Comment: New Zealand’s model for funding research and development is as windy and pitted as our roads. But like our roads, there’s are tools to improve it – if government and business can only work together.
Here’s the problem: there’s a public/private rift in investment in science and technology. Our universities are constantly on the brink of breakthroughs, but instead of working with businesses to commercialise it, they leverage public grants and try to do it themselves – with only very limited success.
They conduct their research within the parameters of a grants system, the Performance-Based Research Fund, that has been little more than $300m since 2016. And it’s no longer fit for purpose, by the admission of the Tertiary Education Commission that administers it.
As Newsroom reports, the commission’s chief executive has admitted to MPs that whether the fund remains a worthwhile endeavour is an “open question”.
Margaret Hyland, the deputy vice-chancellor in charge of research for Te Herenga Waka Victoria University of Wellington, says the fund has “a big compliance cost” particularly the quality evaluation component. “The fund drives behaviour … because it’s so easy to fall to simple metrics, and simple metrics can be gamed.”
That wasted money and effort competing for grants is a problem with government grant regimes across the board, everywhere from local government to charities, and we’ll be investigating that further in coming weeks.
Meanwhile our businesses don’t invest enough in R&D, and what they do is focused on short-term incremental improvements to their existing tech. Low risk, low reward.
According to an NZIER report published this morning, R&D spending in NZ over the past 20 years has been consistently below the OECD average, with business expenditure on R&D particularly low. “This means our ability to transform businesses with technology is under-leveraged.”
Get this: Businesses in Singapore are now able to secure a 400 percent tax deduction on expenses incurred for R&D projects for the first $400,000, and 250 percent on remaining qualifying expense. Here in NZ, businesses can access a 15 percent tax credit on approved R&D activity.
If NZ had invested in R&D at the same rate as the OECD average, this would have equated to $8.4b in 2020 – nearly double the actual spend of $4.5b.
So … if that’s the problem, how do we fix it? To continue with the metaphor I opened with, here’s one tool, for fixing roads: A local business has created an artificial intelligence system for detecting potholes, cataloguing them, and getting them fixed faster.
It works via a vehicle-mounted camera that records the road at up to 85kph, while machine learning software inspects the footage for holes, cracks and humps. It takes the computer about six minutes to analyse all the video – as compared to about six hours for overseas technology.
That’s now being used by the country’s biggst roading contractor, Fulton Hogan. The company’s road asset manager Adam Humphries says the extensive data-set specific to NZ’s “unique road environment” is high quality, quick to turn around, and cost effective.
The reason I mention this particular tech is because its development has been bankrolled by the commercial sector, which proved uncharacteristically willing to take a punt on it.
The NZIER report was commissioned by Spark NZ which, incidentally, reckons it is contributing to the solution by investing in Kiwi innovations like the pothole tech. (Credit where credit’s due, Spark Business Group took out Amazon Web Services’ 2022 global innovation partner award for that tech partnership).
And the report also hints at a key tool for fixing the problem with poor and minimal investment in our pocked and potted R&D. Looking to the experience of other small advanced economies, it says, one of the key characteristics synonymous with innovation and productivity is that businesses operate within a deep cluster or ecosystem.
Governments have a key role in innovation ecosystems by improving the incentives for research, development, and innovation, and funding for research institutions. They can also support innovation ecosystems by maintaining a supportive policy environment, it says. But the private sector and other research institutions must also play their part in driving those ecosystems.
This is work that the previous government had begun to recognise. Ahead of last year’s Budget, former prime minister Chris Hipkins made science, skills and infrastructure its three priorities.
The new money would strike a balance between public sector, public good science, and investing in private sector research and development, he told me. “We actually need to lift our game as a country when it comes to our investment in R&D, if we want to stay at the cutting edge of a very, very globally competitive environment.”
For several years, MBIE has been leading work to overhaul the way we fund and commercialise scientific research. It’s called Te Ara Paerangi Future Pathways and, going into the election, it was focused on developing the country’s National Research Priorities, to replace the National Science Challenges.
