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Posts Tagged innovation

Picking Winners? Shaun Hendy Aug 18

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ResearchBlogging.orgIt seems to have become received wisdom recently that New Zealand must pick winners with its public science investment.  In this post, I argue that this is not new:  we picked our winners a long time ago, with a strong focus on agricultural and environmental sciences.  So what are the pros and cons of backing the same winners decade after decade?  You’ve got to get lucky sooner or later, right? 

A matter of scale?

A few weeks ago, I went to another Philip McCann seminar, this time at the Treasury.  This talk was again based on his paper [1] in the New Zealand Economic Papers.  Readers will be familiar with McCann’s ideas about the New Zealand economy from my series of posts on New Zealand’s Productivity Paradox.  There were a few additions to a talk I saw earlier this year at the Reserve Bank, but his underlying message was still the same.

McCann argues that one of the key issues affecting New Zealand is a lack of scale.  As I have discussed on this blog, there is a lot of evidence that scale in important for innovation.  Big cities are the drivers of innovation –  scale matters when it comes to generating new knowledge.

An apparent corollary is that as a small country, New Zealand will only be able to achieve scale on the international stage in a few areas.  Indeed, many people, including McCann and Sir Peter Gluckman, the Prime Minister’s Chief Science Advisor, take this to mean that New Zealand must pick winners if it wants its innovation spending to have any impact.

This is nothing new.  New Zealand has always prioritised its science spending.  A glance at our New Zealand science tag cloud for 2009 shows that we are strongly focused on agricultural, environmental and medical sciences.  If we have scale, then it lies in these disciplines.

Diminishing returns? 

So should we simply invest more in these areas to take advantage of scale?

Not necessarily.  Not all areas of science are going to produce the same returns.  In fact, a recent study of several scientific fields by Harvard University scientist Samuel Arbesman [3] found that the new knowledge discovered in these fields each year decayed exponentially (HT: Nicola).  The corollary here is that to maintain the same rate of discovery in a mature field, investment must increase each year. 

Indeed, there is an interesting empirical study (“Has New Zealand benefited from its investments in R&D?” [2]) that finds New Zealand’s sectoral public investments in R&D do not correlate with sectoral productivity growth.  Relative to other OECD countries, for instance, our productivity in agriculture is slipping.

Is it possible that the resources required to maintain competitiveness in a mature field such as agriculture have grown beyond what New Zealand can muster?  The Netherlands alone has more agricultural scientists than New Zealand has scientists.  How can we compete?

A way forward 

Last time I checked, science budgets were not increasing exponentially, so how do scientists make any progress at all?  As I have seen from my studies, they collaborate more, work in bigger teams and become more specialised.  Some of the tools scientists use, such as computing and genomics, are becoming exponentially more powerful each year.  And blue skies research can open up new fields of discovery where the going is easier, at least for a time.

So does our science funding system facilitate or foil scientists’ attempts to beat these diminishing returns?

There are some hopeful signs on the horizon.  New Zealand scientists do collaborate through mechanisms such as the Centres of Research Excellence (the CoREs), and increases in non-contestable funding for the CRIs may be able to break down traditional institutional barriers.  Furthermore, the government has also shown a willingness to invest in key scientific infrastructure, including advanced genomics capability and high performance computing.

However, continued micromanagement of the contestable funding pool for science is likely to limit the size of science teams in Universities and skew the balance of this portfolio towards well-established, low pay-off areas.

The CoRE selection process was one of the few occasions in New Zealand where large teams were picked on merit from across the sciences.  The outcomes did not align well with FRST portfolios.

Further merit-based investment in research networks is needed.  Such investment not only offers the possibility of uncovering new under-exploited areas of knowledge, but couples this with the opportunity to rapidly build scale in a way that blue skies funding, like Marsden, cannot.   

Finally, we should not labour under the pretence that decades of flat-line funding of science will keep our industries competitive.  In areas of sustained national economic importance, we have no choice but to grapple with diminishing returns of knowledge by further investments in infrastructure and research networks.  

