R&D Grants- finally some public debate

Yesterday’s Twitter exchange on R&D Growth Grants started by Sam Morgan ultimately saw too much focus on the people involved, too little on the issues. Yet at a time when there is very little actual public policy debate in public spaces, especially involving decision makers in Government, it was a rare example of the usefulness of social media.

MSM coverage

Mainstream media focused almost exclusively on the facts of the exchange between Sam Morgan and Minister Joyce. Nothing about the issues or that it pulled in some great views from other interested people.

MSM completely missed the significance of open policy debate in public spaces. Perhaps a Minister engaging constructively on Twitter, even if it took a Sam Morgan to provoke a response, should have been a signal they picked up as something more than a Twitter spat.

Instead, Stuff described it as “Morgan’s Twitter rant against government business funding”. No wonder Sam Morgan has a policy of not engaging on Twitter. NZ Herald called it a “a cut-and-thrust social media exchange”.

More interesting were the 195 comments the Stuff article prompted. Broadly negative, the comments responded at the personal level of the article. But some comments raised serious policy questions about public acceptance of the need and role of government in giving grants to select businesses. Digging out such gems takes effort but they clearly contribute to the policy debate in the extended public space.

 The real issues

1. New Zealand has a persistent problem with low R&D investment spanning decades and multiple governments. At 1.27% of GDP, almost half the OECD average of 2.4%. Modern economic theory says long-term economic growth is critically dependent on the amount of R&D investment, so how are we going to tackle this fundamental problem?

2. Minister Joyce played down the R&D Growth Grants as tax rebates. Makes sense to look at grants in that way as it is a 20% government payment of R&D expenditure by a business. Should R&D Growth Grants be looked at as a targeted tax rebate? Should governments pick winners or provide a general tax rebate on qualifying R&D spend and let the market decide winners? As Sam Morgan pointed out, what about the impact of funding one company on its competitors?

3. Do R&D Grants lead to worthy projects being funded or those that would otherwise not be viable? There is unlikely to be one answer for all cases. Do such grants lead to new R&D investment or merely provide a rebate to projects that, if they were commercially viable, would have happened in any case? Does this imply that grants should focus on R&D that is not commercially viable but are still worthy?

For all the focus on the people involved, Twitter and online comments have shown that real policy debate can happen in the public space. We should welcome that. In recent times, there has been little policy debate at all with decision makers, and almost none genuinely engaging in the public space.

Update: NBR has done a good job in looking at some of the issues and asking Sam Morgan for a better solution. At least for now, it is behind the NBR paywall.



2 thoughts on “R&D Grants- finally some public debate

  1. I am CEO of a Wellington based tech company 3 years old and employing 24 staff. 98% of revenues are from exports and customers include UNICEF, Sony, RBS, Google, Safeway, UK Houses of Parliament and 500+ more. All our growth is bootstrapped into further growth and that growth curve is steep.

    With a modest grant from Callaghan Innovation ($180K) this year then we’ve been able to develop a second product that wouldn’t otherwise have been possible. We’re launching it next month and there’s some positive market signals that this will be highly successful like our flagship product.

    So in answer to Question 3. timing is everything. Yes we would have developed a second product in due course. But the Callaghan Innovation grant has brought that timing forward which greatly enhances our opportunities for growth. Certainly bank loans weren’t an option and VC isn’t an avenue we’d have selected because of all the strings attached plus there’s an overhead in finding the right match.

    While I think it’s inherently hard to pick winners I think the downside risk to NZ Inc. is low with the level of grant we received. The upside is very good and wouldn’t have happened otherwise. It’s far from being corporate welfare – the grant amounted to approx. 3% of revenues and entirely allocated to new R&D. The payback will come from new staff income tax alone.

    Sam Morgan’s comment about not being profitable isn’t the point. Tech companies at different stages of their growth curve can be either not profitable or wildly so – look at Amazon, Xero and the like. Xero is adding hugely to NZ Inc.

    • Thanks Richard for sharing this.

      We need more stories like this and hard data on benefits so that the public discussion is better informed. Right now the comments I see are generally suspicious of government handouts and limiting grants to a favoured few.

      For every success story, there are likely to be some that aren’t. Good data will really help as otherwise all we get are opinions rather than constructive, shared understanding of the best way to tackle NZ’s abysmal record of R&D investment.

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