Review: Get off the Grass

By Peter Griffin 16/08/2013 19


After Sir Paul Callaghan published Wool to Weta in 2009, he embarked on a series of lectures around the country that have, as much as the knowledge he created as a scientist and the jobs and intellectual property he generated as an entrepreneur, come to define his legacy.

Shaun Hendy
Shaun Hendy

In Wool to Weta Sir Paul told us that we needed to wean ourselves off our reliance on the primary sector and diversify our economy through developing more hi-tech and knowledge-based businesses. He also said that we need to stop competing with each other. He wrote:

We have business suspicious of government, engineering suspicious of science, Wellington resenting Auckland, the University of Auckland pretending the other universities don’t exist, CRIs jealously protecting research grants from universities, the Ministry of Research, Science and Technology disjointed from the Ministry of Education, the Foundation for Research, Science and Technology disconnected from the Tertiary Education Commission. We just can’t afford it.

A few years on, Sir Paul is sadly no longer with us. I’m not sure if much else has changed. We do have more export revenues coming from the tech sector and a major re-organisation of the science sector, with the crown entity Callaghan Innovation at the centre of it, could yet encourage the step change in our economy Sir Paul was urging. We have the National Science Challenges attracting $133 million to tackle the country’s big problems.

But those ventures will take time to show results if they do at all and the pendulum has, at the same time, swung away from what Sir Paul favoured – from investing heavily in blue skies research and nurturing the strange and quirky discoveries that emerge into commercially viable businesses, to backing research that has a short-term, easily identifiable commercial outcome. It is easier to improve on what we already do than to strike out into the unknown on riskier but potentially more lucrative ventures.

It is timely then that Sir Paul, in conjunction with his colleague and protege, fellow Sciblogger Professor Shaun Hendy, bring us Get off the Grass. 

This book covers some of the same ground as Wool to Weta but is dominated more by Hendy’s theories on innovation ecosystems, climbing the value chain and re-imagining ourselves as a “city of four million people”.

The New Zealand Paradox

Get off the Grass AUP $34.99
Get off the Grass AUP $34.99

The early chapters are a refreshing reminder of where New Zealand went wrong. A graph on page 15 shows how our per capita GDP as a percentage of the OECD fell from around 115 per cent in 1974 to less than 90 per cent in 2010. Meanwhile, Australia’s has remained fairly stable over that period now floating above 120 per cent, while the likes of Finland overtook us in 1979 and has rocketed up since then on the back of the success of Nokia and the electronics industry that sprung up around the mobile phone giant.

The slump in per capita GDP comparative to other OECD countries came even as we did all the seemingly right things to improve productivity and economic growth – a laissez-faire approach to growth, deregulation, privatisation and free trade deals. As a result of all of that, New Zealand is now considered one of the best places in the world to do business, is among the least corrupt, most supportive of free trade, respectful of property rights.

But the economic gulf has widened between us and other countries – a $40 billion per annum earnings gap with Australia.

So what did we do wrong? Hendy and Callaghan argue that he didn’t invest sufficiently in the biggest driver of longterm economic growth – science, technology and innovation. Other countries did during that period in the 1980s when they too were opening up their economies and many are now reaping the benefits in the form of higher GDP per capita.

The heart of Get off the Grass deals with the contribution science and innovation make to economic growth and looks at ways we can re-imagine our innovation ecosystem to deliver better results. Hendy has studied the measures of innovation, including the output of scientific literature and granting of patents, and discovered that tightly integrated networks of researchers and entrepreneurs generate more of both.

Our knowledge gap

The GDP gap with other countries, essentially then, represents a knowledge gap. It doesn’t help that New Zealand businesses tend to favour exclusive development and control of core technologies crucial to the development of their businesses. We are not very good at open innovation – sharing ideas and collaborating for the benefit of everyone in the sector. Hendy and Callaghan believe this is holding us back and preventing us from benefitting from spill-over benefits that result when knowledge can be applied beyond the narrow purpose for which it was envisaged.

