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Cullen: Research and economic transformation

Hon Dr Michael Cullen
Deputy Prime Minister, Attorney-General, Minister of Finance, Minister for Tertiary Education, Leader of the House

31 October 2006 Speech Notes

Embargoed until:10.10am
Research and economic transformation

Speech notes to Research Provider Workshop, Sky City Convention Centre, Auckland

I’m delighted to be here today with people who play a crucial role in bringing the creative and imaginative ideas of our scientists and researchers to the commercial world. It is the research community that provides New Zealand with such an enormous opportunity to become an innovation-led country.

I was recently in Brussels and visited the European Commissioner for Enterprise and Industry. The Commissioner talked about the challenges of globalisation for Europe. He said the solution was that Europe needed to be "simply the best". My ears pricked up at this point and I did my best not to imagine the Commissioner with a Tina Turner hairdo. But he went on, noting that Europe couldn't compete for cheap labour, doesn't want to compete for lower industrial standards, and doesn't have an abundance of natural resources. What's left are brains and knowledge.

In New Zealand, we are lucky to have fertile lands and beautiful scenery. Both have sustained our economic growth and will continue to do so. But we too face the growing problem of competition for low cost production from the emerging giants of China and India. We have seen this in outsourcing of some manufacturing jobs in firms such as Icebreaker. But with unemployment at 3.6 per cent, we have almost full employment. Fewer low-skill jobs in New Zealand means more labour available for higher skill jobs.

I should also say that China and India represent a fantastic opportunity. More Chinese scientists means more scope for international research collaboration. Foreign direct investment and access to foreign products can also be positive, providing spillovers, technology transfer, and improved intermediate inputs.

The point is, if New Zealand is to sustain higher growth rates we must transform to a high skill, high productivity, and high wage economy. To do that, we need to unleash the talents of New Zealanders. We can achieve high value niches in the world by exploiting our unique talents and creativity, rather than competing to be simply the lowest cost supplier. But this applies more broadly to the primary sector too: high tech can reduce the costs of commodities without reducing wages.

In a knowledge-based economy, research becomes critical. First, it is the country's main supplier of skilled labour, providing the economy with the people to create sophisticated high value products. And second, it is the country's main home of researchers, providing new ideas for new products or new ways of doing things.

I like to think of the research sector broadly too, recognising that international students, researchers, and research are an integral part. I'll come back to this a little later.

So in short, we need to capitalise on research. If we don't, we'll get left behind.

To outline some of the areas I'd be interested in hearing your thoughts on today, let me indulge in a bit of story telling. Amanda is an 18-year old first year university student. She is not at Otago, and therefore sits on couches rather than setting fire to them.

Amanda's class is full of students of all ages. We are seeing a societal shift towards re-skilling and continuing education throughout our careers. To meet this change, one of the key goals in the next Tertiary Education Strategy is ensuring educational success for all New Zealanders through lifelong learning. We need skilled and well-trained people across the economy.

As you know we are currently consulting on the TES and I plan to release the new strategic directions for the sector before the end of the year. This document is particularly important in the light of the current reforms to the It will provide the framework to ensure tertiary education organisations are more focused on playing to their strengths rather than competing with each other and are more responsive to the needs of employers, students, communities and of course taxpayers. tertiary funding system.

We have seen mushrooming growth in sub-degree courses that have neither provided the quality of education nor the relevance of study areas that firms are looking for to drive the economy. Amanda is of course one key stakeholder who needs assurances about the quality of the education she is investing in so she can have confidence that she will be well equipped for whatever employment avenue she eventually travels down.

The reforms set out to redress the problem by introducing an investment system that aligns planning, funding and monitoring levers and by investing in priority areas identified at national and local levels. The funding mechanism underpins the investing in a plan approach. In future a three-year funding path will be set. This will give greater certainty for organisations to base their planning on and give government fiscal stability. In the end, we want to be assured that organisations will produce the right mix of skilled graduates needed to transform this economy.

But back to Amanda. Her class also has international students. New Zealand has done well in export education in recent years, predominantly through English language studies. But I would like to see international students across all areas of study. I visited experts at the international education agency in France – Edufrance - who told me that in their view, international students choose the country to visit first, and then decide that they want to undertake higher education. This suggests to me that we need to think more broadly about how to attract international students.

