Stimulating innovation by getting the Government out of the way

Paul Goldsmith is one of the National Government’s more fundamental neo-liberals.

He’s on the right of the caucus on economic matters.

He demonstrated that as Minister of Commerce last October when he refused to take advice from both the Commerce Commission and Treasury to regulate credit card fees saying the market could do it just as effectively.

“My basic instinct would be to say we expect competition to keep prices under control,” he said.

“And if you are in an area of rapid innovation and technological change you want to be pretty cautious about regulating in case you end up stifling innovation.”

Now, ironically, he has lost his Commerce portfolio and has become the Minister of Science and Innovation.

As such as he has a large bucket of money to hand out in various type of grants to the academic, scientific and business community supposedly to stimulate innovation.

At its heart, the whole system looks very much like picking winners- something that should surely be anathema to Goldsmith.

A classic example of how the system can go wrong came in 2015 when Callaghan Fund grants  of up to $15 million were made to a Warkworth company owned by Larry Ellison which was building components for his America’s Cup boat.

A year later — and after extensive publicity about the Oracle grant — Team New Zealand got up to  20 per cent of its  research and development spending funded by Callaghan. The actual amount was not revealed though it was considerably smaller than the Oracle grant.

At the time ETNZ CEO, Grant Dalton said the teams expenditure figure met  the minimum spend criteria of $300,000 per annum, but it certainly would not receive anywhere near the maximum allowable amount of the fund.

Goldsmith uses this example to argue that the Callaghan fund is not really about picking winners.

“It’s deliberately not about picking winners,” he argues.

“If you fit the criteria you get a 20% rebate on investment that you make.  

“So the company has to make its investment in research and development, so according to the rules of the game there is a 20% kick in from Callaghan.”

He says that these grants are not discretionary and he has been moving money away from discretionary grants to the non-discretionary ones.

“That’s so you are not in a position of picking winners.”
And he says grants are better than tax breaks because you know exactly what you are spending.

The whole concept of innovation though is an elusive one.

“I’m not one who thinks that all innovation has to be high tech.

“There are great innovators in the creative sector; look at what Lorde is doing.

“Our economy is much broader than just high tech.”

Perhaps typically Goldsmith believes that if the Government gets out of the way of business, then that can assist stimulate innovation.

“One school of thought is that the best thing you can do is get out of the way and let people get on with it.

“There’s an element of truth in that so the best innovations quite often come from individuals and companies making great gambles and so allowing things to happen is one of the most fundamental things.

“And the classic example of that in the last little while has been Rocket Lab.”

He argues that what the Government should be continually asking itself is what the barriers are that stop companies thriving and expanding.

“That takes you back in the direction of ongoing regulatory reform and that broader effort which asks what are the barriers generally to companies thriving.

“RMA reform and all those things that we are doing – and also around competition law reform.

”Competition is one of the great drivers of innovation, so competition policy is squarely in the mix.” But he says the “getting out of the way” side of things is only one aspect of innovation policy.

The Callaghan funding is important, but there are other aspects of the Government entity,  Callaghan Innovation.

“It’s partly about providing science itself with the Lower Hutt facility; it’s partly about the grants and partly about the connecting role they have which is trying to connect businesses with the science community in the broader sense of the world

“That’s an area where they need to make further progress.”

Goldsmith is also responsible for pure science funding both through the universities and through the contestable Endeavour Fund.

He says that he has three goals with that funding that align with the Government’s overall objectives — improve the quality of life in New Zealand; preserving and enhanching what is special about New Zealand then contributing to the world.

Thus science policy runs from the highly pragmatic like the Callaghan funding through to the abstract long term pure science carried out in the Universities.

Goldsmith also happens to be Minister of Tertiary Education which is currently being reviewed but he says he wants to see a period of stability around the Government’s relationship with the science sector.

Perhaps that’s one of the advantages of being a Minister who is sceptical about the Government’s ability to do things; it means you are more inclined to let the scientists and innovators get on with the job.