R&D funding doesn’t always equal innovation – Expert reaction

Does throwing more money into business R&D always create innovative new products and services? New research suggests the picture is more complex.

lightbulbTwo separate papers, launched this week by economic and public policy institute Motu and the New Zealand Productivity Commission, examine the links between research and development (R&D) spending and the creation of new products and services, using data from Statistics New Zealand’s Longitudinal Business Database.

The first paper, “The impact of R&D subsidy on innovation: A study of New Zealand Firms,” found that receiving a government R&D grant almost doubles the probability that a business will introduce a major innovation, defined as a new product or service.

The second paper, “Measuring the innovative activity of New Zealand firms,”  focused on innovation at the level of the firm. The authors found that despite more total money being spent on R&D, fewer business were introducing new products and services.

The SMC collected the following expert commentary.

Shaun Hendy, Director of Te Punaha Matatini and Professor of Physics at the University of Auckland, comments:

“When Steven Joyce and Sam Morgan duked it out on Twitter last year over whether taxpayers get their money’s worth from R&D grants to businesses, there was surprisingly little evidence available to call it either way. Now, Adam Jaffe and Trinh Le at Motu Economic and Public Policy Research have found evidence that the New Zealand government’s R&D grant schemes do, in fact, boost innovation. This is important because any government scheme that can boost innovation by business (in this case, by leading to new products or services) can generate spillovers that benefit the entire economy. This round goes to Joyce on points.

However, a second paper by Le, co-authored with Simon Wakeman from the Productivity Commission, suggests that Joyce may need more than 140 characters for his next bout. The Minister has set himself the goal of lifting business R&D spending from just over 0.5% of GDP (around one third of the OECD average) to 1% by 2018. Yet Le and Wakeman show that business R&D spending is not always a good proxy for innovation, finding that many innovations do not stem from investments in traditional R&D. Policies that focus solely on R&D spending may actually miss opportunities for economic growth.”

Professor John Raine, Pro Vice Chancellor of Research and Innovation, AUT University, comments:

“Over 27 years working in the area of technology commercialisation, I have observed that R&D grants can indeed increase the probability that a business will launch a new product or service.

“There is always room to improve the way in which such grants are allocated and that the due diligence on the product or service opportunity is robust and carried out early.  Even with strong due diligence there will always be a significant percentage of prospects that don’t pay off. The trick is constantly improving the quality of the pre-funding processes with input from technology sector experts and the investment community to maximise the chances of downstream success.”