Exploring innovation

Speech Notes for Pete Hodgson - Minister of Energy, Minister of Fisheries, Minister of Forestry, Minister of Research, Science and Technology, Minister for Crown Research Institutes, Small Business

[The 5th R D Batt Memorial Lecture, hosted by the Institute of Molecular BioSciences, Massey University, Palmerston North].

As you might expect I remember Professor Batt well. Behind his back we called him Dickie Batt and it approximated both a term of endearment and a term of respect.

I remember his alcohol experimentations well though regrettably I never myself partook of the vodka. I remember the discovery of microorganisms in the gearbox of a motorcycle, the excitement of stage three biochemistry lectures as their clinical relevance started to become apparent to me.

I remember a short, sometimes stern, sometimes aloof man who seemed to be preoccupied only with imparting understanding. But I also remember a man who, despite huge class sizes, allowed his pastoral care for his students to show through. I saw the same thing in his wife too. She taught me neurophysiology and imbued me with the magic of the work of Eccles under whom she had studied. Her name was Dr Batt, and she didn’t have a nickname. Dr Batt spoke often and glowingly of Professor Batt. But then she would.

Dickie Batt was an unforgettable man, one of those teachers whose image and voice I can recall at will. This is despite the fact that I studied biochemistry only because I chose veterinary science and biochemistry was on the list. Neurophysiology for that matter too. I was therefore a conscripted student rather that one who wanted to become a biochemist, but both Batts contributed enormously to my eventual love of their respective subjects and of biological sciences in general.

Many years later, as a Parliamentarian, it was Professor Batt I turned to for advice on liquor laws. I would ring him and talk to him. Always he maintained his painstaking accuracy. Always he chose his caveats with care and without unnecessary extra syllables. As I tested my political conclusions he would colour those conclusions with precisely chosen shading.

You will understand therefore why I feel honoured to give the 2002 memorial lecture and why I accepted without a second thought.

I’ve called this talk exploring New Zealand’s innovation system.

I have already introduced jargon – New Zealand’s innovation system. Why do I use it and what does it comprise?

I use it because I think a narrower concentration on the role of science in an economy or society will no longer do. I use it because in recent years a consensus has begun building in New Zealand that our future depends on the creation and creative deployment of knowledge and that all parts of our society are affected by that finding. I use it because it helps convey attitude changes that are under way in New Zealand and that need to quicken.

What is an innovation system? There is no textbook answer. Every player wins a prize. But for me it is the aggregation of those things that contribute to a nation’s ability to create or discover valuable knowledge and to deploy it widely, accurately and quickly.

Of course research, science and technology are at the heart of a good innovation system. They are the important wellsprings. So is our education system. These are obvious statements.

Less obvious is our ability to define, protect, value and congregate portfolios of intellectual property, and to see it as a new form of capital. How good are our patent attorneys or our regulatory structures in this regard? How good are we at licensing IP, at defending IP, at keeping secrets?

Our immigration system plays a role, given that the movement of talented people across jurisdictions is becoming more and more fluid. Each nation is competing for talent.

Our ability to look outward is a feature of an innovation system. How good are our government and institutions at interacting with other nations or institutions? How good are our businesses? How easily and how well do we form international strategic alliances, given the inexorable move to a more and more globalised, integrated economic and social future?

A good innovation system is concerned also with the core state sector. How nimble and responsive is a Government? How good are politicians or state servants at facilitating? What amount and quality of regulation is the right amount and quality?

How good are the nation’s capital markets, its fibre optic infrastructure or its attention to career structures? What strategic attention is paid to the creative arts, to design, to engineering? How well are the science and society linkages drawn and nourished? How good is the nation’s collective futurewatch capacity? What is the state and status of basic research? What is the state and status of public good research?

These things are collectively a nation’s innovation system and they are the things I wish to explore.

Before I begin I want to do two other things. I want to comment on the quality of New Zealand science, and I want to comment on Simon Upton’s R.D. Batt memorial lecture of six years ago.

