10/08/2020

Putting New Zealand Back on Top

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The Sustainable New Zealand Party are proponents of the ‘bright green’ environmental movement taking the position that the convergence of technological change and social innovation provides the most successful path to sustainable development. 

Our Innovation Policy provides a plan to effectively harness the creativity and synergy between business, academia and government to deliver a sustainable, prosperous future for all New Zealanders and return us to the top of the international environmental, economic and innovation rankings

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The Problems we need to address

The world continues to become more interconnected and complex. New Zealand’s growth model, based largely on exploiting natural resources, is running up against its environmental limits. In addition, despite New Zealand experiencing high growth over the last decade, our labour productivity has remained low, and income inequality has increased. The OECD average GDP per working hour is $54.70, while ours is $43.50 and Australia’s is $59. R&D is needed to help us work smarter rather than harder. 

There is a broad recognition that two of the main problems confronting New Zealand are continuing: 

1. Environmental degradation 

2. Decline in economic performance 

New Zealand’s decline in these areas is also reflected in the spectacular slide in its world rankings: 

1. Environmentally: New Zealand ranked first out of the 146 countries in Yale University’s 2006 Environmental Performance Index (EPI). The index ranks countries on the quality of their environmental policies, as originally outlined in the UN Millennium Development Goals. Since then, we have slipped from 7th in 2008, 14th in 2012 and a poor 19th in 2020. 

2. Economically: New Zealand’s drift down the OECD rankings for GDP per capita can’t be ignored. New Zealand, below the OECD’s average income levels for the last two decades, is now ranked 22nd out of 30 countries – 20% below the OECD average and about 35% below Australia. 

3. Innovation: In this year’s Bloomberg innovation index, New Zealand was notably the biggest loser falling five spots to number 29 amid a slide in value-added manufacturing performance. 

Factors Contributing to Success

A recent report from the Productivity Commission provides an analysis of the main factors contributing to the economic success of ‘small advanced economies’ such as ours.  In summary, there are two main factors determining success.

  1. Level of International Engagement.  The performance of internationally oriented sectors is central to the performance of small advanced economies. Productivity performance in the domestic economy is constrained in small advanced economies, because the small size of the market limits competitive intensity as well as opportunities for scale and specialization. However, firms and internationally oriented sectors that scale into international markets are much more likely to be close to the productivity frontier. 
  1. Dense innovative clusters or ecosystems. Small economy firms at the productivity frontier tend to operate in dense innovative ecosystems, in which they can benefit from external scale economies: flows of knowledge, access to highly skilled labor, dense backward and forward linkages, specialist advisory services, and so on. This context makes it more likely that firms will be able to develop positions of sustainable competitive advantage based on knowledge and innovation and move towards the productivity frontier. 

Implications for New Zealand

There are several distinctive features of New Zealand’s economic structure and dynamics that account for its poor performance relative to other small advanced economies. NZ has relatively low levels of international economic engagement; has few firms exporting or investing offshore at scale; and does not have dense innovative high growth clusters of scale around its major areas of competitive advantage in the primary sector and the weightless economy. 

Also, large parts of New Zealand’s international sectors are in ownership structures that constrained growth. The cooperative structure and regulatory context constrained risky investments and make it more likely that the product mix is commodity based. This has improved overtime, but New Zealand has not produced competitive, high growth multinational companies around the primary sector. 

In addition, there has been less of a shift into knowledge intensive activities than seen in many other small advanced economies. Directly knowledge or technology intensive exports remain a relatively small part of New Zealand’s export structure despite recent growth. This is largely due to policy choices: NZ has not invested in skills and innovation to nearly the same extent as high performing small advanced economies; and has not focused on developing knowledge intensive competitive advantage. 

Innovation is the Key

Innovation is therefore clearly becoming more and more critical both in halting and reversing New Zealand’s environmental degradation and to national economic performance, job creation and standards of living. 

As the historical drivers of our productivity growth wane, we need to strengthen our capacity to generate value from our ideas and our inventiveness to preserve our natural heritage and provide a broad base of prosperity and wellbeing for all who live in New Zealand. 

Given the impacts of the current pandemic, driving productivity via innovation has taken on a new urgency. In lean times firms are often quick to cut R&D spending and become less concerned about sustainable practices, but this is the last thing we need during the post-pandemic recovery. The future will not be a return to business as usual. In many sectors customer behavior and the nature of competition will permanently change. Pivoting to find new products and new ways of doing things will be critical. 

The role and importance of the ‘Innovation Ecosystem’ 

In a recent NBR article Rosalie Nelson, general manager of strategy, impact and insights at Callaghan Innovation, argues: 

“We need a better-connected innovation ecosystem. R&D involves reaching out to other companies, innovators and researchers to tackle problems that can’t be solved internally. We don’t do this well, or enough, in New Zealand, so it’s an area we’ve put extra effort into…” 

The term ‘innovation ecosystem’ refers to a dynamic, interactive network that breeds innovation success

Prerequisites for building a sustainable innovation ecosystem include: 

  • Availability of financial capital 
  • Human resources 
  • Economic incentives 
  • Information access 
  • Collaboration and interaction between:
  • Government; 
  • The private sector; 
  • Educational & research centers; and, 
  • Individual entrepreneurs who aspire to produce innovative products/solutions. 

