Wayne Mapp

12 August, 2009
Research, Science and Technology Priorities

Last month, the Prime Minister gave a major speech on the Government's economic agenda. In the course of this speech, he made reference to six policy drivers that are fundamental in the Government's drive to boost New Zealand's economic performance and improve our standard of living. One of those policy drivers is Innovation. A significant driver of innovation is the Government's investment in research, science and technology.

As a country of four million, we have to work out where scarce science funds should be best spent. Larger countries such as the United Kingdom are also grappling with this issue. The reason why this is important is the status of the global economy. It takes at least 300 million people to provide all aspects of a modern economy: witness North America, Europe and East Asia. The smaller the state, the more care needs to be taken in setting priorities. Thus Britain, with 60 million people, does not undertake every possible scientific endeavour. It is now establishing some broad priorities. If this is required by a country the size of Britain, it is clearly more urgent for a country with four million people.

We all know that New Zealand has been lagging behind other countries. We have historically had low productivity, which has led to lower growth rates. The effect has been a decline in our relative economic position. As a result, the overarching priority of this Government is economic growth.

Where does research, science and technology fit into this? The fact is we invest public money in science not just for science's sake, but because we expect it to lift our economic performance, both directly and indirectly.

This does not necessarily mean we should spend more money. But it does mean we have to spend it more effectively. This also does not mean that we redirect all the money into short-term strategies. Developing the talent pool, long-term research, and research that underpins our economic and social foundations are all important parts of the mix.

So if lifting our economy is the main reason we invest in research, we need to ensure we get maximum value from the $745 million we currently invest. It is a question of more effectively aligning the science expenditure with our overarching goals.

Today I will outline how research, science and technology will play a bigger part in improving our economic performance. This is the start of a process that will be completed by the end of the year. It will directly engage the key participants in the sector.

I have four major themes for Vote RST. These are:

* enhancing the migration of science from the laboratory to the marketplace

* improving the way we strategically invest in the public good science that underpins our economy

* directly boosting economic growth through more effective market-driven research

* simplifying the entire system.

These themes are not solely my own. They have come from discussions with scientists, users and other interest groups. Over the past few months I have had over 50 meetings with groups and individuals. I have visited every CRI, private research firms, the universities and a range of businesses from New Zealand's largest to emerging entrepreneurs.

I will now address each of these themes in more detail.

My first theme is to enhance the interaction between science (and scientists) and the marketplace. We want to push good ideas out into the commercial space, and we want to improve the ability of businesses to connect with scientists and to pull science through to realise commercial opportunities.

Science and venture capital need to get closer together. Pathways for technology transfer need to open up.

The importance of serendipity must be recognised. So much of the modern world stems from unexpected discovery. But we should not rely on the hope that serendipity will occur. We must make it easier for businesses to be exposed to the range of research, so that they can make serendipitous discoveries among the science being undertaken.

This needs to happen across all areas of research, from incremental improvement work which builds on existing ideas and technologies through to what is called disruptive technology, where breakthroughs lead to step changes.

UniServices, the commercialisation arm of University of Auckland, is a good example of how putting commercially focused resources alongside researchers to open the dialogue and showcase the potential can increase the flow of ideas.

The bulk of the funding for fundamental research flows via PBRF and the Marsden Fund. PBRF funds universities (and other institutions), not scientists per se. We need to ensure that science with commercialisation potential can migrate without penalising the PBRF indicators for the institution. Facilitating the flow of researchers across the system without penalty is another goal.

The 2009 Budget placed particular emphasis on fundamental research. The Marsden Fund was increased 20%, from $38 million to $47 million. The Fund sets no particular priorities, other than excellence of research. It is worth considering whether we should also set a broad strategic direction for the allocation of the Fund.

Many researchers already know that the pathway to greater funding opportunities is to be able to involve other funders beyond the Government or institution in their science. We need to remove roadblocks that prevent them taking these opportunities.

My second theme concerns what we often call public good science. This is in fact the "enabling" that supports our present and future economic base. Environmental, hazards, oceanography, risk management and a host of other essential research fields play a vital role in both underpinning our current economy and providing the research that will lead to further opportunity. Research in this area is largely undertaken by CRIs and indeed is one of the key reasons why we have CRIs.

The greatest priority here is to better manage the long-term investment. Last week I launched the Natural Hazards Research Platform at GNS. This brought together the leading research interests in the area, provided a cooperative construct for them to work in and committed substantial funding over a 10-year period to ensure that the Platform could concentrate their energies on the science, not the funding.

This strategic funding approach recognises that in many areas we want to build our science capability on the core expertise we have. There is no value in contestable funding charades which create uncertainty and inefficiency. Long-term science needs long-term commitments.

This enabling science needs explicit priorities set by government in conjunction with stakeholders and the marketplace. We cannot dilute our efforts across every field of science. Hazards are one area. The others will obviously include environmental science, biosecurity and oceanography. I welcome your input into refining these priority areas, as funding is finite.