First our science. We should remind ourselves that we are uniquely strong in many areas. Our mammalian reproductive sciences are world class, as are our mammalian genomics, earthquake engineering, some aspects of climate modelling, plant gene technologies, plant breeding, various frontiers of bioactives research, aspects of diabetes or asthma research, and much besides.

Kiwifruit is our story. Earthquake and volcano monitoring is our story. Much of Polynesian research is, of course, our research. We invented the jet boat, pinus radiata cropping and we have good biosecurity research. We domesticated the green lipped mussel, produced the Bose-Einstein condensate, progressed ozone research. We can bring endangered species back from the brink, and we know a lot about a lot of proteins.

Our science is done efficiently, it enjoys good bibliometric evaluation, it is comparatively collaborative across institutions, countries and disciplines. It is of reliably good quality.

I’m saying this to set the scene. There is much that this country must do. Raising the average quality of our science is not at the top of anyone’s list. The quality is already good, even if good can never be good enough.

Now to Simon Upton’s lecture six years ago. Simon was approaching the end of a six-year spell as science minister, though he continued the ownership role for Crown Research Institutes for a further three years.

I want to offer some comment on Simon’s address, or more accurately on the times in which he made that address. But I want to put on record first my view that he was a very good minister of science, and as effective as he could have been under the circumstances. In short, if Simon were minister now, he would be thriving.

His address was of course erudite. It was well structured, well argued and well worth the read.

But it was repeatedly defensive. He repeatedly defended taxpayer expenditure on science against those who, in his mind, would oppose it. He mourned the fact that not enough people thought science important.

Much of his address was about Crown Research Institutes. He spelt out his aims and hopes for CRIs and urged his successor not to undertake another round of restructuring in response to his. He defended Crown Research Institutes against those who would take dividends from them, and he railed against those who would interrupt CRIs as they made necessary adjustments to their assets and campuses and ways of doing things. He explained non-specific output funding and the theory of purchaser failure and he defended the creation of the Marsden Fund.

Throughout he drew on the work of his favourite economic philosopher, Friedrich von Hayek, as he sought to explain clearly why a liberal market thinker like himself should be so strongly in favour of ample public sector funding of science, especially funding which might give serendipity a chance. It is, as I said, well worth the read. Most of Simon’s lectures are.

But it was not an optimistic speech.

New Zealand science was emerging from earlier indifference and recent restructuring. Simon Upton was right to establish CRIs, he was right to establish the Marsden Fund, and he was right to give universities access to what was then called the Public Good Science Fund. He had good reason to be optimistic.

But it was not an optimistic speech because science was still struggling to secure its rightful place in the minds of the policy elite in Wellington.

How things have changed, or at least how they have started to change.

The CRIs are now ten years old and thriving. They haven’t been restructured by me, nor will they be.

I did take $50 million off their balance sheets. This got doubled to $100 million and became the New Zealand Venture Investment Fund, which will ultimately be multiplied up into about $300 million of venture capital. It will start to hit the New Zealand innovation system in a few weeks.

There were two reasons to do that. One is that CRIs were awash with cash. One company had even invested in Government bonds – hardly leading-edge stuff. The second is that I have a Finance Minister and a Government as committed to science as I am. The $50 million was bulked up to $300 million and retained in the innovation system. Simon’s Finance Minister would have wished to retire debt or lower taxes.

The Marsden Fund has more than trebled since Simon’s speech, and a new basic research fund called the New Economy Research Fund is even larger. Basic research funding, and those two funds, made it into the Speech from the Throne last month, which outlines the Government’s agenda for the Parliamentary term. That’s always a good sign.

The point is that the mood of this country has changed. Research and Development is being viewed less as a cost and more as an investment. The idea of a knowledge economy is taking root, even if people dislike the term. The role of innovation is understood by those who matter – a quick comparative read of the 1999 and 2002 Treasury briefings to the incoming Government is arguably a case in point.