But it says there’s no open consultation with industry and the public on setting those priorities.
Christopher Luxon also recognises the problem. Before entering politics, he chaired the Prime Minister’s Business Advisory Council, which looked very closely at both the opportunities and challenges greater automation presents New Zealand.
“NZ has not invested in skills, R&D and innovation to nearly the same extent as the high-performing, small advanced economies of the world,” he said in his maiden speech, in 2021.
“Automation technologies, which span advanced robotics, machine learning and AI, will unleash unimaginable change in our society and our working lives … It has the potential to help us work smarter and seriously improve our competitiveness and productivity. However, we are not currently geared up for it. We need to build a bold plan with real actions to harness the opportunities and to ensure that large parts of our society are not left behind. The urgency can’t be understated.”
Where is that urgency, now he’s leading the Government? There’s nothing in either coalition agreement, nor in the new Government’s 100-day plan, to show he’s still committed to solving the problem. It seems the potholes in the roads are a greater priority than the potholes in our Future Pathways.
He’s appointed Judith Collins the minister for science and research, as well as digitising government. Today, she’s announced that the Digital Industry Transformation Plan and Te Ara Paerangi Future Pathways reform programme have both been ended.
“With a country of our size, and with limited human and financial capital, we need to focus our approach to science and innovation,” she says, in an emailed statement. “Currently, too little of our science is commercialised into innovative products and services. And too little of our investment is focused on the advanced technology first world countries are taking seriously for their growth.”
That’s fine – if she’s putting in place some more effective tools to drive and commercialise innovation. Certainly, she’s promising to create more opportunities for collaboration and crossover with the private and public sectors, but it’s not yet clear what mechanism she intends to use to achieve that. When the National Science Challenges come to an end, what will become of their $80m budget?
“While I will not be taking Te Ara Paerangi Future Pathways forward, I am committed to ensuring our science system is well-placed to deliver the maximum benefit for New Zealand and will announce next steps in due course,” she says.
So here’s the big question: will the new Government commit to shaping the new National Research Priorities (or whatever takes their place) so they actually bring together publicly-funded research in our universities and Crown research institutes, with private investment.
Will it ensure that both are at the table in deciding the priorities?
The RSI (Research, Science & Innovation) system is hanging in limbo currently. The longer it takes to decide on a national strategy the more likely talent will go offshore and current disruptive early stage technologies will be superseded by global competitors.
It’s no surprise that large NZ companies looking for innovative solutions will buy them off the shelf from other nations who have got to scale faster. This short term innovation is less risky and more immediate. To embrace R&D in NZ we need to have a medium and long term strategy of investment and partnerships between the RSI organisations and industry.
The harsh reality is that there is a wide chasm (valley of death) between Research and Development to Demonstration and then to Deployment. Perhaps we need an R&DDD approach? Industry and investors alike will wait for deep tech to be derisked to a point they can confidently use it to make profits. They aren’t in the game of R&D afterall.
The other major issue is any investable innovative technology startup needs a global market which NZ cannot provide. We therefore need to scale any future manufacturing and production offshore where the market is.
The conundrum can be solved however if we realise what our strengths are as a country. We are great at solving problems and a very innovative bunch. Scaling and distribution of technology isn’t our strength. We are in effect better to be the world nursery for innovative technology and partner with the markets who can take them to scale.
The national research priorities should hold an overarching vision to lift our innovation global ranking of creating world changing technologies and attracting the best early stage talent to do it from the bottom of the world.
As Mariana Mazzucato argues in The Entrepreneurial State (and in later books) attention needs to be given to ensuring that there is a fair return to the state for technology and research funded by the state.
100% agree Andrew, Mazzucato has the right formula for a mission based approach.
Of course the urgency can be understated. What he meant was it couldn’t be overstated – as in, it’s REALLY urgent – surprised you repeated that common error.