not in favour of a large-scale Government investor.
"We believe there's a case to be made for relying on private money rather than the taxpayer, which hopefully makes it a bit more politically feasible," he said.
The funding plan rests on the "horizontal disaggregation" economic model. "It's a fancy term for getting people to invest in the passive infrastructure, the actual fibre.
"You require lower rates of return than if you were a full-service telco."
As such it shares traits with a plan floated by Wellington IT entrepreneur Rod Drury who last year called for New Zealand to invest in national fibre networks and new undersea cables to secure its "digital trade routes".
A different strategy has been laid out by IT industry veteran and InternetNZ president Peter Macaulay, who has resurrected a 2006 plan he proposed for a Fibre Fund that would pool investment from Government, local councils and private investors.
The various funding models were discussed earlier this month in a closed-door meeting of Government officials and telecoms and IT executives which was chaired by Growth and Innovation Advisory Board chairman Stephen Tindall.
Reports suggest there was little consensus on a way forward.
The lack of unity typifies the debate on the wider issue of where to focus Government resources, said Skilling.
"We end up in these perennial debates, either we do agriculture or we do software, you can't do both. My view is we can't afford to lose agriculture but by the same token if we aspire to having strong growth rates we can't rely on the agriculture sector, it's just not big enough."
He said the political parties needed to lay out some visionary plans for economic development to get buy-in from the voting public.
"David [Cunliffe] is definitely engaged and interested in this stuff. John [Key] and the National party are interested in the whole infrastructure space. How the enthusiasm converts into action is yet to be seen."