I must not of course overstate this change. We have after all just been through an election in which a heated debate on genetic engineering played a prominent part, but even here I can reasonably claim that it is the first election in our nation’s history that was fought in part over science. The science and society debate is alive.

In all, I stand here optimistically.

Does that mean that New Zealand’s innovation system is in good shape, that we need do no more than maintain and upgrade it from time to time?

No it does not. Our innovation system has serious shortcomings. I am optimistic that we can address them, but they are serious nonetheless. I would like to explore our innovation system from four different perspectives, or through four lenses.

As I do I ask you to think through what role your university, your department, your research team, or you can play to help address the shortcomings I am about to explore.

The Government has been building a partnership with New Zealand’s research community these past few years. It has many dimensions. It has a lot of potential. It is a work in progress.

We want to enable you to deliver more benefit for New Zealand. So as I wander through this address, think how your lot and my lot might make better progress on the issues we face. Consider how we might advance this partnership and make it hum.

Now to the first of the lenses I want to look through. Money.

After the endless international comparisons are made, one fact stands out above all others. It is that although public funding of research and development in New Zealand is close to the western world average, private sector funding is closer to a quarter or a third of the western world average. If it were equal to the western world average, New Zealand would be spending an extra one billion dollars on R&D. We call that gap the missing billion.

Think through what the research community might do to help mobilise the missing billion. It is a big issue and it belongs to all of us. But first, why does it exist?

The first reason is that we are a primary production economy, rather than one that makes pharmaceuticals and aeroplanes. Around the world farming, forestry, and the like spend relatively modest amounts on R&D.

The second is that ours is a small business economy — and corporate size matters in the creation and defence of R&D budgets.

The third is that, though New Zealand attitudes to research and development are changing, they have not changed nearly enough. Companies are still taking an excessively short-term approach and R&D is an easy short-term target.

Low private sector R&D investment is both a cause and a symptom of our stage of economic development. Low R&D expenditure is what you expect from a primary production nation, and it is the reason we remain a primary production nation.

I do not forget that our excellent primary industries are what have made us a developed nation at all. We still post exceptional productivity increases, and part of our future is undoubtedly what some label the gourmet economy. But while primary production might underpin our economy, it is by no means sufficient.

What to do?

“Tax cuts” chorus some, ignoring how costly and blunt an instrument that is. Even so, I freely acknowledge the psychological impact of such policies and I freely acknowledge that Government should continue to actively explore the potential for gains through taxation changes. That is why we now allow full expensing of all R&D costs in the year in which they were incurred.

“Measure R&D properly”, chorus others, and probably rightly. Measuring private sector investment in R&D accurately has proved something of an adventure. We will have better data soon. Will it reveal that the missing billion has been there all along? I very much doubt it.

A more useful answer might be labelled “industry policy”, something New Zealand all but abandoned during the nineties. More venture capital, more incubation and more attention to business formation, business growth and so on.

Here we are making useful progress.

Technology New Zealand, a grants to business facility, has had its budget doubled. Venture capital funding is forming quickly, though off a low base.
We have more than a dozen business incubators, when three years ago there was only one. A new organ of Government, Industry New Zealand, has been formed, has found its feet and delivers most of the Government’s industry policy. It has a suite of industry development programmes and progress in recent times has been startling. In May a new form of R&D funding, consortium funding, got under way. The Government funds up to 50% of new and additional private sector investment into R&D, ranging from low risk to high risk. It has all gone, already.

So, if the lens is money, then the key issue, but by no means the only one, is to increase private sector funding of R&D and the role the Government might play in assisting that. We increased R&D funding by 18% in our first term and a useful chunk of that went into leveraging extra R&D investment from industry.

Or we could pick up another lens through which to view our innovation system – not money, but regulation. Here the news is mixed.

By international standards New Zealand’s regulatory system allows businesses to form or die easily. That is important. It is one of the reasons this country tops the international Global Entrepreneurship Monitor.

