Innovation
Evidence indicates that successful business innovation is a key driver of higher productivity. Good policy settings across the spectrum are vital for encouraging business innovation. For example, competition-enhancing regulations, macroeconomic stability, financial market development, and low barriers to foreign investment and trade all affect businesses’ incentives and opportunities to invest in innovative activities and in acquiring overseas knowledge. New Zealand’s policy settings rate well in the majority of these areas.
A range of policies and institutions already exist specifically to promote the creation, absorption and diffusion of knowledge. There may, however, be scope to improve policies and institutions to help firms create and use knowledge and new technologies relevant to their business.
Over recent years the Government has put in place a wide range of specialised programmes that are broadly aimed at encouraging innovation. This is in addition to more traditional mechanisms like research and development subsidies and public provision of research. A number of programmes appear to overlap or lack a good public policy rationale in that the benefits primarily accrue to private interests. We recommend reviewing these programmes and rationalising those that serve the same purpose or where there is little evidence to support government intervention.
There are pressures to move away from contestable funding for public sector research and development toward more stable funding arrangements. Substantial changes have already been made to address concerns over funding stability. Promotion of the outcomes sought by government should be the basis for any further change. While there may be some scope to devolve more detailed decisions to research institutions, we would advise that this only take place where incentives for effective results are strengthened. One way of achieving this would be to require greater public-private co-funding of research.
Recommendations
- Review the current portfolio of innovation-related programmes and rationalise those with overlapping objectives or where there is little rationale for government intervention
- Substantially retain the current level of contestability in public research funding, and make any further devolution conditional on stronger incentives for effective results