The strong signal is that sharing and growing expertise is encouraged. In doing this we do not want to create a "closed" environment. There must be room for new ideas and people to get into the Platform, and there must be scope for the research to get out. We want to develop ideas for New Zealand, not lock them up.

We need to ensure our funding mechanisms provide the right incentives. If a CRI generates an idea that is worth $1 million for itself, or $100 million for New Zealand, what should it do? The answer is obvious. The incentives for CRIs need to reflect the need for maximising national benefit.

The Natural Hazards Research Platform is a template for future developments in enabling science. We will clarify the key priority areas and we will fund them on a more strategic, longer-term, collaborative basis.

The overall outcome of this direction will be more balanced and consistent funding over the medium term for CRIs. On their part, they will need to ensure that commercialisation plans for relevant technologies be developed and implemented for maximum national benefit.

I want to note here the importance of two commitments already made. The health of our people is a vital enabling science, and the Health Research Council received a significant funding boost this year from to $63 million to $71 million. Most of the research is in high technology medical research. However, health and social research is essential in better understanding how to improve health and social disadvantage in New Zealand.

Pastoral science has also received a significant boost through the Primary Growth Partnership, which will support both the underpinning science (for example around greenhouse gas research) as well as market development. This funding, delivered through Vote Agriculture, is $30 million this year, rising to $70 million in four years' time.

This will help with tackling difficult problems around environment and emissions. Unless we solve these, our primary production base is at risk.

The third theme is around research, science and technology funding that is explicitly directed at economic growth. This is the firm and sector-facing research that is very much driven by market demand. This will be a particular focus for the 2010 Budget, in contrast to the 2009 Budget, where the focus was additional funding for fundamental research.

The priority here is to improve the transition from concept to reality. What we want to do is ensure that in the applied sciences progress towards the end goal is more sharply defined, and the pathway towards it is managed in a staged way. Science and marketability must fuse together. Funding decisions will need to be made against real progress.

I realise that by its nature science invested for future growth can have quite long time horizons.

This is especially true in the biotech and pastoral sectors. This does not mean that it cannot be subject to time gates and ongoing support made conditional on progress.

I also want to break down the schism between the land based economy and what are often called "hi-tech" industries. For a start, both of these broad areas of endeavour are "hi-tech". Both are crucial to New Zealand. Both have demonstrated excellent growth prospects and productivity improvements.

Clearly our largest investment will be in land and food based science - what the Prime Minister has called the "cultures": agriculture, aquaculture, viticulture and many others. These are the heart of the New Zealand economy, providing 60% of export revenue. We are building on on strengths and expertise that New Zealand has. Those sectors will continue to indicate where their priorities are - in large part backed by significant sector funds through industry levies and other sources. The bulk of this research is undertaken by the CRIs focused on the sector, including AgResearch, Plant & Food Research, Scion and Landcare Research. Others also play a part.

Other sectors beyond the "cultures" are also vitally important. New Zealand can both encourage growth and reduce risk through economic diversification. Governments are notoriously bad at "picking winners". The marketplace and those who commit their own capital will pick who the winners are. We will leverage those that have successfully picked themselves.

The principal imperative for public support for research, science and technology is building economic growth.

Sir Paul Callaghan set this out succinctly in "Wool to Weta", stating that "the crucial determinant of funding direction for economically focused tools should be the quality of the proposals, the science excellence, the potential for innovation and the entrepreneurial capabilities of the team".

We do recognise that the time horizons, end users and co-funders differ across different industries. To develop a new pasture species can take a long time. Conversely, if a breakthrough in the IT sector does not make it effectively to market in a short time - maybe even months rather than years - it will have been overtaken by the onrush of technology development.

For this reason, the Government will focus the various support schemes to ensure clarity as to where funding should be sought, and what the requirements of that funding support will be. There will be room for the "start-up". But the serious support will go into those that have the most effective path to significant gains.

A major support for businesses is through investments by TechNZ. These require matched funding from the business of at least dollar for dollar. We do this instead of other mechanisms such as accelerated depreciation or research and development tax credits. The advantage is that we can target the results that we want. We cover the full range of New Zealand's competitive advantage.

Let me give you some examples of what I mean.

* Last week the Foundation announced a $5.8 million investment in Weta Digital. The New Zealand film industry generates as much revenue as the wine industry. The digital technology of Weta lies at the heart of the future. Witness the huge interest in the upcoming film Avatar, the most expensive film on the planet. Weta Digital provides the critical technology. The investment from FORST will build the capability. This is expected to produce 200 new jobs, on top of the existing 550. It undoubtedly will lead to spinoffs and new business, and anchor the role of Wellywood in the global film industry.

* Tait Electronics Limited have had to shift their platform from analogue to digital - a step change in technology. They have had substantial TechNZ support. The result is an increase in sales from less than $10 million to over $43 million within one year of bringing digital platforms into production. It has expanded their markets in the export security sector. It has also kept research and production jobs in Christchurch. Tait's currently employ over 800 people worldwide, with the great majority located in the Christchurch research and production base.

