Why Universities Are Critical To Our Recovery

The effects of the financial crisis currently underway are being felt in many countries, including New Zealand. The exact course of this recessionary period is unknown; however, the expected gravity of the situation has not escaped our local business community and government officials. Already we are seeing a commitment to minimising the impact of this recession in the short-term and a sense of urgency in supporting workers facing job losses and reduced earnings.

At the same time, we should not lose sight of the medium to long-term outlook for the New Zealand economy. The traditional view of many economists is that recessionary times allow firms the opportunity to invest more into research and development, stimulating growth in the long-run. Viewed in this way, the current downturn need not be all bad news – it can offer an opportunity to refocus, to rebuild and to grow.

It appears many individuals have already come to this same conclusion. A modest upswing in demand is being reported by many tertiary institutions in New Zealand and other countries feeling the effects of the economic downturn, such as Australia, the United Kingdom and the United States. These new and returning students are looking ahead to brighter times, and building skills they believe are likely to bring significant benefits for themselves and employers in the future.

This sentiment is echoed in the ‘economic stimulus’ packages being introduced by countries around the world. While also designed to create employment in the short-term, a common strand to the measures being introduced in China, in the US and Europe, for example, is recognition of the critical need to stimulate growth in the long-term. For the leaders of these nations, a focus on the long-term means a vastly increased investment in research and development. The US stimulus package includes a staggering US$10 billion for basic and applied research, science facilities and infrastructure.

A similar connection between innovation, research and long-run growth is required in New Zealand. We need to focus on the future of New Zealand’s strong and emerging industries through investing in the basic and applied research that encourages ideas and improvement in the short-term, and ensures the advancement of knowledge for more prosperous times ahead.

Studies show that countries experiencing a large and rising share of growth, and hence living standards, over recent decades have achieved this significantly as a result of innovation. New Zealand’s science and innovation profile is already well ahead of the OECD average in a number of key areas, including scientific articles per million population, firms undertaking non-technological innovation, and patents with foreign co-inventors. We have an open economy, a flexible workforce and established product markets – all important foundations for advancing an innovative economy.

However, our national investment in research and development remains low by international standards at 1.16 per cent of GDP. This is approximately half the OECD average and places New Zealand in the bottom third of all OECD countries. Despite modest improvements in the last decade or so, we need a higher level of investment in research and development.

Each year about $1.8 billion is spent on research and development in New Zealand spanning a wide variety of areas including agriculture, forestry and fishing, health, infrastructure development, earth and the atmosphere, and industrial development. Approximately 37 per cent of this is undertaken by New Zealand’s eight universities, up from 28 per cent just over a decade ago. The remainder is undertaken by the business sector (37 per cent) and by the Crown Research Institutes (26 per cent).

International evidence over many years has shown the relationship between university education and research, and economic growth. A study released in Australia just last week confirmed that during times of reduced productivity, universities provide a significant boost to an economy, well in advance of the rates of return we have come to expect from other forms of government investment. Additional funding currently under contemplation by the Australian Government has been estimated by KPMG Econtech to deliver a 14 – 15 percent real rate of return.

And there is every reason to believe similar results could be achieved from greater investment in New Zealand’s universities. A 2006 study showed that per dollar invested, New Zealand universities produced more than twice as many new companies as the US average and over 50 per cent more than Canada. Over the last 20 years the commercialisation arms of the eight universities have grown to become a business worth $350 million a year. Auckland UniServices Limited, alone, has revenues of over $100 million per annum, and is now the largest organisation of its kind in Australasia.

The OECD has confirmed the importance of the basic untargeted research undertaken within universities, estimating that the spillover effects from public research have a 40 per cent greater impact on the entire economy than those resulting from private sector research.

Starting from a low base, we have no time to lose. As the rest of the world seeks to recover the fundamentals of a strong economy from the remains of the consumption fuelled and ultimately illusionary growth experienced over the past seven years or so, it is not the time for New Zealand to lose sight of the long-term goals for our country.

Clearly the time has come for New Zealand to rebuild its economy through investing in its fundamental knowledge institutions, the research universities.

Professor Stuart McCutcheon, Vice-Chancellor, The University of Auckland

Note: The KPMG Econtech report ‘Economic modelling of improved funding and reform arrangements for Australian universities’ was commissioned by Universities Australia, and released on 22 April 2009. The report is available at: http://www.universitiesaustralia.edu.au/