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Research and development (still) needs an overhaul

Ian Apperley, Guest post. 31 July 2017, 6:56 am
Research and development (still) needs an overhaul

Let's change the way we fund R&D

As we approach the election the various lobby groups and interested parties are writing up whitepapers faster than a weasel up a drain pipe. In general, they are calling for more of the same and right now, with a few exceptions, R&D investment isn't producing the results we should expect. 

Measures of the success of R&D within the technology industry are far and few between. However, we have perhaps three key markers that provide us a view of the effectiveness of the current system. 

First, the overall export value of tech companies. This is rising slowly with government now recognising that the industry is the third largest exporter. That GDP input is rising slowly over time however could be faster. 

The OECD rankings and data on New Zealand's workforce productivity provide another window into the effectiveness of R&D. Logically, the application of technology should increase productivity, that's exactly what technology is designed to do. New Zealand has an appalling level of productivity sitting around number twenty-eight out of thirty-four countries. 

Finally, the amount of R&D spend versus the amount of GDP can be calculated and right now, it's very, very low. Despite spending hundreds of millions on R&D we are only just breaking over even in terms of return, it's a bit of a money go-round. 

R&D seems to have fallen into the hands of government and that's not necessarily a good thing. Government is not designed to be innovative and fast, that will change over time, however right now it suffers systemic degradation through heavy, and sometimes spurious, process. 

I think there are two things that government can do to stimulate R&D investment. 

Providing tax credit or cutting the company tax rate would be a good start. 

Tech companies in New Zealand are highly taxed in comparison to international organisations. The government will argue that the tax taken is then reinvested in R&D indirectly, however we run back into that system government systems thinking, which means that the money is not spent effectively. 

There is an argument that if you drop the tax rate on tech companies or introduce tax credits then they will simply pocket it as profit. 

Let's think about that for a minute because I suspect it's an incorrect assumption. 

Imagine you are a tech company that gets a monetary break. 

If you pocket the cash, in other words don't reinvest it in your business via R&D, then you are going to be behind the eight-ball. Technology is moving so fast that it requires constant reinvention to stay competitive. That requires investment. 

Now you have extra cash to invest in R&D and your tech company you gain another advantage. You know your business and market intimately, so you know best how to spend that money as an investment. Externally funding R&D engines are far less likely to understand your business. 

We also need to see a cultural change around purchasing. New Zealand tech companies suffer from something I've previously termed "The Gisborne Gold Effect." 

Gisborne Gold is a beer that is manufactured by Sunshine Breweries in Gisborne. Here's the thing, very little of it, relatively, is sold in the city. Sunshine Breweries major markets are all outside of the region. 

When we apply that to tech companies in New Zealand we find that the most successful are those that go to international markets first. There is a reluctance, particularly by Government, to purchase the technology we create within New Zealand. 

That needs to change. 

Government needs to change its stance in preference to local technology industry. That is coming through in some election policy, for example New Zealand First want to see policy that give preference to local companies versus international. 

That extra cash fuels the local technology market and allows for further investment and growth. It's a no-brainer. 

The OECD is very clear on two issues that need to be addressed in terms of productivity. First, education needs to be invested in, appropriately, and second, we need more R&D money in the system. 

We need government to question the effectiveness of current R&D spend with a critical eye. Because right now, while the money is flowing, it is my opinion that the output measures are not changing. 

Government tends to create complex systems that are not optimal. While technologists recognise that the system is sub-optimal, they don't necessarily know how to break it and build something new. 

We need a new system. That is going to require bravery and courage and a change in policy. 

Ian Apperley is well known to many in the ICT industry as both participant and commentator and craft beer apologist.


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David Preece 31 July 2017, 7:54 am

The problem is that the government spends money on itself then calls it investment. Two examples:

Callaghan are able to create a repayable loan for incubating tech companies. IIRC this is for up to $600k. However, you can only even apply for the loan if you are in one of the incubators funded by Callaghan themselves.

R9 accelerator is actually basically good idea. If a government employee wishes to take part then their salary continues to be paid ... and they have a job to go back to. This is not the case for private sector contributors who are expected to shoulder both the cost and the risk of the endeavour.

I'm sure there are many more examples :(

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