[1] McCann, P. (2009). Economic geography, globalisation and New Zealand’s productivity paradox New Zealand Economic Papers, 43 (3), 279-314 DOI: 10.1080/00779950903308794

[2] Johnson, R., Razzak, W., & Stillman, S. (2007). Has New Zealand benefited from its investments in research & development? Applied Economics, 39 (19), 2425-2440 DOI: 10.1080/00036840600707308

[3] Samuel Arbesman (2009). Quantifying the Ease of Scientific Discovery Scientometrics arXiv: 0912.1567v3

What science are Australians doing? Shaun Hendy Aug 02

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By popular request our intern has put together a subject area tag cloud for Australia from their 2009 publications in the ISI database.  As she observed, Australia is poorly designed.  So much so that it is hard to squeeze Canberra’s tag cloud in between those of Sydney and Melbourne.  In fact, you’ll see in the map below it has drifted out to the southern coast of New South Wales in a most aesthetic manner.  It may be in fact that many of the residents of Canberra would be in favour of such a move …

australiasubjects09 copy

Medicine and medical sciences dominate the clouds over Sydney, Melbourne, Perth and Adelaide.  Hobart looks a lot like Wellington with its emphasis on oceanography and marine biology.  Canberra seems to have a broader focus albeit with a strong contribution from the physical sciences and engineering.  Brisbane stands out with a very strong signal from biochemistry.

Who are we collaborating with? Shaun Hendy Jul 30

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Our talented intern from MIT has produced another tag cloud.  This time she has taken a look at who we collaborated with in 2008 based on our co-publication preferences in the ISI database.   The resulting map is shown below:

citycity08 copy

It’s clear we like working with Australians.  Those in Auckland, Palmerston North and Christchurch prefer to work with Sydneysiders, while those of us in Wellington prefer Victorians.  Hamiltonians have more exotic tastes with a clear preference for Californians.  And although Dunedin is often said to be the Edinburgh of the South, our southern scientists show a strong preference for London.

How the transistor took over our lives Shaun Hendy Jul 12

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On Thursday, I will be back on Bryan Crump’s radio show (Nights, Radio New Zealand National, 8.42pm, Thursday July 15th).  This week, we will continue our discussion of transistors, several billion of which are currently helping you read this article.  Last time, we talked about how quantum mechanics allows transistors to work as electronic switches.  This week, Bryan wants to discuss how transistors became so embedded in so many of the technologies we rely on in the modern world, and what exactly they are doing there!

A valley of silicon?

Although the idea had been around since the 1920s, the first transistor was made by John Bardeen and Walter Brattain at Bell Labs in New Jersey in 1947.  It was made out of germanium, a semiconducting material similar to silicon, and was about the size of something you might put on your mantelpiece.

However, it was their boss, William Shockley, who tried to commercialise the transistor.

Bell Labs has been credited with pretty much inventing the modern world (just take a look at this list of its inventions).  It has been criticised, however, for stifling the commercialisation of its inventions.  Indeed, Shockley didn’t get an opportunity to try to turn a buck from the transistor at Bell Labs.  Rather, he founded Shockley Semiconductor Laboratory on the opposite coast of the US:  in Mountain View, California.

Why there?  Well, the San Francisco Bay area already had a healthy electronics industry, which supplied components to the US military.  This meant that there was a supply of skilled electronics workers.  Nearby Palo Alto was home to Stanford University, which had set up the Stanford Industrial Park to encourage the development of high-tech industries such as Hewlett-Packard in the region.  And importantly, Palo Alto was also home to William Shockley’s aging mother.

Silicon Valley was born.

Creative destruction

Putting together a team of talented physicists and engineers, Shockley immediately set to work on developing silicon transistors.  But Shockley was a terrible manager.  Within a few years, Shockley Semiconductor was haemorrhaging its best young staff, including Gordon Moore (of ‘Moore’s Law’), who would later go on to co-found Intel.  The firm was not well placed to react to the invention of the integrated circuit by Texas Instruments in Dallas in 1958.

The integrated circuit revolutionised the manufacture of electronics.  Instead of making individual components, like transistors, separately, and then assembling them one by one on a circuit board, Jack Kilby developed a multi-step technique to fabricate the components and the circuit on a sheet of germanium all in one go.  This tremendously sped up mass production, and led to cheap, light-weight electronic devices.