One way the authors suggest we could attempt to catch up is to develop more hi-tech companies. They use what they admit is a fairly simplistic model to estimate what would be required to bring New Zealand up to the OECD GPD average:

To catch up in 30 years we can estimate that we would need to start 75 new $1 million technology firms. To do this in 20 years we would need to start almost 300 new high-tech firms.

The way our high-tech sector is growing, exports from this sector will eventually outstrip the dairy sector anyway, but the faster we do it, the quicker we will close the gap with other countries who have a head start in this space.

The outcomes, if we got it right, could be to compelling for all New Zealanders:

 The average worker of a TIN100 firm generates annual revenues of more than $250,000, compared to less than $120,000 in the tourism sector.

Get off the Grass is a must read for entrepreneurs, business people, CEOs and policy makers. It goes well beyond Wool to Weta to give a Thomas Friedman style overview of the issues we face but the opportunity within our grasp.

As Hendy asks in the book’s final sentence:

Shall we get on with it?

 Get off the Grass, Auckland University Press, RRP $34.99

 


19 Responses to “Review: Get off the Grass”

  • “the pendulum has, at the same time, swung away from what Sir Paul favoured – from investing heavily in blue skies research and nurturing the strange and quirky discoveries that emerge into commercially viable businesses, to backing research that has a short-term, easily identifiable commercial outcome.”

    but from Callaghan Innovation:

    “We accelerate commercialisation of innovation by firms in New Zealand.”

    Oh dear.

  • “We don’t invest enough in basic research”.
    This has become a mantra.
    It’s simply untrue.
    New Zealand’s investment in basic research is relatively high by OECD standards.
    In any case it would be easier to mount an argument that NZ should actually spend less on basic research than other countries do.

  • Kemo sabe: “it would be easier to mount an argument that NZ should actually spend less on basic research than other countries do.” Go on then, mount your argument for spending less…

  • OK, Ill try.
    It is broadly true that the most game-changing innovations stem from basic discoveries. This is used ad nauseam to justify spending more on basic research in NZ. However, it is hard to find examples of basic research done in NZ which have had this outcome.
    The reason is simple: we don’t have the ‘complementary assets’ here which are needed to create a pipeline from basic research to utilisation. We never will have these assets. We are just too small and specialised. The assets include the quantity and quality of downstream skills, willingness and acumen to invest, infrastructure, and understanding of end-user demands.

    These assets exist in some, but not all, large economies. That is why they exert such a strong pull on innovative ideas which originate here, or in other small countries. That is why so many of our tech startups dissappear overseas: they go where the grass is greener.
    Even Canada, an economy ten times our size, cannot sustain its high tech businesses, even when those businesses have a rich patent portfolio. Nortel, and Research in Motion (Blackberry) are cases in point.
    If we cannot exploit the results of basic research here in NZ, why do it?
    I can accept there are some educational and cultural reasons, but that doesn’t justify us putting over 25% of our national R&D effort into basic research, which is what we do at present.

  • Kemo sabe: I think it’s a good question: how much should NZ spend on basic research?

    What do we know? NZ currently spends slightly less on basic research as a percentage of GDP (0.33% in 2011) than the OECD average (0.37% 2009/2010 is my estimate – not all countries seem to report this). And furthermore those countries that have succeeded at diversifying their economies seem to spend considerably more: Denmark (0.57%), Israel (0.49%), Sth Korea (0.68%) and Switzerland (0.77%)!

    What about the difficulties of capturing benefit from R&D? The evidence suggests that the *direct* economic benefit of R&D conducted by the public sector is actually pretty marginal. By contrast, the case for the economic benefit of R&D conducted by the private sector is overwhelming. If you take into account the opportunity cost then of not spending public research dollars in the private sector, then funding R&D in the public sector starts to look like a poor bet. There is even evidence that targeted research can sometimes “crowd out” private sector R&D so targeted public R&D could actually be bad for the economy! It is a serious question as to whether the public sector should do any R&D targeted at economic benefit at all (many commentators conclude that it shouldn’t!).

    Despite this, there are few advanced countries that don’t fund significant amounts of R&D in the public sector. The reason they do this is to enjoy the *indirect* benefits of this R&D: namely human capital development, local spill-over benefits and an improved capacity to absorb knowledge generated overseas. As for basic R&D, there is evidence that the diversity of the knowledge base it produces in a region is good for private sector innovation and productivity.

