KEY POINTS:
The centenary last week of Ernest Rutherford's Nobel prize in chemistry is a timely reminder of New Zealand's proud history of world-leading innovation and culture of scientific discovery.
If we are to strengthen and insulate our economy from external pressures, raise living standards and enjoy long-term prosperity, this culture must be carefully cultivated.
Given the current economic outlook, public and private funding bodies need to recognise that now is a time for more investment in research and development (R&D) spending, not less.
The global financial crisis appears to be deepening by the day, with the failure of lending institutions and massive layoffs in the United States and other drivers of the world economy bringing the fundamentals of the current financial model into question and prompting comparisons with the Great Depression.
Opinions differ as to the best way ahead but it is widely recognised that the situation is intractable. While it is unclear when the world economy will stabilise, economists agree that in the 1930s Governments could have played a more active role in stimulating economies starved of capital through acting as a lender of last resort and capital investment in public works projects.
The New Zealand Government has articulated a desire to stimulate the flagging economy here through investment in infrastructure, which it believes will boost the construction industry and have flow-on effects to the wider economy in the short term and build capacity in the long term.
This is encouraging because capacity building needs to be a key aspect of any viable plan for a long-term recovery. Equally it is disappointing that the new Government has indicated it will scrap the proposed R&D tax credits for business, promoted by its predecessor, to fund personal income tax cuts.
Compared with most other OECD countries, New Zealand has a rather dismal record of investment in R&D from both the private and public sectors and while tax cuts will stimulate consumer spending and provide a short term fillip for the economy, this will do nothing to build capacity.
A consumption-led recovery will do nothing to diversify the economy from reliance on exporting primary-sector commodities to selling innovative, value-added products to the world - something I believe is vital if we are to prosper long-term.
While the primary sector will always be our mainstay, the real opportunity for New Zealand lies in leveraging our world-class science expertise to add value to other sectors. By relying heavily on primary products we expose ourselves unduly to the risk of often volatile global commodity prices.
And the finite availability of agricultural land at home means our primary industry exporters will need to look more and more to joint ventures overseas. As we have seen in Fonterra's experience with San Lu in China, this is often not as straightforward as it seems.
There is general agreement that with improved productivity, an increase in the value of our exports will lead in part to a more robust economy - but the big question is how do we achieve this? Value can be added in manufacturing through innovative science and technology solutions that create products with unique performance qualities that are in demand by discerning consumers abroad.
A good example is the work being done by Industrial Research Limited's (IRL) carbohydrate chemistry team and IRL business unit GlycoSyn, which are world leaders in carbohydrate-based pharmaceutical research and development.
In a field dominated by multinationals with significant R&D budgets and contract R&D providers in low-labour-cost countries such as China and India, the IRL team chose a branch of drug research that's notoriously difficult and tackled by few competitors able to yield the quality results provided by IRL.
Another example is IRL's high-temperature superconductor (HTS) research. For spin-off company HTS-110, researchers make products which are lighter, smaller and more efficient than equivalent copper or low-temperature superconductor devices. Initial applications include electromagnetic work for manufacturers of scientific instruments in the European, US and Japanese markets.
Advances in HTS technology also offer improvements for the utility and efficacy of electricity networks through increased power reliability. So, like the electric fence, invented by Bill Gallagher snr on his Waikato farm early last century, HTS technology developed here is set to improve productivity in New Zealand and provide export revenue too.
Furthermore, the development of such new technologies has spill-over benefits for other related industries supplying raw materials, machinery and equipment.
The HTS research at IRL is just one example of the cutting edge science being conducted at research institutes and universities all over the country.
While New Zealand scientists are recognised as world beaters, it is fair to say they haven't always worked as closely with the business community as they could. At IRL we are looking to address this apparent disconnect between the worlds of science and commerce and next year will embark on a renewed effort to build these relationships.
With fellow Nobel laureate Professor Alan McDiarmid and a raft of others, Rutherford is part of a proud Kiwi tradition of pre-eminent scientists. He once famously said of New Zealand scientists: "We don't have the money so we have to think."
Capital is indeed in short supply today, but I believe exceptional economic circumstances mean the Government should think seriously about increasing R&D funding to grow capacity and stimulate our flagging economy.
Similarly, New Zealand businesses have the opportunity to better leverage this world-class science and technology to make high-value products that are globally competitive.
In the long term this approach will make the economy more robust and enable more of New Zealanders to enjoy the living standards to which we all aspire.
* Shaun Coffey is chief executive of Industrial Research Ltd.