However, a Bay Area company that had been founded by disgruntled Shockley employees was not far behind Texas Instruments in making integrated circuits.  In fact, Robert Noyce at Fairchild Semiconductor produced the first silicon integrated circuit six months after Kilby.  And in the end, it was Noyce’s design that prevailed.

The military-industrial complex

From its invention until the mid-1960s, the Apollo program and the US military bought almost every integrated circuit built. Costs fell dramatically as production volumes increased and companies like Fairchild began to outsource to Asia.

By the end of the decade, however, pressures on the US military budget meant that the gravy train began to dry up, and the semiconductor industry had to develop new consumer markets.  Today, you’ll find integrated circuits in cell phones, computers, and many other digital appliances.

Fabrication

So how are integrated circuits made?  The process, known as photolithography, is actually a bit like taking a photograph using film.

The layout of the circuit is defined by a light shining it through a cut-out template, known as a mask, onto a wafer of silicon.  The wafer will be covered in film of light sensitive chemicals called photo resist, which ‘cure’ when exposed to light.  Regions that are shaded by the template don’t undergo this curing process, and chemical treatments can then be used to etch these regions away, engraving a pattern defined by the template into the silicon wafer underneath the resist.

I like traffic lights

So what can be done with a circuit full of transistors?

In my previous article on transistors, I explained that a transistor is an electronic switch:  the current that flows through a transistor is turned on and off by applying a voltage at what is called its ‘gate’.

Transistors can be assembled into logic devices.  A traffic light is a type of logic device, for instance:  if the light is green light is on, the red light should be off.  We could ensure this always happened using just a single transistor.

Imagine we set up the circuit that supplies electricity to the red light so that it can be short-circuited by a transistor. The transistor will now act as an inverter: the red light will switch on when the transistor is off but will switch off when the transistor is on.

Now by allowing the transistor to be switched on and off by the circuit that supplies current to the green light, then we ensure the red light will never be on when the green light is on.

More complicated logic operations can be performed if we assemble more transistors.  If we have traffic lights running north-south and east-west, we could use the transistor that shorts the north-south red light to switch a transistor that short-circuits the green east-west light.  Thus, when the north-south green light is on, it switches off the east-west green light and so on …

Unless your cell phone is modelled on something out of the original Star Trek, it probably doesn’t work by switching red and green lights off and on.  Rather, it is adding and multiplying many, many ones and zeroes (“ons” and “offs”) using arrays of transistors assembled for the purpose.

Silicon Valley

Today, of course, Silicon Valley is a hub not only for electronics, but also for software and biotechnology.  This is partly due to the fact that those early semiconductor companies not only invented the integrated circuit, but being far from the traditional sources of finance on the east coast, also had to pioneer the modern venture capital industry.  William Shockley’s decision to set up in Mountain View and his subsequent mismanagement had far reaching implications indeed.

Weekend reading: The Wisdom of Crowds vs The Black Swan Shaun Hendy Jun 25

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The Black Swan by Nicholas Taleb (Random House, 2007, 366 pages).
The Wisdom of Crowds by James Surowiecki (Anchor, 2005, 336 pages).

Do markets work?  Writing from perspectives that precede the recent financial crisis, Nicholas Taleb, Wall Street trader turned academic, and James Surowiecki, economics correspondent for the New Yorker, offer insights into the strengths and weaknesses of market forces. 

Surowiecki opens with an account of a pre-industrial version of that school gala staple, guess the number of jelly beans in the jar.  While Surowiecki’s seventeenth century protagonists are interested in the weight of an Ox, rather than a quantity of sweets, he notes that the average guess of a crowd in either case is typically very close to the actual answer.  The first half of Surweicki’s book is devoted to understanding under what conditions crowds are able to perform such feats of wisdom. 

What has this got to do with markets?  Well, for a market to allocate goods efficiently, the agents trading in such a market must act rationally to maximise their own well being.  However, experiment after experiment has shown that people do not always behave rationally, and while there is only one way to act rationally, while there are a myriad of ways to act irrationally.

Surowiecki’s wise crowds offer a possible way out: in the same way that the average guess of a crowd can get close to the true weight of the ox, maybe a crowd of irrational agents can, on average, behave rationally.      

In the second half of the Wisdom of Crowds, Surowiecki investigates under what conditions groups might fail to be wise.  For instance, he suggests that individuals in a crowd must be able to make their decisions independently, without influencing others.  If this condition is not satisfied, bubbles can grow and pop in a market as individuals follow others rather than make their own decisions.     