* In the health sector, Orion Health specialises in ICT products. Government investment has been directly leveraged by Orion to double turnover to around $45 million in two years, and take on nearly 100 additional technical staff.

* This sort of return isn't confined to large companies. Magritek is a spin-off from the MacDiarmid Institute. They have received significant support from both FORST, and New Zealand and offshore venture capital. After three years, they have eight staff, are approaching $1 million turnover, and more importantly have a strong growth path established.

* In the primary sector, gains range from new apple varieties that are tripling returns through to the massive research and development efforts in the dairy sector. There are surprising technology spin-offs - Robotic Technologies are predicting a turnover of up to $40 million from their automated boning machines that also save producers $5 million per processing plant through production efficiencies. In addition, the CRIs conduct sector wide research ranging from grass varieties through to animal genetics.

Each of these examples is from a different industry, with a different timeframe. The common ground is the focus on improved economic growth.

The Foundation funds businesses because it enables them to make forward decisions that they could not necessarily contemplate from a short-term commercial perspective. But as the results of that funding become manifest, the Government needs to effectively evaluate the worth of the investment.

I have directed FORST to increase their focus on the economic return potential of the investment. Timely and accurate reporting on the benefits of the investment will form part of future assessments.

One issue we need to grapple with is the extent to which the Government wants an explicit return rather than an implicit return. What do I mean by this?

The general measure of science investment is the growth of businesses, increased employment, a bigger tax base and broader opportunities. However, where there is substantial funding to specific firms, we have to ask if there should not be an actual commitment by the firms to provide a more direct return on the public investment.

This would also allow the Foundation to increase its level of future investment. Both my colleague Gerry Brownlee and I are looking for feedback on this issue.

Finally, I have a fourth theme that applies across the whole system. That is to make it simpler for the users, whether they be scientists or businesses. FORST already has significant work under way to achieve this, and the themes I have outlined will provide a further focus for this effort.

Greater clarity as to why we fund science and exactly where the money goes will also assist governments in making strategic choices in the future. By clearly identifying what strategic purpose funding actually supports, we can make value judgements about the relative importance of that funding.

This is what the funding picture looks like now. This is only the tip of the iceberg - beneath this there is a maze of schemes, outputs, directions and portfolios.

We want a much more strategic approach. The intent is twofold. The first is to make it obvious to the applicant what funding stream is relevant to them, rather than hunting across a range of funds and potentially skewing their research because of the constraints of the system rather than in the best interests of the science.

The second is more important. It will enable a much better sense of the priorities that the public should fund through Vote RST.

One of the big decisions we have to make is whether the balance best reflects the overall Government priorities.

The Government has made substantial extra commitment to fundamental science in the Marsden Fund, and the CRI Capability Fund. Pastoral science has received a significant boost through the Primary Growth Partnership. The Health Research Council has also received significant extra support. This ensures that we are continuing to build our core scientific capabilities.

We also fulfilled our commitment to appoint a Chief Science Advisor to the Prime Minister: Professor Sir Peter Gluckman. He has taken to this task with great enthusiasm. His deep experience means he has a huge contribution to make to the work the Government is doing.

With this support in place, the next priority is ensuring that science investment is more directly connected to increasing economic growth. We will be looking carefully at how this should be achieved, and we will be looking for your input.

The Government is also undertaking an overall review of business assistance. The research-development-commercialisation continuum will be considered as a part of this. This will lead to a more joined-up process and a more seamless integration across the Foundation and NZTE.

Today I have set out the four themes in research, science and technology that underpin our overarching Government priority to grow the economy.

In summary, these are:

* improving the ability to migrate science from the lab to the market through better interaction across sectors

* creating more certainty in the public good and "enabling" science space through longer-term funding, encouraging collaboration and improving the flow of ideas both into and out of the system

* boosting the results of growth-orientated research by examining the funding balance and sharpening the requirements around intended outcomes, time horizons and success gates

* simplifying the system to allow efficiencies for the users and clarity for everyone.

Implicit in these themes is the priorities that the Government will set for Vote RST. These priorities will be reflected in Budget 2010. I will be providing specific policy direction to Cabinet by the beginning of December this year, in order to meet the Budget 2010 planning timeframe.

Today's speech, therefore, is the start of the process of setting these priorities. I will be seeking the input of key stakeholders in doing so. They will include Science NZ, the Royal Society, and the business sector - particularly Business NZ and CRAG. Both the Ministry and the Foundation will assist in this process. The Chief Science Advisor to the Prime Minister will also be holding stakeholder meetings beginning on 14 September.

The priorities will need to determine the best way for science to both directly and indirectly build economic growth.

As Sir Angus Tait has said: "Our technology is our sword, we keep it strong and bright."

Therein lies our pathway forward.

ENDS

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