Deregulation can help. So can low compliance costs. The New Zealand Companies register, for example, now costs $70 instead of an earlier $200, takes thirty minutes not two weeks, can be searched anytime instead of during office hours and employs 20 people, not 70. Good, nimble, responsive Government.

Regulation can help. High environmental standards, which we have, force New Zealand companies to deploy cleaner technologies, or to invent them. Should they be exporters, they will clear the standards of other countries readily.

Let’s take a look at a university favourite, the Environmental Risk Management Authority. The Royal Commission found that high risk applications were subject to a precautionary, transparent and participatory process that they deemed to be in good shape. But they found low risk applications to be over-regulated, costly and time wasting. That needs to be fixed.

We also have unfinished work on plant variety rights and patents. Here the regulatory framework is out of date, and harming innovation. Note also that we have no bioprospecting policy in this country, at all. We need one.

If one takes a broader view of regulation one bumps into contestable funding rounds, arguments around peer review, the debate about compliance costs for science and the role of evaluation of research. Here, surely, we must deploy a variety of techniques.

On the one hand, we have contestable processes regulated by peer review for investigator initiated research. On the other hand we have negotiation followed by evaluation when the taxpayer and industry are forming a consortium to fund an agreed portfolio of research. In general and on average my preference is to soften the contestability element a notch or two.

An emerging debate is how to evaluate the new performance-based tertiary research fund that is being split out of the EFTS funding model Simon Upton was so scathing about, six long years ago.

The EFTS model was, of course, hugely successful in achieving the aim of lifting tertiary participation rates, which are now amongst the highest in the world. But Steve Maharey saw the side effects of that policy — including the inefficiencies of duplication and growing uncertainty over the quality and quantity of teaching research — and acted accordingly. That is a topic for another speech, but its relevance here is that performance-based research requires an evaluation framework. That debate, essentially a regulatory debate, is upon us.

Let me put down that lens and pick up another. Not money. Not regulation. People.

An innovation system is self-evidently centred on and dependent upon people. How well does our innovation system stack up in this respect?

Here we can choose to travel quite well worn ground. The received wisdom might go something like: “too few scientists, too few science students, high tertiary education costs, not enough recognition of the research community,” and so on. That is a pessimistic analysis, but not necessarily a wrong one. There are, no doubt, many elements of truth in it.

The more optimistic analysis is also well travelled. It asserts that New Zealanders are well educated on average, and that that education, combined with New Zealand’s geography, history and culture, produces people who think outside the square, pride themselves on a ‘can do’ attitude, display ingenuity and are not hide-bound by the traditions of other nations. This analysis often invokes Hillary’s line “we’ve knocked the bastard off” or Rutherford’s “we have no money gentlemen, so we shall have to think”.

I want to travel less worn ground. When I think of the role of people in the innovation system I am inclined to think of people on the move. Those who are clever and well qualified are even more mobile than before. New Zealanders leave and return, or not. Non-New Zealanders arrive and stay, or not. The phenomenon of a highly skilled, highly mobile, global workforce is growing and is likely to become permanent, as the global movement of capital has already become.

This third analysis means that immigration policy becomes very important.

Over the last year or two the New Zealand immigration service has altered its approach, becoming not just a gate keeper but also a recruitment agency. In a variety of ways, New Zealand actively encourages well-qualified people to immigrate to New Zealand to work. Accredited businesses now enjoy the ability to recruit staff directly, so long as they have a permanent job for them paying over $45,000 a year.

Every western nation is joining this quest for talent, as aging progressively turns demographic profiles from upward triangles to inverted triangles. The New Zealand inversion lags other countries to a degree, courtesy of Polynesian demography.

By the way, as our population become more Polynesian, the case for greater Maori involvement in science becomes greater. Maori in my view, think differently. Maori have a different knowledge set, including some very old knowledge. For those reasons, and because it gives effect to the Treaty partnership, we have created a still small line item in the budget called Maori Knowledge and Development. I’ll say no more on it today, except watch this space.