In fact, it is the failure of crowds, and in particular markets, that concerns Nicholas Taleb.  In The Black Swan, Taleb is scathing of the modern financial system that systematically underestimates the risks of rare but high-impact events.  For instance, the models used by traders to value complex financial products assume that stock prices will fluctuate as if they were undergoing a ‘random’ walk, precluding the possibility of rare but high-impact events.

How do such high-impact events occur? Under Surowiecki’s conditions, where the decisions of a large ‘crowd’ of traders are independent, the fluctuations in stock prices may be well approximated by a random walk as the financial models assume.  The crowd acts as if wise and markets operate efficiently.

However, if the decisions of traders become correlated, if traders start to follows the decisions of others, then the central theorem no longer applies – stock prices will cease to fluctuate according to a random walk.  Under such conditions bubbles can form, leading to rare but high-impact collapses such as that experienced in the recent financial crisis. 

Indeed, stock market data shows that just prior to, and during a crash, the decisions of traders become highly correlated.  Surowiecki devotes several chapters to discussing the consequences of such “group-think”, including an in depth post mortem of the dangerous consensus that developed within NASA’s management team that lead to the Challenger disaster.

Ultimately, Taleb is concerned with more than just bubbles and group-think. His ‘Black Swans’ include any low-probability but high-impact event, including the arrival of far-reaching innovations like the internet, wars or terrorist attacks. As I have discussed previously, such rare events seem to be important for progress in science; the ‘Black Swan’ of science lead to scientific revolutions.

Can crowds ever be wise in the face of ‘Black Swans’?  Taleb is pessimistic; Surowiecki would offer a conditional maybe.  Many of us (although not all) would agree that stockpiling supplies of was a prudent response to the possibility of a high mortality flu pandemic that threatened in the winter of 2009.  Yet to perform a cost-benefit analysis of this precaution of the type used by financial markets to hedge against risk is clearly impossible.  If one were charitable, one might say that governments fell back on a precautionary principle; Taleb would argue that such principles could be usefully applied to markets.             

Both books offer insights into the way people interact and make decisions.  Despite being written prior to the events of late 2008, both offer insight into the recent financial crisis.  As Taleb notes, we have a compulsion to invent post hoc narratives for each ‘Black Swan’ and the recent crisis is no exception.  It is quite possible a reading of these two books will leave you with a deeper insight into recent events than anything that has been written in their aftermath.    

New Zealand’s productivity paradox: Part VI Shaun Hendy Jun 10

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ResearchBlogging.orgThis is the last post in my series on Philip McCann’s paper [1], which considers New Zealand’s productivity paradox: why, despite being ranked very highly for the factors that are normally thought by economists to drive economic growth, is New Zealand’s economy is just an average performer? In the previous post, I discussed why McCann doesn’t see a paradox. In fact:

“In the current era of globalisation, New Zealand’s combined lack of any major home market effect, the lack of major agglomeration effects, and the extreme geographical isolation, breaks the usual link between entrepreneurship, innovation and growth which is evident in other countries.”

McCann’s argument is based on ideas from economic geography, in particular that high spatial transaction costs in knowledge-based activities have lead to the regional agglomeration of high technology industries. New Zealand’s small population base means that we don’t enjoy the benefits of agglomeration in knowledge generation experienced by larger countries and cities.

Do agglomeration benefits exist? My patent data seems to suggest they do, and the continued existence of regional clusters of knowledge-based industries (such as the Nokia cluster of inventors in Helsinki) seems to be further evidence of this.

This may not seem intuitive; we are told every day that the world is flat.  However McCann argues that it is only in low knowledge-intensity activities where the terrain has levelled off.  The landscape for knowledge-intensive activities, McCann’s work suggests, has become more mountainous.  Despite the availability of electronic communications, my personal experience is that face-to-face contact in scientific collaborations remains vital.

Picking winners?

So what can New Zealand do about its economic geography? Are there some silver bullets for Mr English?