I would also like to see better integration of international students into our tertiary institutions and communities in general. We would all like international students to return home recommending New Zealand as a very good place to be educated, to live a high quality lifestyle, and to make life-long friends and professional connections. But this shouldn't all be one way either. I'd like to see our educational relationship with countries like Korea having two-way flows of students, allowing us to take advantage of the international linkages and different perspectives students bring back.

To continue. Amanda completes her undergraduate degree with flying colours. To help her decision regarding postgrad study, the government has provided a number of scholarships. The country needs people like Amanda to make the most of her talents without fear of financial hardship.

Amanda's postgraduate colleagues include students from countries around the world. This influx of research capability helps bring in fresh ideas and bulks up the department. The head of Edufrance told me that around 30,000 postgrads from the UK study in France every year. I think you'll agree that's a lot of bulking up! The links back to students' home countries help also help the university forge international links. We shouldn't forget that 99 per cent of the world's knowledge will always be created overseas. We need to tap into that pool of knowledge.

Amanda goes on to become a lecturer at the university, giving back to the next generation of students the insights and knowledge she has gained. Amanda is active in research, earning funding from the PBRF for her department. As you know, the PBRF ensures excellence research in the tertiary sector is encouraged and rewarded. This year the government announced an extra $24 million for PBRF to boost funding for tertiary research to $250 million by 2010.

Not all research areas are directly relevant to New Zealand firms, farms, regional councils, or other end users. But much of it is. In these cases, we want to make sure the research supports areas where the sector needs support, or helps underperforming areas to make a step change. I see economic transformation as ultimately about raising New Zealand's level of economic productivity. Having a strong research sector supporting firms to achieve this by creating knowledge in the right areas is at the heart of capitalising on research.

When we talk about commercialisation, I think it's important not to interpret this too narrowly as being simply about creating spin out companies. Certainly, sometimes this is the best way to go, and it is often the case that university alumni come back with particular ideas for spin off companies. But there is more than one way to skin the knowledge transfer cat. Publications and transfer of intellectual property are part of the story too. But uptake of research means the research being used, not just written.

We often hear the notions of "science push" and "market pull". There's a place for both, but I wonder whether in some areas we have enough of the latter. Co-operation, linkages and general interaction are necessary for ensuring that research is focused on the right areas. Research consortia and partnerships are examples where interaction informs public research priorities and improves the return on public research investment by ensuring relevance.

The current review of the business tax regime could well lead to the introduction of an R&D tax credit, which should help raise our low level of private sector R&D compared with other OECD countries. I hope greater private sector R&D would provide additional scope for collaboration between the private sector and the public science system.

But let me return to Amanda. She moves on from her university role into one of New Zealand's seven Centres of Research Excellence. The CoRE provides the critical mass for Amanda and her colleagues to undertake ground breaking research. These have proved successful which is why funding has been extended beyond 2008 with scope for up to two more to be established.

To paraphrase an article in the latest Harvard Business Review, 'It would be hard to overstate the importance of cumulative learning' when researching. From my visits to the CoREs, it is heartening to see the ongoing learning of individuals and sharing those insights with their peers, and research communities.

In her sabbatical year, Amanda works for the research branch of a technology firm. Here, she is able to do tech transfer by people transfer. Government supports arrangements like this such as TIF and TIF Global.

Now I promise you I don't know a particular researcher called Amanda and I'm not saying that Amanda is the ideal researcher. What I hope the story illustrates is that the research sector contributes to the NZ economy at a number of levels.

To finish, let me dwell on a couple of themes that I would be interested in hearing your thoughts on:

* Internationalisation – Are we taking enough advantage of overseas knowledge and attracting high calibre postgrads to NZ? Is there more we can do, such as more international scholarships, or a technology watch agency, as some countries do?

* Collaboration and uptake of research – how can we increase the uptake of research by end users? Is there sufficient discussion and collaboration with firms or regional councils to identify specific knowledge gaps?

In some ways, I see my Tertiary Education hat as an extension of my Finance hat, since skills and research are so crucial to economic transformation. Your sector is the driver of it. It is a vital role you play in terms of contributing to the prosperity of all of us and you can be assured that this government is focused on giving you the tools to allow you to continue to flourish.

Thank you.


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