Investing national capital (in innovation)

Colin James’s opening comments at the symposium to discuss the OECD strategy on innovation, Wellington, 7 December 2010

Innovation is a very broad notion.

Here is the definition in the OECD’s Innovation Strategy, from the Oslo Manual: “the implementation of a new or significantly improved product (good or service) or process, a new marketing method or a new organisational method in business practices, workplace organisation or external relations”.

Innovation is best understood as endogenous activity. It happens within a society and within an economy, not outside it.

It can be understood as an evolutionary activity: an idea or a practice is tried out, works, is replicated and adopted.

Evolution is continuous. Viruses remind us of that in real time. Technology likewise.

The issue for a society is to organise itself to allow space for that evolution. New Zealand for much of its short history as New Zealand had that space. We think of ourselves as an inventive people — of necessity initially and then of inclination. We have also been early adopters of evolutionary ideas from elsewhere.

A national strategy of innovation logically will aim to keep that space open, both to innovation done here and adoption of innovation done abroad.

Evolution can’t be made to happen by fiat. But it can be stifled by fiat. At the whole-of-society level, governments are the originators of fiat. At the firm or not-for-profit level, boards and managements are the originators of fiat.

In this symposium we are principally concerned with the role of governments.

As the OECD points out, governments have a critical role in ensuring institutional settings — the law, tax and regulation — do not stifle innovation. That is both on the demand side, in ensuring well functioning markets that welcome and expect innovation, and on the supply side, in ensuring public goods and services such as education (from birth), infrastructure in its widest sense and support for research.

If governments are to do that well they need, in my view, a shift of mindset from spending hard-earned taxpayer dollars to investing national capital.

Spending hard-earned taxpayer dollars implies a zero-sum activity: each dollar spent by the government is a dollar that cannot be spent by the people, including firms. Those who think this way are risk-averse, which is the antithesis of the conditions in which innovation thrives.

Investing national capital implies the application of capital in the expectation of a return which builds that capital. That requires an attitude of risk, which is a necessary condition for innovation to thrive.

Over the past 20 years governments in this country have had a zero-sum mentality. So even public sector investment in research has been well below the OECD average. Governments’ calculation has been simple and have reflected a public zero-sum mindset: the votes bought by spending on health care for the aged and interest-free loans for students have been thought far more numerous than those that can be got by electorally invisible activities such as research. [Institutional settings also were not geared to encouraging private sector innovation.]

So in my simple calculus the issue in front of us today — and the “us” includes the minister and the Prime Minister — is how to switch the national and government mentality from spending-hard-earned-taxpayer-dollars to investing-national-capital.

The OECD Innovation Strategy has brought together a huge amount of material. It is an excellent and valuable resource which should be widely distributed. Having read it, I am now astonished that I was able to read one only because MoRST graciously lent me one of its small number of copies. It deserves wide distribution.

I now introduce the minister. I have watched with interest Wayne’s waxing enthusiasm for his portfolio and his prodding of the Prime Minister — he has bent my ear among others. With Wayne on one side and Sir Peter Gluckman on the other, the zero-sum mentality is no longer a credible option for the Prime Minister — and in any case, I detect some movement there, too.