One approach discussed by McCann is to reduce spatial transaction costs between New Zealand and Australia (and the rest of the world).  He suggests that we move towards economic union with Australia, invest heavily in broadband, and look to reduce the monopoly that Auckland’s international airport currently enjoys.  I’ll leave it to the reader to rank these in order of political feasibility.

McCann also suggests that government will need to “pick winners” i.e. find mechanisms to grow New Zealand companies to scales at which they can invest and grow offshore rather than simply export.

… finding systems that also encourage New Zealand firms to move from simply exporting to overseas ownership, thereby promoting outward FDI and increasing New Zealand’s global engagement, would appear to be critical. Such an approach can also be allied  with  an  approach  that  targets  particular  types  of  inward  investors. While ‘picking winners’ is widely regarded as having a poor history in much of New  Zealand’s  industrial  policy,  using  inward  FDI-promotion  strategies (Boston Consulting Group, 2001) to help to attract technologies regarded as  critical for New Zealand (and agri-biotechnology technologies would appear to be high on the list) is a pragmatic approach that is freely adopted by almost all of New Zealand’s competitor countries.

I would add that government will need work out how to deliver the highly-skilled human capital that these ‘winners’ will require.

A city of four million people

Another obvious approach is to increase our own domestic levels of agglomeration.  As a colleague of mine put it, “New Zealand needs to act like a city of four million people”.

McCann makes several suggestions as to how we might do this:

  1. Take full advantage of our existing spatial agglomerations e.g. Auckland-Hamilton-Tauranga by ensuring their continued growth and by investment in their infrastructure.
  2. Increase knowledge flows between Auckland and the rest of the country.  McCann argues against concentration of resources in the University of Auckland, suggesting that knowledge transfer primarily occurs through the mobility of people between regions rather than through direct spillovers.
  3. Increase competition on domestic airline routes to lower internal airfares.
  4. Reduce the breadth and fragmentation of our RS&T sector. In particular, he cites Rod Oram [2], suggesting that we focus on our agricultural sector.

With regards to point 4, as I have revealed before in this blog, my opinion is that a sole focus on agri-biotechnology for New Zealand is risky and perhaps even misguided.  New Zealand has exceptionally low export diversity, with a heavy reliance on commodity dairy products.  Do we play to our strengths by trying to leverage the existing scale in our dairy sector, or do we try to develop fresh export sectors, building scale from scratch?

This is a question that occupies the minds of many commentators.  A conservative approach would be to play to our perceived strengths.  In New Zealand’s case, these are generally perceived to lie in agriculture, so it is not hard to make a case for putting our brain power to work in this sector.  Yet as McCann points out, our labour productivity in agriculture is only 16th in the OECD, despite the strong agricultural focus of our RS&T system.

The alternative is to develop new sectors of our economy, as small countries as Denmark and Finland have done over recent decades.  As I have noted in my study of Finland’s inventor network, this will require substantial targeted investment in human capital over a sustained period.

The reality is that to maintain our place in the world we will need both to back our existing strengths and to develop new ones, quite simply because other countries are also doing both.

Depth not breadth

The science reforms in the early 1990s were intended to make New Zealand’s RS&T sector more efficient and paid little heed to the idea of building scale.  Institutional financial needs pre-empted wider collaboration and FRST effectively capped the size of the grants it awarded, explicitly acknowledging that it could not manage programmes larger than ~$NZ2m. (Note to overseas readers: this is not as large as it sounds, partly as it is in NZ$ ;-), but mostly as it is full-cost funding rather than marginal funding – in a University or a CRI for instance, it might fully fund 7-8 scientists.)

An early policy response to this problem was the establishment of the Centres of Research Excellence (CoREs), including the MacDiarmid Institute which I work for, and seven other organisations.  In fact, I have come to think of the MacDiarmid Institute as a mechanism that has both reduced spatial transaction costs for collaboration and increased the scale and coherence of the physical sciences in New Zealand.

If we are going to take the economic challenges ahead of us seriously, then I think it is worth carefully studying the way that the CoREs have built scale and collaboration within New Zealand science.  The MacDiarmid Institute experience is that a multi-institutional network of researchers distributed across the country can be an effective way to build scale and increase research productivity and impact.  This is something I am now looking at quantitatively with the Ministry of Education and will no doubt be blogging about soon.

Where to from here?