    Having said all this, I think it is still an open question as to exactly how much basic research a small country should conduct – personally I think we are on the wrong side of the ledger.

  • Shaun
    Using the ratio (expenditure on basic research)/GDP is misleading. It is bound to be low, because we have a very low ratio of (gross expenditure on R&D)/GDP.
    Of the reporting countries,there are only three (Poland, Slovak Reublic, Czech Republic) which devote a higher proportion of their national R&D effort to basic research than we do.

    Every country should think hard about its balance of basic/applied/development R&D in terms of its economy and the social and environmental challenges it faces. It is evident that this debate has been captured by the universities in NZ. Successive governments have put extra funding into the Marsden Fund and the PBRF, in response to intense lobbying.
    The Marsden Fund has become the flagship for basic research, despite it funding less than 10% of the NZ total. In many minds the Marsden Fund and ‘basic research’ are synonomous, and the fact that it is oversubscribed is magically transformed into evidence that it too small. Politicians fall for it every time.

    Beyond all this, NZ’s overwhelming issue in improving innovation rates is the low amount spent on R&D by the business sector. This has been the biggest and most intractable issue for decades. Spending more on basic research isn’t going to fix it.

  • If Marsden is synonymous with basic research, and MoBIE with applied, then there’s a mismatch in definitions somewhere. For example, much of what is considered basic research and is funded by NSF in the US resembles research funded by MoBIE in NZ.

    Also, Shaun, a lot of the research carried out by the public sector in NZ is not designed to yield high economic returns, or at least translating their returns into economic impact alone would miss the point. Consider all the research carried out by Landcare, GNS and NIWA which supports environmental management and hazard mitigation.

  • Hi kemo sabe – I am not convinced that framing the argument in terms of proportions is all that useful – especially when you promised you’d tell us why spending less on basic research is a good idea! In the book I argue that we need to increase science funding, with basic research being my top priority. Simply put I think that is where we would get the best bang for our buck as I have noted above!

    I agree that lack of private sector funding is a huge issue. But I have to disagree with your last comment – there are good reasons to suggest that an increase in public spending on basic research, if done right, could boost business sector R&D spending as well (some of the reasons I note above).

  • Shaun
    Let me put it another way: within the $1.4Bn or so that is spent on R&D by ‘government’ (mainly the CRIs) and ‘higher education’ (ie the universities) I think we should spend less of it on basic research and more on applied research and development.
    I don’t buy the argument that basic research encourages higher levels of business R&D- it may be true, over long time periods, in larger economies, and especially in larger firms, but I see no evidence of it here in NZ. Your analysis has to take more account of the peculiarities of our economy, in its broadest sense, and the sophistication of our industrial sector.

    The fastest way to raise business R&D would be to reintroduce the R&D tax credit. Another way would be to incentivise firms to employ more people with PhDs. Apart from subsidising their salaries, they would be more encouraged to do so if the recruit’s PhD topic had some relevance to the needs of the business: therefore probably an applied research topic.
    (Some might argue that this would ‘devalue’ the PhD in some way. Not necessarily true, if we are smart about it. I have been struck by the applied nature of many of the PhDs coming out of our medical schools.)
    Anyway, this is unlikely to occur with the culture currently existing in the universities. Academics seem very loath to engage with firms, as evidenced by the low, and falling, funding provided by the business sector for university research.

  • I’d prefer that we try and link more to our neighbours for basic and generic applied research. There appears to be minimal incentive to join with Australia, Singapore etc. for basic research, but sharing the costs/credits should provide better value, especially as laboratory resource costs now often outweigh salaries by 2 – 4 times.

    As for industry, the problem is more about the business managers not wanting to invest in programmes that don’t provide returns within a financial year or two, especially smaller firms newly entering the R&D arena. They are also ( justifiably ) paranoid about how IP is treated by NZ research providers.

    As Australia found, changing taxation regimes for corporate R&D doesn’t always engender expected behaviour. Once introduced, some corporates built flash new “Corporate R&D centres” in the centre of business districts – we usually call them Corporate HQs.

