Science sector review offers hope for a brighter future for New Zealand – Catherine Beard

We are losing
Compared to other countries that are developing faster, can pay higher wages and offer better lifestyles – other countries are luring our educated, talented young people. While we have seen record net migration to New Zealand overall, the outflow of our young talent overseas is at an all-time high and is becoming alarming.

How to fix the situation and get back in the game?

It will not be surprising if it turns out that the key to success is increasing our productivity, and the best way to achieve it is innovation and research and development.

New Zealand invests significantly less in innovation (1.47% of GDP in 2021) than all other OECD countries (2.74%). While business spending on R&D increased by 29% between 2021 and 2023, both business and government are investing less than the OECD average and we need to do something about it.

That’s why BusinessNZ is delighted that a review of our science system and university sector is underway under Sir Peter Gluckman’s leadership. This is long overdue and we need to look at it carefully to get the incentives right in both systems so we can combine the magic of R&D and innovation with commercialisation.

This is not currently the case and despite the government spending $2 billion a year on research and development in various areas, it is difficult to measure the return on this investment and identify its impact.

Of the $2.4 billion that businesses spend on R&D, just 1.9% of the budget goes to higher education and just 5.1% to government. The majority of this is spent in the business sector itself (78%), with 12% going to overseas R&D providers, according to last year’s StatsNZ R&D survey.

It is therefore clear that the business sector has difficulties in cooperating with the university sector and the Crown Research Institutes in research and development partnerships.

The feedback we get is that CRIs that focus on a specific sector and work closely with it perform better. This is true for CRIs based on land, sea and food, and the productivity results for these sectors have certainly outperformed the rest of the economy.

For example, according to Stats NZ’s 2023 productivity statistics, over the past 45 years annual multifactor productivity was 1.7% in primary industry, zero in manufacturing and 0.6% in service industries.

So our frontier companies (large exporting manufacturing and technology companies) don’t get much benefit from government R&D investment. They have to navigate a complex system – in different pots of money – where CRIs compete for funding on a project-by-project basis, which is wasteful and doesn’t provide long-term scientific focus or job security.

There seems to be a lack of commercial focus in many areas of research. Ideas coming out of universities are often not commercially driven, and researchers are encouraged (by the funding model) to publish in scientific journals – the opposite of how commercialisation and protection of intellectual property is achieved.

If a company finds an expert at a university that it wants to work with, that expert is sent to the university’s commercialization office. There, the research often sits on the shelf because the university has overvalued the IP.

The large companies where we do most of our R&D say that if the cost of developing intellectual property is $1, the cost of commercializing it is about $100.

Companies prefer to present their R&D idea to an expert and ask him to help implement it, rather than expecting the university to say that the idea is great and that they will have to develop it together (“researcher pressure” instead of “customer pull”).

If we could create the right incentives for commercial scientists to work directly with companies, this could lead to much better outcomes.

Businesses tell us there is a gap in effective R&D support from government. Large companies that do the most R&D appreciate the R&D tax credit, but for smaller and digital companies the cost of accessing the R&D tax credit outweighs the benefits.

So there is certainly a gap in support for smaller businesses that Callaghan Innovation has been unable to plug since the closure of the previous Growth Grant.

That’s why companies are happy that the science system is being overhauled. This could be a once-in-a-generation opportunity to transform our R&D and innovation system (including universities) into something that could help supercharge our economy.

Other countries have done this and it is good to know that Sir Peter Gluckman is aware of these international examples and can use this experience. We need a reset in our science and university systems, and we need it relatively quickly.