Most of us would agree that New Zealand must diversify its economy through knowledge intensive-industries to reduce its dependence on low-value commodity exports.  Policies that seek to do this, but that do not take into account our economic geography (scale in particular) will probably not succeed.  Nonetheless, small countries, such as Denmark, Finland and Israel, have overcome the disadvantages of size to build successful high-technology industries with scale in areas unrelated to previous strengths.

I will conclude with an observation that Philip McCann made to me over coffee last year.  We were discussing my study of the Finnish experience, and I was arguing that a similar economic transformation was possible here.  He did not agree, yet his argument was not based on economics, but rather on culture.  His view was essentially that science and technology are so much more deeply embedded in the Scandinavian worldview that their businesses and governments have the ability and confidence to do things that ours cannot.

Unfortunately, it is difficult to disagree with this last statement.  Conventional wisdom in New Zealand politics holds that Kiwis don’t care about science and technology, so good policy and increased spending in this area doesn’t win votes.  We will need to change this, if we are to ensure that New Zealand’s economic geography is not its destiny.

[1] McCann, P. (2009). Economic geography, globalisation and New Zealand’s productivity paradox New Zealand Economic Papers, 43 (3), 279-314 DOI: 10.1080/00779950903308794

[2] Oram, R. (2007). Reinventing  paradise:  How  New  Zealand  is  starting  to  earn  a  bigger, sustainable living in the world economy. North Shore: Penguin Books.

Canadian research networks Shaun Hendy May 14

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I am in the USA this week attending a meeting of a Canadian research network that is very similar in some ways to New Zealand’s Centres of Research Excellence (CoREs).  The Canadian scheme is called CIFAR (Canadian Institute for Advanced Research) and was set up in the 1980s to try to counter the understandable tendency of Canadian scientists to collaborate with their US neighbours rather than their often more geographically distant Canadian colleagues. Like our CoREs, CIFAR funds collaborative research activities between Canadian scientists from multiple institutions.

I am at the meeting of CIFAR’s Nanoelectronics programme.  There have been a lot of cool talks; one interesting (if slightly disturbing) highlight was a talk on the development of a real time in vivo (i.e. surgically implanted) device for monitoring levels of specific biomolecules in the blood.  So far it has been shown to work in mice, although it still doesn’t have the sensitivity that would be required to make it really practical.  However, the days of sending samples to the lab are numbered.  Within our lifetimes, I expect many of us will be monitoring ourselves at home, looking for biomarkers for cancer and other diseases.  If the idea of having an implant monitor your blood sounds icky, don’t worry, disposable, one-shot devices that analyse a drop of blood will be available.

Many talks have been focussed on graphene, which is the hot material at the moment in materials science and nanoelectronics.  Graphene is closely related to graphite, which is the soft, crumbly form of carbon that is used in pencil leads.  At the atomic scale graphite is rather like filo pastry – it consists of flat sheets of carbon stacked on top of one another.  If you are able to peel off a single sheet of carbon, then you get graphene.  It promises to have many attractive features for electronics, so there is a rush to understand its properties and to incorporate it into devices.  From my point of view, it was very exciting to meet a researcher from the University of British Columbia who has been doing experiments that directly relate to some computer simulations of graphene that are being performed by my research group.  We will definitely try to start a collaboration on this work.

It has also been interesting comparing and contrasting approaches to developing and running research networks. Some of their programmes have been very long lived – for instance, the CIFAR Cosmology programme is 25 years old now and has been seen as a real success.  I was loosely associated with the CIFAR Cosmology programme when I was doing my PhD at the University of Alberta.  If I recall correctly I was funded to attend a conference in Banff – thanks CIFAR!

In New Zealand, no one is quite sure yet how long a CoRE should be maintained.  My own view is that in the long term, CoREs can provide a pipeline for developing leaders in the scientific community in a way that other institutions would find difficult.  CoREs could and should be maintained beyond the tenure of their initial leadership teams if they can demonstrate that they are providing this pipeline for young researchers.

However, the CIFAR programmes are centrally managed in a way that the CoREs are not.  CIFAR has a overarching management organisation based in Toronto that coordinates funding (private and public), and organises joint activities in outreach for example.  This takes much of the management burden off the researchers involved, but perhaps stifles the creativity and willingness to experiment that New Zealand’s CoREs have shown.

