2. Targeting world-class innovation and commercialisation

New Zealand needs to begin asking itself how far ideas and innovation can drive the future economy. Can New Zealand leave the current approach behind to lead the world in terms of high-knowledge people and trading in high-value services? Can we take the necessary steps to support the sectors are most likely to generate real and sustainable growth (including new and higher paid jobs, intellectual property and returns to investors)?

Could New Zealand benefit from an approach that focuses on delivering growth though adding value? In the 21st Century, new approaches will be needed to overcome the costs associated with New Zealand’s distance from key economic markets. In practice, this is likely to mean low volume, high value services or highly scalable exports. Economic policy may need to construct different ways of giving New Zealand businesses the ability and incentive to invest in:

  • new technologies;

  • new business models; and

  • new, high-value services.

Businesses need the incentive to innovate and move towards new models that have the potential to achieve sustainable growth. The concern for business may be that the path to sustainable, long-term growth carries too great a risk to the individual business (even though it clearly benefits the economy overall). An investment in adding real value to products and services may come at a high potential cost. The policy challenge is to encourage businesses to take these risks, as collectively the gains to the economy are likely to outweigh the costs to the individual businesses.  

This long-term focus puts an emphasis on research and development, and in particular commercialising intellectual property (IP in a broad, non-legal sense). Good ideas need to be turned into good businesses. Do we focus on first-tier innovation – creating new knowledge and ideas – or should New Zealand be a place where we can build on the best knowledge from around the world to create second-tier innovation – practical ingenuity –to drive economy growth? The economic benefits of innovation only accrue through commercialisation, so either way the New Zealand economy needs to be based on putting great ideas into practice.

A related question is whether IP law gives appropriate incentives around commercialisation. As Colorado University Professor of Economics Keith Maskus states: “An overly protective IP rights system could limit the social gains from invention by reducing incentives to disseminate its fruits.  However, an excessively weak system could reduce innovation by failing to provide an adequate return on investment.”4 The question is what balance should be struck for New Zealand’s economy in the future.

New Zealand’s small economy presents two major challenges to potentially high-growth businesses:

  • Financial capital. New Zealand’s small and distant capital markets and the over-commitment of capital to the housing sector means there is a limited pool of financial capital to assist business to grow. In addition major supply contracts that might sustain cash flows are more limited in our small economy.

  • Human capital. New Zealand has a comparatively small talent pool and, as a result, a lack of specialist skills (it is very difficult to develop genuine world-leading expertise outside a handful of sectors). This is not just an issue for entry-level employees or start-up business. It is equally difficult to find senior executives, board members or active investors with the right mix of sector expertise and international experience.   

A related concern is that these resources may be more readily found offshore. As a result, those New Zealand growth businesses that do succeed end up exporting valuable social and financial dividends outside of New Zealand.

The impacts of future developments in technology are potentially pervasive across the economy, opening up new products and sectors but also challenging the country to deliver the skills, jobs and infrastructure to support a high-skill digital economy. These opportunities and challenges are addressed in greater detail in the Technology discussion paper prepared by Clare Curran and David Cunliffe. There is no escaping that technological change will shape New Zealand’s economic future and integrated policy solutions are needed.

Discussion questions:

  • How can we a world leader in producing high-value services and high-knowledge people?

  • Can business risk-taking be more aligned with potential economy-wide benefits?

  • How can IP regulation assist turning (existing) good ideas into good businesses?

  • What are the key barriers to high growth companies securing investment, cash-flow and skills?

4   Keith Maskus, 6 February 2000, Intellectual Property Rights and Economic Development, http://aspheramedia.com/wp-content/uploads/2015/01/cwrurev.pdf