We can and should view the kiwi expat community differently. The best part of a million kiwis live offshore and many are in a position to contribute to the New Zealand innovation system.

An example of this is the Kiwi Expat Association, or KEA, which now has chapters in several world centres. I attended the opening of the first of them earlier this year on the Berkeley campus. About 100 kiwi expats in the Silicon Valley area gathered for the day to gain an update on their country of origin. They are mostly in business or academia. All of them are keen to help New Zealand or New Zealanders, a few want to come home and many wish to make money.

KEA is essentially a private sector initiative that arose from last year’s knowledge wave conference. A supporting policy initiative from Industry New Zealand finances the movement of expats back to New Zealand for a sabbatical, typically with a New Zealand business.

New Zealand has started to learn that talent, here and abroad, matters. A question to leave you with is: What can the research community do to augment these policy initiatives and maximise their benefit?

Which leads me nicely to my fourth lens. Not money, regulation or people but interactivity. This idea attracts its fair share of synonyms. Interconnectivity, strategic alliances, global connectivity, interdependence and so on.

The essential idea is well understood. It is that a good innovation system depends on many different relationships. The thicker that web of relationships, the more chaotic it is, the better. The classic linear analysis of an idea making its way from basic research to applied research to pre-commercial development and successful entry into a grateful global market is mostly fantasy.

In practice, innovation is most likely to flourish where scientists and entrepreneurs mingle to the point where the distinctions are lost. Where academics flick in and out of commerce, or for that matter the policy arena. Where clever people look back on a career so eclectic and varied that describing it to a stranger becomes a burden. Where venture capitalists, technologists, marketers, designers and lawmakers live and work amongst each other.

Michael Porter has given this idea extensive academic analysis. This is cluster development, of course, and it is a favourite with Labour politicians because a functional cluster is economically very powerful and very resilient. Bits of it can die and be reabsorbed into the whole.

The level of interdependence in a cluster puts paid to the pure competitive model of business. People must cooperate at home in order to compete abroad. The king of the world’s clusters, Silicon Valley, has been the subject of a number of books exploring its success, sometimes in the language of ecology. A linear model or a model that analyses inputs separately doesn’t seem to work. An ecological analysis seems to make more sense.

In the New Zealand context interactivity is working both well and badly. The Fitzherbert science campus is a good example of university, crown research institute and research association collaboration and it is decades old. It collaborates well with primary industries but poorly beyond that.

Indeed there are few manifestations of the gourmet economy or of the modern biotechnology sector in the Manawatu. This is a cluster that has a good base and not yet a lot else. Some recent local initiatives are setting out to change that.

A number of recent Government policies have been designed, at least in part, to promote interactivity. Consortium research funding, which I have already touched on, uses money to forge and co-fund a research strategy in an industry sector. Centres of research excellence, though predicated primarily on excellence, also promote linkages between institutions. Applicants who were not well linked to other institutions did not succeed.

At this point I should pause and congratulate Massey on its success in that programme, with the Allan Wilson Centre opened just a couple of hours ago, and note also that both Ted Baker and Paul Callaghan hail from these parts.

Cluster development is now a function of Industry New Zealand and export network development a function of Trade New Zealand. Integration here and there is becoming a watchword, again, and at our place we seek to do the same, under the moniker of “whole of Government”.

International interactivity is harder. We are a small and distant nation and still that is a factor that counts against us, notwithstanding notices of the death of distance, occasioned by the internet. A New Zealand scientist must be more outward-looking than an American or European one. So must a New Zealand institution, a New Zealand enterprise, the New Zealand Government. That is why New Zealanders have a high passport ownership. That is why over a third of our economy is in the export sector.

Yet the number of large exporters is disturbingly low. A Boeing 737 would seat all the chief executives of export companies of any size. Moreover, with important exceptions, New Zealand businesses are not noticeably linked with overseas marketing networks, owners, sister companies or R&D capability. The global web is, for us, still insufficiently woven.

