Editorial: Government right to stoke innovation

TWITTER OUTBURST: Trade Me founder Sam Morgan is no fan of government research grants.
TWITTER OUTBURST: Trade Me founder Sam Morgan is no fan of government research grants.

Trade Me founder Sam Morgan has had a go at the Government's big "innovation" fund.

Callaghan Innovation, named for the late scientist Sir Paul Callaghan, gave out $270 million last year to encourage hi-tech companies to spend more on research and development.

When it announced its latest grants this week - another $32m for 22 businesses - Morgan let rip about the "stupid" scheme.

"Thanks to all taxpayers for giving free money to publicly listed tech companies to benefit wealthy tech investors," he wrote. Bureaucrats, he added, are particularly poor at guessing which companies will succeed. This is a familiar refrain - the "picking winners" deplored by market purists.

Morgan is right that trying to fund innovation is a fraught task. There will always be suspicion about how the government chooses who to help - maybe it backs already-successful companies, to share some glory, or maybe it funds ideas that are easy to grasp, or maybe it throws money into buzz industries like "biotechnology", because they sound apt for New Zealand.

Sir Paul was a great critic of the latter tendency, arguing that biotech flopped here and that New Zealand does best in "weird" global niches.

Yet he did not advocate a hands-off approach either - he wanted the government to help "knowledge businesses" in fields with clear promise, and aid them in getting to market.

Behind this debate is New Zealand's pitifully low levels of research and development spending, a figure strongly linked to economic growth. Businesses here spend 0.6 per cent of GDP on research and development. In Sweden, which enjoys consistently higher growth, it is well above 2 per cent.

Morgan's beliefs are understandable - he found funds for his own successful company, and has since become a regular investor in local start-ups.

But the whole economy looks different to that. It looks like one that is risk-averse, poor at turning our best science into commercial products, and lacking in action and ideas.

There are many reasons for that, including our smallness and isolation, our success in primary products, and the low profile we give to science.

But we cannot just accept it. Simply remaining the world's milkshed will not ensure prosperity. We need an economy that is more diverse, skilled and energetic. We have tried leaving this to chance, and it hasn't worked.

The Government's grant scheme might not prove the best option. An alternative is a broad tax credit, for any company to pursue research and development, like the one National scrapped when elected in 2008. It means no "winners", no grant applications and less administrative machinery.

That should remain an option, and meanwhile Callaghan Innovation's funding choices should face great scrutiny. It needs to show a big jump in private research and development spending over the next few years.

What should not be in doubt, though, is that the government has a role here. It needs to keep pushing New Zealand Inc to try things, to be bolder.

The Dominion Post