Business- Government Partnership for Innovation and Growth: The Case of New Zealand :1 Business- Government Partnership for Innovation and Growth: The Case of New Zealand Nigel Haworth The University of Auckland Foro de Innovacion de las Americas Punta del Este, Uruguay March-April, 2008


NZ Grass Processor (Mark I) :2 NZ Grass Processor (Mark I)


Fonterra’s Whareroa Plant, Taranaki :3 Fonterra’s Whareroa Plant, Taranaki


Setting the Scene: The “New Zealand Fast Forward” Programme :4 Setting the Scene: The “New Zealand Fast Forward” Programme Announced 11 March, 2008 NZ $700 million (US $560 million) government investment in pastoral and food industries research, development and innovation Sector = approximately 60% of NZ export revenues Based on: Shared business-government vision for sector (follows joint business-government report in 2006) Matched business investment in research (total joint investment will be around NZ $2 billion (US $1.6 billion) Joint business-government governance of research investment Largest ever single investment in research by NZ


Telling the recent story of New Zealand in brief :5 Telling the recent story of New Zealand in brief Cohesive, modern, democratic, stable society Lacking shared, grounded vision for future Geographically remote, at the end of supply chains and trade routes Small, relatively urbanised, highly-educated, globally-orientated population (4.2 million) 1.3 million workforce


An entrepreneurial economy :6 An entrepreneurial economy About 350,000 enterprises 96% of enterprises employed 19 or fewer people. 87% of enterprises employed 5 or fewer people. 64% of enterprises had no employees. Simple to start a company – many do:-


Entries and Exits (Business Demography Dataset) :7 Entries and Exits (Business Demography Dataset)


In some ways, an economy performing well: Growth :8 In some ways, an economy performing well: Growth


In some ways, an economy performing well: Unemployment :9 In some ways, an economy performing well: Unemployment


Attractive and open to FDI :10 Attractive and open to FDI Foreign Investment Inflows (millions)


In other ways, not performing well: Productivity and wages :11 In other ways, not performing well: Productivity and wages 1991-1995 0.9 1996-2000 1.4 2001-2005 0.8 --------------------------- Average 1.1 (average annual per cent change)


Slide 12:12


And particularly not well: R&D spend :13 And particularly not well: R&D spend 1.2% of GDP, compared with OECD average of 2.2% Over 50% of R&D spend is by Government; private sector below 50%


And poorly in terms of Per Capita GDP relative to OECD competitors :14 And poorly in terms of Per Capita GDP relative to OECD competitors


Responses: The Crisis and the Solutions up to 1999 :15 Responses: The Crisis and the Solutions up to 1999 Up to 1984: The ‘closed economy’ Emerging challenges Missed signals


Responses: The Crisis and the Solutions up to 1999 contd. :16 Responses: The Crisis and the Solutions up to 1999 contd. 1984-1999 The radical reform model Expectations and frustrations 1999: a sea-change Business-Government relations pre 1999 In pre-1984 ‘closed’ economy 1984-1999: the neo-liberal phase


1999: Modern social democracy :17 1999: Modern social democracy Dealing with: The legacy of 80s and 90s Path dependency Growth and the danger of complacency The key tenets: Economic transformation Families, young and old (social inclusion) National identity


Modern Social democracy contd. :18 Modern Social democracy contd. Government’s emphases: Fiscal stability Improved savings and investment Improved productivity Corporate governance State sector performance


Economic Transformation: national vision for growth and innovation :19 Economic Transformation: national vision for growth and innovation Tenets: A better-performing, knowledge-based economy A ‘bold, forward-looking, aspirational’ strategy (shifting gear) Innovation and competitiveness the key challenges Improved business performance fundamental Business-government-stakeholder partnership vital


ET: five themes :20 ET: five themes Growing globally competitive firms A world class infrastructure Innovative and productive workplaces Environmental sustainability Auckland: an internationally-competitive city within ET, focus on: Growth and Innovation Improved international connections