  • Bruce
    Don’t be too hard on the business sector. It’s not, contrary to what many scientists seem to think, run by rogues and vagabonds.
    Most business sector R&D is done in-house, and most of the rest is done by the CRIs, often under a collaborative arrangement involving several firms or industry groups.

    You are right that business managers often expect too fast a payoff from their R&D; the latest R&D survey shows this.
    Hence my proposal that firms (especially small ones) be encouraged to hire PhDs. This will give them some clues about R&D- how to plan it, how to work with external experts, where the opportunities might be, how to deal with IP issues, etc.

    The R&D tax credit can be designed to avoid undesirable behaviour by firms. The scheme which IRD came up with in 2008 was very good in this respect. They looked at overseas experience and avoided all the usual pitfalls. Unfortunately it was canned after only one year.

  • Kemo sabe: we finally agree on something (tax credits)! My recipe for public R&D funding is to follow the Danish approach: strong investments in basic research (>50% of public sector research) + tax credits. The evidence just doesn’t support the economic effectiveness of applied R&D carried out by the public sector, in New Zealand or otherwise. Further, it runs the risk of crowding out private sector R&D. Despite the fact that the Danish government spends less on agricultural R&D than ours, the Danish agricultural sector is about 40% more productive. And I won’t mention all those other bits of their economy: https://sciblogs.co.nz/a-measure-of-science/2013/08/06/getting-off-the-grass/

    Waiology – I agree, a good deal of basic research contributes to New Zealand in other ways.

  • Shaun

    “…the Danish agricultural sector is about 40% more productive…”
    You don’t think there might be one or two other variables in there somewhere?

  • Kemo sabe: exactly! Applied research in the public sector is not strongly correlated with productivity growth. Denmark’s agricultural productivity has grown at 5.8% pa over the last 30 years, while ours has grown at 2.4%.

  • Shaun
    I think you may have missed my point there.
    Anyway, you have made a very bold statement about the economic (in)effectiveness of applied R&D carried out by the public sector. What is the evidence of which you speak? And how would you establish whether it was crowding out private sector R&D?

  • It is time to transcend the classification war!

    it is interesting to see this argument about whether funding should be provided for pure research, or for applied research. This is a common, ongoing dichotomy in many debates over research, particularly that funded from the public purse.

    The reality, however, is that this debate is based on the erroneous assumption that industry benefits only from applied research, and that research directed at assisting industry must be applied.

    This is an oversimplification, based on the definitions of research developed by Vannevar Bush in the post-World War II era of economic expansion.

    Donald Stokes in his 1997 book Pasteur’s Quadrant: Basic Science and Technological Innovation argues that there is a far stronger link between research of the more basic nature and innovation in industry than many appreciate. In fact, the dominant form of research is use-inspired, regardless of whether it is at the discovery or the application part of the cycle.

    Yet, industry (and a large body of policy-makers) is lead to believe that it needs applied research. Thus the attention has turned to wants, rather than needs.

    What industry needs is research that is appropriate to solve the problem at hand, or exploit the opportunity recognised. (And this is best driven by better problem definition, not the largely meaningless classification of science).

    Very often the real needs of industry cannot be met from available knowledge, which means that the research it needs must be of a more discovery nature. As Stokes eloquently puts it when he uses Louis Pasteur as his example, the more involved you become in the application of scientific knowledge in the market, the more you identify even more fundamental questions to be answered. These fundamental questions need to be answered to enable full exploitation in the market.

    Others explain the concept better than me, such as this contribution from Washington State University.

    The Lessons of Pasteur’s Example can be summed up:

    • Pasteur was a chemist & microbiologist

    • Driven to solve the problems of industry – fermentation

    • Breakthroughs include vaccines (rabies & anthrax), germ theory & pasteurisation (of course)

    • While ‘use inspired’ he answered fundamental science questions, because he needed the answers in order to answer industry questions

    • Suggests that industry focused research includes both applied and pure/fundamental

    • Focus should be on outcomes, not type of research

    What is the utility of all of this?