Silicon Valley, India, Scandinavia and Israel provide some of the better-known examples. 

As Israel’s highly successful ‘innovation economy’ was a direct result of its government’s innovation policies it provides an excellent example and model for understanding government’s role in the development of an effective innovation ecosystem. 

After a thorough survey of the leading academic ideas regarding preconditions for innovation (generally) and the preconditions for Israeli innovation (specifically), it is clear that R&D grants and venture capital policies played an important role in Israel’s narrative. By distinguishing those factors which can be emulated by other governments from those which resulted from historical chance Israel’s experience spells out some key public policy lessons and limitations of its innovation policy. 

These lessons, combined with a global review of the more successful business support and innovation fostering practices, that address said limitations have underpinned the design of SNZP’s innovation policy. 

The following diagram provides a visual representation of SNZP’s proposed innovation policy.  Central to its execution is the establishment of a New Zealand Innovation Authority (NZIA) to foster collaboration and interaction between government, the private sector, educational & research centers and individual entrepreneurs who aspired to produce innovative products/ solutions. This would be headed up by a CEO who would assign a team to administer an annual budget of NZ$1.2 billion.

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You will note that the NZIA will oversee 4 main areas: 

  1. Startup and business development support 
  • A significant (5 x) expansion of current incubator programs
  • Wrap around support for businesses identified as having high growth potential to help them thrive
  • Support for businesses in distress.  If determined viable then provide rescue support, if non- viable, reduce economic loss and help entrepreneurs avoid unmanageable debt and manage stress and loss of self-esteem, understand that failure is a natural part of entrepreneurial endeavours.
  1. Innovation Support
  • R&D Grants designed to support pre-competitive, collaborative R&D projects in areas of weightless and environmentally positive technologies including AI, agritech, biotech, nanotech, elaborately transformed manufacturing, robotics and energy.
  • Technology Transfer Organisations established within universities to actively encourage the level of collaboration between Universities and business through funding support of collaborative R&D projects. In turn this should greatly enhance their contribution to the NZ Innovation Ecosystem. SNZP proposes appointing an advisor / specialist in the establishment of successful TTOs to, in the first instance, assist with their application for funding and collaboration with suitable industry partners. If a collaboration project looks to be feasible and satisfy requirements of the policy, then the advisor would provide assistance in structuring activities in alignment with best practice and most likely the institution’s particular research strength.
  • Innovation Agents This program’s aim is to strengthen innovation in SMEs through linkages with research organisations.  It is an important conduit for helping improve the adoption and commercialisation of work developed in conjunction with R&D and Technology Transfer Organisation innovation support programs.                   
  • Innovation Networks We would advocate for government-funded innovation networks to be established to support the advancement and adoption of innovation in sectors including agriculture, food processing, ICT, green energy, communication technology, medical technology, manufacturing and service industries. They are best defined as a framework for cooperation, knowledge sharing and knowledge development between companies, knowledge institutions and other relevant players within a sector or a professional or technological area. 

3. Financing 

  • Expansion of VC Funds / Risk Capital availability $250,000,000 will be invested across 10 new private VC Funds by the government.  The objective is to attract ‘smart risk capital’ financing from experienced successful VC investors to New Zealand companies at the same time as further nurturing the domestic private venture capital industry by offering matched co-financing at a rate of 50/50 with the obligation to invest in start-up and early stage innovation companies in New Zealand.
  • SME Government Credit Guarantee An initiative designed to ensure innovative SMEs have sufficient access to bank financing including longer term financing for innovation-based projects, which due to their risk profile would not normally be funded, by reducing finance providers’ risk in doing so by guaranteeing 80% of the risk.
  1. Access to markets 
    • Improve SME Access to Government Procurement Spending:
      1. By the use of ‘set-asides’ i.e. policies that earmark a certain volume of public procurement contracts to SMEs in New Zealand. 
      2. Establishing an integrated e-commerce marketplace for NZ SMEs to provide increased access to public procurement on a platform where all public tender notices are published and which uses an integrated system of e-bidding, e-ordering, e-contracting and e-payment.
  • Internationalisation Programs to actively support and develop increased levels of international engagement.  Programs will span from those to assist companies starting out to the more experienced that are seeking support to undertake substantive research to assess the viability of proposed expansion opportunities and establish overseas networks.
    1. The Getting Export Ready program will be aimed at pre-export and early stage exporting companies.
    2. The first flight program will help first time exporters and currently exporting firms manage the risk of entering new markets.
    3. The market access grant will provide up to 50% of $150,000 in eligible costs, met by a firm to undertake an intensive six-month market research project to examine a new export market or the potential for introducing a new product or service into an existing export market.