Growth and Innovation :21 Growth and Innovation Growth and Innovation Framework (GIF), (thereafter Economic Transformation) Industry support: e.g.Bio-technology, ICT, Creative, Food, Wood Improved R&D expenditure and performance; Entrepreneurship and the commercialisation of innovation


Growth and Innovation contd. :22 Growth and Innovation contd. Support for SMEs The potential for equity partnerships to contribute to growth Developed tripartite co-operation (government, business, trades unions) in support of productivity and growth. AND


Improved international connections :23 Improved international connections Key measures: Support for Doha and APEC, and RTAs Closer ties with Australia (a single economic market); Increased funding for NZTE’s promotion of export success; Better integration of external and domestic economic strategies; A better understanding of the challenges facing small, open economies in global economy; A fair environment for the New Zealand manufacturing sector (especially re ‘hollowing out’).


Case Study: the Growth and Innovation Framework: An emerging national vision :24 Case Study: the Growth and Innovation Framework: An emerging national vision Govt. response led by PM: ‘Growing an Innovative New Zealand’ (GINZ) Blueprint for change Top-half-of-the-OECD target Vision Now subsumed under ET agenda


Origins of GIF :25 Origins of GIF Government party analysis, drawing on international networks (e.g. UK) Domestic stakeholders (business – e.g. Knowledge Wave; unions – e.g. high wage high skill economy; some key commentators) Top-down politically-driven model (importance of PM and ministers; DPMC) Various reports and meetings


Private sector participation in GIF :26 Private sector participation in GIF Initial scepticism, but emerging realpolitik (especially after 2002 election) Government charm offensive (listening) Change of personnel (e.g. Business New Zealand) Jointness of language and aspiration


Private sector contd. :27 Private sector contd. CTU role Informal networks Consensus at top of business community, but buy-in below more difficult (e.g. GIAB) Volume of engagement an issue Questions about rate of progress and complexity of policy-making


Operationalisation of GIF :28 Operationalisation of GIF DPMC MED Growth and Innovation Framework Officials Working Group Growth and Innovation Advisory Board (GIAB) (private sector involvement)


Growth and Innovation Advisory Board (GIAB) :29 Growth and Innovation Advisory Board (GIAB) Membership Structure Workstreams: Growth culture Agribusiness Infrastructure People and skills Global connectedness Research and innovation


GIF foci :30 GIF foci Foci: Strengthening the fundamentals More effective innovation Improving skills and talents Global connectedness Industry focus, involving selection and prioritisation (bio-tech, creative, ICT etc)


GIF action areas :31 GIF action areas Strengthening the innovation system: e.g. CRI Capability Fund Partnerships for Quality (between business and universities) Developing skills and talent e.g.: Reform of tertiary sector (planning and differentiation) Extension of skill training Adult literacy and Foundation Skills Links into developed productivity/skilling agendas


GIF action areas contd. :32 GIF action areas contd. Increasing international connection: e.g. Beachheads programme (NZTE) Enterprise Networks Grants Investment New Zealand Engaging with sectors: e.g. Large budget Screen production Grant Sectoral taskforces (ICT, Bio-technology, Food and Beverage etc)


GIF action areas contd. :33 GIF action areas contd. Working with regions: e.g. Regional Strategy Fund Enterprising Partnerships Fund Assisting business development: e.g. Growth Services Fund (NZTE) SME Directorate (MED) Strengthening infrastructure: e.g. Digital Strategy Auckland Regional Economic Development Strategy and GUEDO


GIF’s performance :34 GIF’s performance Measured across multiple criteria, including: Innovation Product innovation good, R&D continues poor; patenting requires improvement; networking good as is commodity sector take-up of new technology; ICT adoption still to make ground. Enterprise Continuing evidence of high levels of firm creation and OECD-comparable rates of firm survival


GIF’s performance contd. :35 GIF’s performance contd. Investment: Strong investment flows; improvements in traditionally low savings rates; both stock exchange and venture capital markets have room for improvement International connections: External trade performance can improve; domestic value-adding improving as is sophistication of exports; FDI performing well as is international labour market engagement Broadly, reasonable performance with plenty of room for improvement