    Countless hours are wasted on trying to determine whether the public should be supporting applied research or basic research. Far less time is spent on identifying the priorities to be researched, or the questions and challenges to be answered. More time spent on the latter will enable the scarce public resources to be better targeted at activities that make a difference.

    Once the priorities are identified it is easier to determine how much effort is needed in discovery and how much in application – that choice depends on what we know about the field, how much information and knowledge has already been discovered, and what remain the unanswered questions.

    Deciding what to do on the basis of whether it is pure or applied research does little more than distort the research agenda. Research is research, and the nature of the research depends on how much knowledge we have in relation to the problem or the opportunity we are examining.

    Now, a debate about national priorities – that’s an entirely different beast! As is how much is needed to be invested! How do we best define the problems, or characterise the opportunities? How do we identify real challenges?

    kemo sabe makes the point: “Beyond all this, NZ’s overwhelming issue in improving innovation rates is the low amount spent on R&D by the business sector. This has been the biggest and most intractable issue for decades. Spending more on basic research isn’t going to fix it.”

    This is on the right track – industry needs to invest more in research, and it matters not whether we classify this as pure, strategic, tactical, applied or what. Research is research and the benefits are there to be had…………

    And if industry spends more on “basic” research ………..that would be great ……….and it does happen elsewhere

  • Shaun C
    There are some interesting issues around research classification, not least of which is that expenditure is all self-reported for statistical purposes. Researchers have found that scientists tend to say their work is basic when it fact it is applied, for seemingly ‘professional’ reasons.
    We also now have the split of basic research into ‘pure’ and ‘targeted’ basic. The CRIs report that 33% of their research is ‘basic’, and you can bet that nearly all of that is ‘targeted basic’, in support of their applied research, which is their primary mission.
    But ‘basic research’ has other connotations too: it implies that it is investigator-led without regard to funder or sponsor interest or end-use or whether it might, or could, benefit New Zealand. This what Paul C and Shaun H say we should be doing more of, and I disagree with this point of view. It is the ‘self-indulgent’ science which Garth Carnaby wrote about when he was president of RSNZ.
    NZ is simply too small and has insufficient industrial assets to be able to exploit much of this kind of research, even when it has produced good results.
    As to priority-setting, well, we don’t explicitly allocate research funding according to whether it’s basic, applied etc, but we do allocate funding to curiosity-driven investigator-led research via the PBRF and the Marsden Fund. We should look much more closely at the payoff we get from these investments, which now exceed $300M pa. The 2005 review of the Marsden Fund is worth reading.

    Shaun H
    I have looked at the stats for research expenditure targeted at the primary industries, which is where you might expect the government to ‘crowd out’ the business sector, in the NZ scheme of things. Since 2010 primary industries research in the business sector has risen by 45%, and in the government by only 4%. No crowding out there!

  • Kemo sabe: I don’t think we are going to settle this in the comments section of Peter’s blog but I will put together a post outlining some of this soon (my very detailed foray into this in Get Off the Grass was judged as being a little on the dull side by the publisher!) and you can critique it over on my blog. In the meantime, here is some reading …

    1. Lack of direct benefits from public R&D in NZ: http://www.motu.org.nz/publications/detail/has_new_zealand_benefited_from_its_investments_in_research_and_development

    2. A recent literature review of international studies (similar but weaker conclusions):
    http://www.nber.org/papers/w15622

    Crowding out is difficult to demonstrate conclusively (see http://www.nber.org/papers/w7373 for a review – this paper also discusses the lack of private returns from public R&D), but what you have observed is consistent with it. If crowding out is occurring then you might expect to see increases in private R&D when corresponding public R&D is static or declining, (or decreasing or static levels of private R&D when public R&D increases). The fact that our public primary sector R&D spending is larger than the corresponding private sector spend is also consistent with this.

    Historically we have justified our high level of public spending on primary sector R&D on the grounds that the farming sector is dominated by small businesses (farmers) that have difficulty in coordinating or performing their own R&D. However, I think we have to ask ourselves whether this is still true today in the era of Fonterra.

    Shaun C: I agree (see pg 201-2 of Get Off the Grass)!