In New Zealand, the TEC monitors, rather than manages, the CoREs, while the CoREs coordinate activities through aCoRE, an association of the CoREs which meets every few months.  I can see advantages in this more devolved approach: although it does place a management burden on some of our leading scientists, it also gives them the opportunity to innovate and take the science community in new directions.

So do New Zealand scientists collaborate more with their overseas counterparts than with other Kiwis? Maybe.  I am on a Marsden panel this year; of the standard proposals I saw in the first round, more than 50% had an (unfunded) overseas collaborator, whereas only 20% had a collaborator from another New Zealand institution.  This is worth some further study.

New Zealand’s productivity paradox: Part V Shaun Hendy May 09

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ResearchBlogging.orgI am getting towards the end of my discussion of Philip McCann’s paper, “Economic geography, globalisation and New Zealand’s productivity paradox” [1].

In my last post on this topic, I discussed the importance of agglomeration economies for knowledge based production.  Agglomeration in the modern economy is thought to maximise the efficiency and effectiveness of the knowledge exchanges required for the production processes of high value-added goods and services.  In other words, there is a spatial transaction cost for knowledge intensive activities.  This leads to localisation of such activities, giving regions like Silicon Valley, and large cities like Sydney or Melbourne, productivity advantages that become “locked in” as the scale of such activities grows.

With this post, I want to look at the impact of agglomeration economies in the New Zealand context.  Such effects are particularly evident in the relationship between the Australian and New Zealand economies.  Economists have developed models of what happens when a small economy and a large economy integrate, as New Zealand and Australia have over the last 25 years [1]:

“… Australia, exhibits both relatively larger agglomeration economies and also a larger home-market effect than the relatively smaller economy, New Zealand.  As the economies become increasingly open to each other with both trade barriers and transport costs falling, the greater industrial diversity of the larger agglomerations in the larger country provides for a greater variety of employment opportunities for mobile workers and a greater variety of input and output linkages for mobile firms.  The result is that Australia becomes relatively more attractive for both capital and labour than New Zealand.  The increased attractiveness of Australia for capital therefore implies that Australia will increasingly become a more important focus for global and multinational mobile investment than New Zealand.  An obvious manifestation of this would be that Australia would be expected to exhibit relatively higher levels of capital stocks per worker than New Zealand, and also an increasing number of higher-order top-level decision-making and corporate headquarter functions than New Zealand.  Meanwhile, the increased attractiveness of Australia for labour implies higher wages and increased labour migration flows from New Zealand to Australia.  In particular, highly-skilled workers will be particularly increasingly mobile as they seek to take advantage of the wage premia they can command in Australia due to higher capital labour ratios.”

The modern Australasian economy appears to be a text book case of what happens when small meets big.

In my own studies, I have looked at the effect of city size in Australasia on measures of innovation, such as patents per capita and degrees of scientific collaboration.  Sydney and Melbourne both produce more patents per capita than Auckland or Adelaide, and exhibit a higher degree of scientific connectedness.  In fact, both data sets exhibit a clear dependence on city size, which is exactly what one would expect if agglomeration economies were playing a role in innovation.  Furthermore, New Zealand cities perform just like their Australian counterparts if one corrects for city size.  And sure enough, South Australians are worrying about their own productivity paradox.

So I think we can declare the productivity paradox solved [1]:

“The major characteristics of the New Zealand economy, i.e. a small and extremely isolated economy, with small urban centres, and a low degree of export diversity, is a combination of structural characteristics that is not productivity-enhancing in the modern phase of globalisation, relative to other countries in other places.  As such, the observed productivity performance of New Zealand is more or less exactly as expected according to economic geography theory.  Moreover, many other characteristics of the relationship between New Zealand and Australia and between New Zealand’s own regions internally are also largely as predicted by economic geography.”

The question that remains is what can New Zealanders do about the economic situation they find themselves in?  Any economic policy that ignores New Zealand’s economic geography is likely to be of little relevance.  What options does this leave?  In my last post on McCann’s paper, I will discuss some of his policy suggestions and throw in a few of my own.