Where does the research community sit in all this, given it is amongst the most globally connected of all New Zealanders? Where can you use your connections to better connect not just yourselves, but others including business?

This relates to another shortcoming in our innovation system, that of foreign direct investment. It is not that we have low levels of overseas ownership. Our poor savings record has seen to that over the decades, and continues to do so. But most foreign investment is in existing enterprises — utilities, for example — rather than in growth industries that use and develop New Zealand skill. There are some excellent exceptions – the joint venture between Ericsson and Synergy is often quoted – but the problem is I can name most of them.

Slowly that is changing. An increasing number of overseas investors are active in New Zealand. They are investing in biotechnology, information technology and manufacturing. Yacht makers, pharmaceutical companies or multi media companies are developing in partnership with home-grown capability.

New Zealand’s future does not lie in the Irish or Singaporean approach of joining the international bidding war to induce businesses to relocate. We do not have the right global location to induce a Viagra factory to a greenfield nearby, nor frankly the money to compete with the incentives other nations are prepared to offer. Besides which, easy come, easy go, as Britain has discovered to its cost.

New Zealand needs a foreign direct investment strategy and capability. We are quietly building one. It is called Investment New Zealand and it is putting runs on the board. Its activity and funding must grow.

None of this is to downplay foreign portfolio investment or investment in existing industries. In forestry processing, for example, increased foreign investment is becoming urgent. Such investment is job rich. It is not however transformational.

Moreover, the next time the Manawatu creates a Glaxo, we should take care to retain the intellectual property here as a magnet for other investors, even if the budding company must move part of its operations offshore.

I have one more thing to say under this heading of interactivity or global connectivity. It is that we sell ourselves short on the way we brand ourselves as a nation.

The preoccupation with a clean, green image is not enough. It is a powerful idea for a nation that exports food and imports tourists. But it is hardly innovative. A better one liner would be ‘clean and green and on to it’. A nation that can produce three Nobel Prize winners in a century from a modest population base, make ‘The Lord of the Rings’, win and defend the Americas Cup with boat design and technology second to none, should project itself differently.

We have started. The taxpayer threw a party at the Beverly Hills Hotel two days before the Academy Awards last March and invited Hollywood to come. They did. They were impressed with the skill and technology available here. More film-making is coming our way. The day after the awards we paid for full page adverts in several large newspapers in the US and elsewhere which read ‘best supporting country’. Innovation has become a pretty broad idea. I wonder whether Dickie Batt would have approved.

Let’s pause and see where we have got to so far.

I have described what, for me, an innovation system is and I have described it broadly, even if I have left out important contributions such as the creative arts or physical infrastructure or savings policy or macro-economic underpinnings.

I have explored the New Zealand innovation system through four lenses – money, regulation, people and interactivity. I’ve noted that my mood is more optimistic than I judge my predecessor Simon Upton’s to have been six years ago.

This analysis of the strengths and weaknesses of the New Zealand innovation system is not new. But it is not very old either. It was an uncommon analysis even two years ago.

Since then what gets called a national conversation has been underway. The Science and Innovation Council took part. So did the Knowledge Wave conference, various consultants hired by Government, and quite a few Government agencies. So did business, academia and the community.

To cut a long story short, the result of this for us, the Government, was a strategic statement called ‘Growing an Innovative New Zealand’, with which the Prime Minister began Parliament in February this year. This document informed this year’s budget and this year’s Speech from the Throne. It pervades Government thinking. Some of you will be familiar with it, some not. But all of you will have a sense of the policy direction our nation is following, or will have helped shape it.

Why does growing an innovative New Zealand matter?

If I were an economist my answer would be that wealth creation is good and that the main driver of wealth creation is an increase in total factor productivity and that the main driver of that increase, these days, is innovation.

I suspect the economist’s answer, though dull, will do.

