R&D 'not enough to make innovation pay'

Photo / Dean Purcell.

New Zealand underperforms when it comes to innovation but the solution is not just to spend more on research and development, the New Zealand Institute says.

In a discussion paper released today, the Auckland think tank's director, Rick Boven, makes the case for a more coherent approach to commercialising the fruits of scientists' efforts.

New Zealand spends little more than half the OECD average on R&D, relative to the size of the economy. In per capita terms it is lower still.

Yet the productivity of New Zealand farmers, for example, owes a lot to past research, Boven says, and more will be needed to maintain their relative position, to say nothing of emerging areas of expertise like health and information technology.

"We need to spend more, but if we grow the R&D spend without improving the commercialisation and business development effort most of that will be wasted," he said.

The institute stresses the importance of talking to the market early and often about what people need, and not just the local market. It sees too much of the Field of Dreams approach - "build it and they will come".

The institute argues that the productivity of New Zealand's scientific institutes, and of the commercialisation units which link them to the world of commerce, could be improved.

"We need to get from small isolated research units to larger, integrated ones which are well networked internally, to capture synergistic benefits, and externally, so that they know what is going on in the wider world," Boven said.

"We are talking about an evolution to at-scale, world class institutions with a focus on where New Zealand's economic endowments give the opportunity to build a cadre of successful businesses."

New Zealand outperforms the OECD average in the production of scientific papers, but is well below average on patents.

"More focus on commercial outcomes would be helpful. The way researchers are evaluated puts a lot of emphasis on academic papers, but they don't get a lot of credit for successful commercialisations."

How many scientists and engineers are trained in the first place is influenced by the Government's education policies and with the public sector doing most of the R&D how many are retained is also related to how well it is prepared to pay them.

The NZ market's small size and isolation mean businesses need to expand internationally earlier in their evolution than might be the case elsewhere.

This is costly and risky.

The institute notes that the New Zealand Superannuation Fund has recently indicated it is willing to co-invest up to $60 million with private equity funds providing expansion capital to young firms.

More broadly, Government policies that encourage a rebalancing of investment away from property and into more productive assets would be helpful.

At its best, Boven says, the commercialisation part of New Zealand's innovation "ecosystem" is performing well. It is possible to point to successes and exemplars of best practice. "On average, though, there is a long way to go."

Boven is unsure why private sector R&D spending is so low in New Zealand - about a third of the OECD as a share of GDP and barely a quarter in per capita terms.

He suspects it is related to our business demographics, with an unusually large proportion of small enterprises, while the large ones tend to be either foreign-owned, with no particular reason to do their R&D here, or SOEs with a domestic focus.

The Government has scrapped R&D tax incentives and has three reviews under way, on setting priorities, business R&D and the Crown research institutes.