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Lifting New Zealand's game - Pete Hodgson Speech

[Address to the Association of Consulting Engineers New Zealand 2001 conference, Rutherford Hotel, Nelson.]

Thank you for inviting me here this morning to speak. You invited the Prime Minister, but she isn't able to be here. She sends her best wishes, and me.

Your conference theme is "Lifting the game" and that's an idea that preoccupies the Government as well. Lifting New Zealand's game is essentially what the recent Knowledge Wave conference was about.

As a Government we often assert our intention to transform the New Zealand economy. We mean it. It's shorthand for a vision that informs much of what we're doing - in economic and industry development, in education and training, in research, science and technology policy.

New Zealand is unusual amongst developed nations in having an economy still heavily reliant on primary sector commodities. Most countries with that kind of economic profile are in the second or third world. That's one of the reasons why we've been sliding steadily down the OECD rankings since the 1950s.

To halt that slide, to start climbing back up, we need to add more value to what we produce as a nation. That doesn't mean giving up on primary production. It means enhancing and renewing its products. It means trading in expertise, intellectual property, technology. It means making more money out of stuff by adding knowledge to it, and making knowledge itself into stuff we can sell. Engineering consultancy, for example.

That's the transformation we're talking about.

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To help us get there we're working with the idea that New Zealand has an innovation system. It's the infrastructure that allows an idea, a scientific discovery, or a technological breakthrough to be turned into a business or an industry.

Key elements of that system include the education system, public and private sector research and development, our technological infrastructure, venture capital and development finance, intellectual property protection, incubators, and most importantly our human resources - in both innovation and the skills to commercialise it.

The Government is focused on making New Zealand's innovation system work as well as it possibly can. There's no single measure that will achieve that. We have to tune up the whole by paying constant attention to each part. In each case we have to work out first if it's something a Government can help with. Then we look for the best way to get a result.

We have moved on, obviously, from the era of rigidly hands-off economic management. We think New Zealand needs smart, active government intervention if we are to lift our economic performance.

One of the key contributions to the discussion at the recent Knowledge Wave conference about how we lift our game came from the Prime Minister's Science and Innovation Advisory Council ¡X which, by the way, has its fair share of engineers on it.

When the PM established the council last year she asked its members to identify and address barriers to the transformation of New Zealand into a knowledge society. They have responded with two reports they presented to the Knowledge Wave conference: an Innovation Report Card, summarising the current state of play, and an Innovation Framework, which sets out seven key challenges for the future.

So how are we doing?

The SIAC Innovation Report Card noted that we have very good participation rates in early childhood and tertiary education, but a wide range between high and low achievers.

Adult prose literacy is high, but the levels of document and quantitative literacy are lower. The analytical and critical thinking skills of primary age students are less advanced than their ability to observe and retain facts.

We have relatively good government R&D investment, but private sector investment is a third of that in Australia. We also have a low rate of commercialising innovation, suggesting a need to improve the relationship between our research institutions and businesses.

We have a good banking and financial infrastructure and a relatively new but fast-growing venture capital sector.

We are big spenders, as a nation, on information and communication technology compared to other developed nations.

We enjoy and celebrate success, particularly in sport ¡X but perhaps not quite enough in commerce and enterprise.

The summary: lots of potential, but we can do better.

So how do we make the necessary improvement?

The advisory council identified seven key challenges in its innovation framework:

- To reward the “can-do’ attitude, risk taking and success;

- To educate for a knowledge economy;

- To become a magnet nation for talent;

- To generate wealth from ideas and knowledge;

- To excel globally, putting aside parochial and sectoral concerns to compete internationally;

- To network, collaborate and cluster; and

- To take an investment-driven approach to government.

For each of those challenges the council has identified some key goals and bold moves we could take towards achieving them. Some of those moves are for the private sector, some for the public sector and many would require a partnership between the two.

Some of the moves are already being made.

The government is setting out to lead change from the top, for example. We are making a concerted effort to communicate the importance of innovation and economic transformation to all New Zealanders.

We are working to clear more space for small businesses to grow, with initiatives like the tax simplification and compliance cost reduction programmes.

In education we are piloting four new information and communications technology programmes at secondary level. We're working towards the creation of centres of excellence in our universities.

We are setting out to make better use of the diaspora of New Zealanders abroad, with a "brain gain" project called World Class New Zealanders that is building an international network of talented kiwis.

We are taking an investment approach to public science spending, and funding more basic and strategic research with high value-added applications. And we have significantly improved the tax treatment of private sector R&D, as well as providing grants to support it.

There are other initiatives in the innovation framework on which we are already moving, but that is not the main point. I am not setting out to try to claim that the Government is already doing everything that should be done.

The main point of a document like the innovation framework is that it emphasises there is still much we can do to take charge of our economic and social development. Nobody has the franchise on wisdom and there is no magic formula - from Ireland, Singapore, Finland or Neverneverland - for making New Zealand a more successful competitor in the global economy.