If we latch onto it, we can readily dredge up periods of human history when the economist’s increases in total factory productivity had other origins. Like the advent of property law, the French Revolution, railways, the widespread availability of secondary education, you name it.

The current chapter in the story of New Zealand’s productivity began during the eighties, I reckon, when people started to think about a knowledge economy and how it might differ from a goods economy or an economy based on efficiently using natural resources.

The first findings were obvious. Research and Development mattered, education mattered, intellectual capital or property mattered. As our understanding grew we discovered cluster development, why the so-called law of diminishing returns may not be a law after all, and the importance of global linkages.

By the nineties the mood had started to catch on in universities, Crown Research Institutes, some local bodies and some businesses. I know because it had started to catch on with my colleagues too. And me.

I entered Parliament in 1990 and was promptly thrust the science portfolio as an Opposition backbencher. I spent every Friday for a year visiting New Zealand’s research facilities and I read avidly.

At the end of 1991, I went to my leader Mike Moore and declared that, while I loved the science portfolio, I couldn’t understand it. I had found too many ambiguities, and the international policy literature was too contradictory and changing very quickly. Mike Moore’s advice was, unsurprisingly, a one-liner. He said, “If you don’t understand something, you must write a book about it”.

So over the next few months I did. It is unpublished, and it is unpublishable. But it certainly helped me sort out my thoughts and I have followed the science and innovation debate ever since.

Through the nineties the government however, didn’t get it. They thought the nation needed more deregulation, privatisation, cost cutting, structural reform, price stability and tax cuts. They held that Government had no business in business. They saw no role for a modern Government as a leader, facilitator, partner, broker. They didn’t grasp the importance of R&D, or of innovation.

Simon Upton, and later Maurice Williamson, did. They sang lonely songs. They were in concert with the US, the UK, Finland, Singapore, Canada, Australia, Israel, Ireland and Denmark. But they sang discordantly within their own Cabinet. By the end of the nineties, the government of the day was travelling determinedly down a cul-de-sac, and then they reached the end.

So as far as the current New Zealand Government is concerned, we have entered this new era of development, based on innovation, later than we might have. To an extent we have some catching up to do. On the other hand we can learn from the mistakes of others, and we are doing so.

I’ve already touched on some areas where the present Government has moved in its first term. But how does the immediate future or medium term future look?

Before this crystal ball gazing begins, I need to drop a couple of caveats into the mix, a little defensively.

The first is that the Government will not be swayed from fiscal prudence. Too many of us still remember Mr Muldoon. We will run surpluses over the business cycle, not deficits.

The second is to repeat that the New Zealand innovation system belongs to New Zealand, not to the New Zealand Government. That is, institutions, companies and individuals have a role to play, a risk to take and an opportunity to secure. Indeed an innovation system in which the Government looms large usually doesn’t work, except perhaps in cultures very different to ours such as Singapore.

So, money doesn’t grow on trees, and partnerships across society and the economy are very, very important. Given my assertion that things have changed markedly since Simon Upton gave this lecture six years ago, what might the changes be in the next six years? Where will society, commerce, the Government, research institutes be at? How will our place in the world have changed, our social attitudes, our economic performance, our environment?

The beginning of this period is easy to describe. Existing policies such as the performance-based research fund will be implemented, along with the rest of the tertiary education reform package. So too, to give another example, will Trade New Zealand’s beach-head programme, enabling New Zealand exporters entering new markets to share office facilities provided by the state as they settle in to build their contacts and markets.

The Government has no shortage of implementation ahead of it. Ditto universities as they manage the risks and opportunities of reform, CRIs as they implement some exciting business plans, and numerous rapidly growing businesses as they follow their own plans for exporting, listing, merging or whatever it is to be.

I think the mix of financial instruments available here will change as New Zealanders explore the further use of stock options, or venture capital, or as superannuation funds in New Zealand finally click to the importance of investing in the private equity market. I think our stock exchange, currently performing well, will offer up new products or refine existing ones.