Part VI

[1] McCann, P. (2009). Economic geography, globalisation and New Zealand’s productivity paradox New Zealand Economic Papers, 43 (3), 279-314 DOI: 10.1080/00779950903308794

Review of the New Zealand IP system released Shaun Hendy May 03

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The Ministry of Economic Development released a report on the state of New Zealand’s IP system last month.  The report, written for MED by Auckland Uniservices, was based on a number of stakeholder surveys conducted last year.  The aim of the review was described in MED’s request for proposals as:

… to ensure government policies and practices, in respect of intellectual property, are well aligned to support [the goal of lifting New Zealand’s level of productivity].  The focus of this work is on improving productivity and to identify areas which have the potential to support this goal.  The report is to assess how well New Zealand businesses understand and use intellectual property and where opportunities exist to improve the intellectual property rights system.

Based on the survey, the report makes a number of recommendations:

  1. Government agencies need to raise awareness and understanding of IP within the business community;
  2. The government should consider reinstatement of R&D tax credits, and review the tax treatment of earnings from off-shore royalties;
  3. A single, comprehensive IP policy should be developed;
  4. Further research is needed.

The report itself goes beyond the results of these surveys and takes a wider view of the IP system.  For instance, the report’s review of the literature on the benefits of an IP system is relevant to a previous discussion on this blog about the value of patents:

… a recent emerging literature, which focuses on the private returns to patent protection, suggests that where firms prefer patenting to other mechanisms of appropriation, the benefit is significant, in the order of 50% on average of invention value.

(my emphasis).  While private returns may be significant, other literature suggests that patent disclosure itself may be less important for the diffusion of knowledge between firms than other mechanisms.  For example, the protection that a patent provides encourages firms to share details with investors and downstream commercial partners:

Therefore, without a patent, inventors may be unable to license their inventions to third parties or to raise capital.  On this basis, it is sometimes argued that patents are particularly important to small firms, who, on account of their scale, require financial, development, or distribution partners to bring their innovations to market.

I was also interviewed last year by the report’s authors about our network analysis of an OECD patent database.  It is pleasing that there is some discussion of our findings and the authors suggest that:

The ability to form networks might be affected by New Zealand’s geographic isolation and industry characteristics, there would appear to be potential for exploring possibilities for networks based on the CER arrangements with Australia.

This is also going to come up as we get further into Philip McCann’s paper on New Zealand’s economic geography.

Scientific collaboration within Australasian cities Shaun Hendy Apr 26

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Does scientific collaboration depend on city size?  And if it does, are smaller cities with fewer institutions and fewer scientists more collaborative?  Or do bigger cities with more specialisation and more opportunities for interaction support more collaboration?

Auckland 2009 To get at this question, I looked at scientific papers published in 2009 listed in the Thompson Reuters Web of Science database that had at least one author in a major Australasian city (Sydney, Melbourne, Brisbane, Perth, Auckland, Adelaide, Canberra).  From the list of co-authors for each city, I constructed the corresponding co-authorship network.

The 2009 Auckland co-authorship network is shown on the right.  In the middle sits the largest connected component of co-authors which contains 72% of the authors in the diagram.  Not all of these authors will be Aucklanders of course – many are in the network because they have collaborated with Aucklanders.  For example, I am in the network (somewhere in the middle)  because I co-authored an article with a colleague from the University of Auckland last year.

In a blog post last year, I constructed the co-author networks for the New Zealand CRIs using the same database.  What I found surprised me:  in 2008, more than 50% of CRI scientists (including me again) were connected through the largest connected co-authorship network (up from about 12% in 1994).  I also looked at the 2008 University co-authors and found that 70% of them could be connected by a single network.  So Auckland looks pretty connected.

To put those Aucklanders in context however, let’s compare them with other major cities in Australasia.  Below I’ve plotted the number of co-authors associated with a selection of the major cities versus the proportion of those co-authors in the largest connected component. Australasia 2009
Auckland is actually at the low end of the scale, along with Perth and Canberra.  At the high end, the largest components in the Melbourne and Sydney co-author networks occupy close to 90%.  Larger cities do seem to exhibit more connectedness amongst researchers.  If you accept connectedness as a proxy for collaboration, the big cities in Australasia were more collaborative in 2009.

Interestingly, when you put New Zealand itself on the plot, you find that it is more connected than Auckland.  This will not surprise many south of the Bombay Hills!

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