Assessing GIF’s progress :36 Assessing GIF’s progress Vision has wide currency/consensus at political level In principle, also true for officials and (senior) stakeholders Serious question about: consolidating vision on sustainable across all constituencies Practical, ongoing engagement


Assessing GIF’s progress contd. :37 Assessing GIF’s progress contd. Challenges: Coherence Complexity Effective prioritisation Whole-of-government issues Buy-in by government officials Demonstrating impact (causalities) Sustained grounding of approach


B Research, Science and Technology :38 B Research, Science and Technology Government’s priorities: support basic and strategic research support researcher-led innovation in new areas or applications increase the rate of commercialisation and the ability of firms to commercialise support promising researchers, and environmental, social and health research About $1 billion invested by Government (about two-thirds by Ministry of Research, Science and Technology (MORST))


MORST key investments (06/07) :39 MORST key investments (06/07) Industry Research $191m Environmental Research $90m New Economy Research Fund $62m Health Sciences $59m Technology New Zealand $48m CRI Capability Fund $47m Marsden Fund $34 m Supporting Promising Individuals $18m


Stakeholder involvement in RST :40 Stakeholder involvement in RST Widespread Directly (e.g. Capitalising on Research Action Group following 2006 ‘Capitalising on Research’ summit) Indirectly Board-level interventions in FRST, CRIs, HRC etc. Membership of university councils Task forces and working groups


RST delivery :41 RST delivery The context: In 2006: Government funded $785 million worth of R&D, up 8.0 percent from 2004. Businesses funded $753 million, up 18.6 percent from 2004. Ninety-five percent of all R&D was domestically funded. Need for business to do better widely accepted.


RST delivery contd. :42 RST delivery contd. Key institutions: Crown Research Institutes Universities Major funding bodies: FRST ($450m annually) HRC ($60 million) RSNZ ($34 million) Technology New Zealand ($48 million) Research Consortia (from $250k to $3 million plus)


Evaluating RST :43 Evaluating RST Priorities command broad support Business and export needs pervasive in RST thinking Underfunding (both private and public) Tensions (e.g. between CRIs and universities) Maintaining talent vital Improved integration of: government-funded agencies Agencies and private sector (esp SMEs)


Evaluating RST contd. :44 Evaluating RST contd. Growing emphasis on commercialisation of research (e.g.): AgResearch: e.g. Grasslanz Technology (100% interest held; promotes and licenses proprietary forage cultivars, grass endophytes and applied biotechnologies, delivered to farmers through seed company licensees HortResearch: e.g. sensor technology for pear ripeness - one of Time Magazine’s ‘coolest inventions’ for 2004 Uniservices (University of Auckland): 130 licensing deals 2006; market capital of companies based on Uniservices technology $656 million 2006) A good start: recognised that more can be done.


C Supporting international connections (trade): NZTE :45 C Supporting international connections (trade): NZTE New Zealand Trade and Enterprise (NZTE) To improve New Zealand’s business environment for enterprise and growth To increase the international connections of New Zealand businesses To build New Zealand business capability Created to form single agency 2003 Industry New Zealand and Trade New Zealand $150m plus annually On-shore (420 staff) and off-shore delivery (240) Business-based governance


NZTE focus :46 NZTE focus sectors: a focus on sectors with long-term competitive advantage regions: a focus on the development of successful regional economic development strategic involving active stakeholder participation enterprises: provision of a comprehensive range of support measures from start-up to exporting maturity international linkages and engagement: support for exporting companies, including in-country trade commissioners, network creation, promotional activities, information flows etc. investment promotion: active promotion of inbound investment into NZ


NZTE activity areas :47 NZTE activity areas Business development (e.g. Enterprise Development Grants: in two forms (for market development, on a 50% basis up to $500k on a $100k per annum basis; for capability building, on a 50% basis up to $20k.) Export services (e.g . Beachheads Programme: accelerated access for high-growth firms to international markets)