The three focus sectors in the Growth and Innovation Framework — biotechnology, information and communications technology and the creative industries — will have all doubled in size in six years. That represents only 15% growth a year, which feels to me eminently achievable. However the indirect effects of growth in those sectors on the rest of the economy – of biotechnology on our primary industries for example – will be even greater, though harder to measure.

The Kyoto Protocol will have come into effect six years from now, bringing with it a new wave of innovation. Some of that will be imported – hybrid cars will do as an example. Some of it will be homegrown and exported – ruminant methane mitigation practices and technologies, perhaps.

We will, I predict, have a biopharmaceutical industry in New Zealand, or partly in New Zealand, in about six years. Whether it will arise from Genesis or IRL or Auckland or AgResearch or Otago I can’t know. But I don’t doubt it is coming.

Government expenditure on R&D will have risen, and within that, expenditure on basic R&D will have risen faster. But private sector expenditure will have risen faster still, prompted in part by a range of Government policies and in larger part by further attitude changes and further economic transformation. As a percentage of total Government expenditure, or as a percentage of GDP, research and development investment will be up, or up a lot.

We will still be a small and distant nation, but we will have a lot of international alliances in six years that we don’t have now. Some of them will be in the private sector, along the lines of the Ericsson-Synergy model I mentioned earlier. Some will be at the institutional or even national level. We may have implemented our own version of what is called BIRD, or bilateral investment in R&D, by which Israeli and American businesses partner their research. We may have formal and deep state-to-state links of consequence — with Queensland in biotechnology, for example.

Some of our primary industries will look very different, as we install traceability technology or as we secure the value of what, today, we call waste. I am thinking of real examples such as a fining agent made from hoki skins, adhesives made from tree bark, and all the bioactives and biomaterial opportunities we are currently researching.

But there are some words of caution to sound, too.

The first is that we must resist the temptation to ape other nations. We can lift public policy ideas from them — and I should acknowledge and thank Israel, Singapore, Korea, Canada, Australia, Britain and the US, amongst others — but we must adapt ideas for New Zealand. Copying doesn’t work.

The second is that we must guard against fake success. The dotcom experience tells us that, as does the start-up fever that has swept some countries, stripping students and academics alike from institutions as it passes through. A little start-up fever is a good thing. A lot of it will prospectively end in tears.

The third caution is that science and society issues are upon us. Whether it is the GE debate or concern about electromagnetic radiation or the ethics of stem cell research, science is nestled in society and in a contemporary value system. Scientists and technologists have a role in society to listen, to explain and to listen again. A risk management analysis is a hard thing to explain, yet it is often the best tool we have. Good science communication is so important. So is an ethical framework that will withstand scrutiny.

New technologies are arriving quickly. They will test our value system and our values or cultures will test science. Some science will be rejected in New Zealand. Nuclear fission. Human cloning. The issue is how we debate and decide those things. The Royal Commission was a good example of good process. The election campaign was a shocking example.

It is time to draw this exploration to a close.

As I do, I want to acknowledge that I have left a lot of science out of my discussion on innovation. Environmental science, social science, and straight academic scholarship. I regret that.

Nor have I spoken of career structures, of scholarships provision, or of women in science. I haven’t dwelt on science promotion, or the costs of a science education, or sustainable development. I’ve defined innovation broadly but have then explored some, not all, of its many facets.

Given another hour or so I might make a reasonable fist of those issues. But my time is up, so I acknowledge them as unfinished business.

Being Minister of Research, Science and Technology is a privilege. I enjoy the company and debate of fine minds. I watch new knowledge being created. I experience the excitement of new ideas or paradigms unfolding. I enjoy playing my part in making our innovation system function better and better and I’m lucky to be part of a Government that has growth through innovation at the heart of its thinking. I am very committed to my work.

I feel very optimistic about our small country’s innovation system.

If Dickie Batt were here I think he would, in his own carefully constrained way, agree.

© Scoop Media