I think we are now seeing the stirrings of a real national debate on how we should proceed. I think there is a growing sense of urgency amongst New Zealanders about the need to lift our game. Maybe your choice of that theme for this conference is another little piece of evidence for that.

Last night I was at a follow-up meeting of the Knowledge Wave organising committee. The agenda was about how we build on the momentum for change that the conference created.

The Knowledge Wave discussions produced a host of recommendations in the areas of people and capability, innovation and creativity, entrepreneurship, sustainable economic strategies, and social cohesion and the knowledge divide. The conference stimulated new thinking on achieving growth through new approaches to education, innovation, research and development, the promotion of excellence, networks, mentoring, and building scale and clusters in key industries.

There was also a strong focus on entrepreneurship, the attraction and retention of talent, the transformation of public and private institutions, and incentives to promote innovation and creativity.

Of course there were differences and contradictions between speakers and between participants, as you would expect in a gathering on that scale. And it was a conference in which the business and science sectors were rather more strongly represented than women, Maori, unions, environmental groups and community organisations.

It was a conference about innovation and change, so perhaps it's not surprising that the owners of New Zealand's production and capital base, and the key players in its knowledge industry, were heavily represented.

That's probably okay as long as we remember that the knowledge economy must have a wider payoff than that. The gap between rich and poor has widened enough in recent years. We need an inclusive economic transformation in New Zealand, because one that delivered success to an elite few would be unsustainable.

There was a strong emphasis on the importance of science at the conference and as the science minister I want to talk a little about that.

This Government recognises the need to invest in research, science and technology. But we also realise that research in itself is not enough to foster a knowledge economy. We know that New Zealand science is good. But we know also that its commercialisation is poor.

To succeed we need to create an overall environment where innovation can thrive. We have the brains, talent, the education and research organisations in New Zealand, but we haven’t been as successful as we need to be in private sector involvement and commercialisation of our good ideas.

The concern that much of the research and technology generated by our innovation system is not fully exploited - or not exploited at all - has not been unique to New Zealand. In recent years many industrialised countries have implemented policies to enhance innovation and commercialisation. So this Government is not alone in taking steps to speed up the commercialisation of R&D.

I have mentioned our efforts to encourage growth in private sector R&D, which is low by international standards, with supporting grants and improved tax treatment. It is vital that we increase the level of commitment to science in the business sector and increase the level of R&D management expertise.

Increased funding for Technology New Zealand and the establishment of the business incubator support programme are part of that picture. So is the New Zealand Venture Investment Fund.

The Government has set up this fund with capital of $100 million. We will be co-investing with private sector partners in seed-stage and start-up New Zealand businesses based on technology or high value-added goods and services. The aim of the fund is to accelerate the development of the venture capital market in New Zealand.

Note that word accelerate, because acceleration is the key idea.

Venture capital has been growing rapidly in New Zealand in the last couple of years or so. At the Knowledge Wave conference Scott Perkins of Deutsche Bank estimated the size of the current venture capital pool at $794 million. But there is general agreement that it's still shallow at the seed and start-up end of the spectrum.

Given time that problem might have gone away by itself, with no help from government, as the venture capital market matured. But the Government wants to accelerate that development, because we don't think there's any time to waste.

Development of the human resource is ultimately more important than the money. New Zealand needs more people with the expert knowledge to manage the venture capital funding that is essential for turning bright ideas into new businesses.

The Government will be in the venture capital market temporarily. What we aim to leave behind, when we've withdrawn, is a private market that is thicker with both capital and expertise.

I believe New Zealand has a good base from which to pursue innovation success. New Zealanders are bursting with bright ideas and with great business potential. We possess natural advantages and a can-do attitude that older economies find hard to harness.

The first change we have to make is to get serious about innovation and succeeding as knowledge-based society. Then we need to take some bold steps. As a government I believe we are providing the right environment to do that. I think the New Zealand Venture investment Fund is one of those bold steps. I think the realignment of our tertiary education system will come to be seen as another.

But if I can take another point from the Knowledge Wave debates, it is that government alone can't set the pace. Political leadership is important but business too will have to act to achieve the levels of prosperity that we want as a nation. We must develop more of a culture of innovation and entrepreneurship.

To conclude, I want to offer you one last little gem of a notion that came out of the Knowledge Wave. John Seely Brown of Xerox put up a slide of a box divided into four quadrants.

The top two quadrants contained the arts on the left, and the sciences on the right. Underneath them came design and engineering.

The top two boxes contain, he said, people who look within for their inspiration. The bottom two contain people who look outward to the world and who seek to meet the world's needs.

Engineers make a living out of being creative problem-solvers. You are innovators by profession. I wish you every success as you, too, work out how to lift your game.

Thank you.

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