NZTE activity areas contd :48 NZTE activity areas contd Sector development (10 sectors identified) Regional development (e.g. Regional Strategy Fund) NZ success (e.g. Enterprise Culture and Skills Activities Fund to promote entrepreneurship and business success)


NZTE-Private sector engagement :49 NZTE-Private sector engagement Business presence pervasive Senior business leaders Key exporters (ICT, commodity sector) NZTE board Advisory boards (e.g. Beachheads Advisory Boards; CEO Summit for ‘Better by Design’) Engagement serious, ongoing, with mutual expectations


Slide 50:50 Practices and Institutions


Key practices :51 Key practices Senior political leadership Thinking about international experience Stakeholder engagement Tripartism Whole-of-government Institutional reform and creation Public-Private Partnerships still controversial, but in place


The Key Implementation Agencies :52 The Key Implementation Agencies Strong political oversight (Office of PM; DPMC; ministers and advisers) Pervasive role of Treasury (funding and evaluation) Of ministries, MED is paramount (ex Ministry of Commerce) Internal structure/traditions of MED important MORST: small, vocal, a support role Other ministries/departments play supporting roles


The Key Implementation Agencies contd. :53 The Key Implementation Agencies contd. NZTE: crown agency at arms length from Government; insulation provided by strong business board NZTE: also seen as pro-business and focused; different from government Funding environment: tough – careful scrutiny by Treasury, and ministers, in context of competing demands


The Implementation Agencies contd. :54 The Implementation Agencies contd. Strong emphasis on evaluation Technical competence of staff (generally) high Workloads, experience, ideological orientations raise questions Whole-of-government issues


Principles of Support: Making a Difference :55 Principles of Support: Making a Difference Emphasis on targeting high-end, high value-add, high-tech. International potential SMEs Preferred sectors Capability building Applied, relevant outcomes (e.g. in RST)


Principles of Support :56 Principles of Support Part user-pays (e.g. 50% model) accountability Competitive tendering (e.g. for research funds) Wide range of support limits from $5k to multi-million Partnerships/collaborations encouraged Evaluation of outcomes increasingly important Use of delivery agents


Slide 57:57 First Principles


First Principles - People :58 First Principles - People Vision and consensus (e.g. GINZ) Leadership (e.g. DoL Management Capability Building) Top-level stakeholder participation (e.g. GIAB, FRST, NZTE) Quality of thinking (e.g. ‘Capitalising on Research’ seminar and Action Group) Tolerance of perspectives (e,g. GIAB) Building new capability (e.g.Technology for Industry Fellowships) The importance of ‘champions’


First principles - Process :59 First principles - Process Sustaining support for transformation (e.g.) maintaining macroeconomic fundamentals Sustained government support Constant engagement with social partners NZ solutions (e.g. NZ Tourism Strategy) Momentum (e.g. recent reform of regional grant structure) Openness (e.g. Knowledge Wave conference)


First principles – Process contd. :60 First principles – Process contd. Networks (e.g. Partnerships for Excellence) Whole-of-government (e.g. GUEDO) Moving beyond ‘market failure’ (e.g. focus on social inclusion)


First principles - Institutions :61 First principles - Institutions Institutions are/should be professional, transparent and accountable Institution building in New Zealand is path-dependent on the neo-liberal reform project post 1984 Institutions are not a panacea: the creation of specialist institutions subject to careful scrutiny in New Zealand, but also, often, viewed with scepticism. Care taken about transfer of international institutional options


First Principles – Institutions contd. :62 First Principles – Institutions contd. Project-based models preferred (e.g. task forces) Institutions should involve the social partners at a strategic level ‘Buy-in’ by social partners and constituencies into institutions important Existing institutional arrangements/rivalries (e.g. the government department structure) may hinder policy innovation – responses needed Institutional capacity issues exist and must be addressed (e.g. staffing)