Thank you for this opportunity to speak to the Research and Innovation Forum.  I would also like to acknowledge Professor Jeannie Herbert.

The Prime Minister made a major speech last month on the Government's economic agenda.  He made reference to six policy drivers that are fundamental to boost New Zealand's economic performance and improve our standard of living.  Innovation is one of those drivers.

So, what does this have to do with your Summit?  Those of you who attended on Wednesday will have heard the Tertiary Education Minister, Hon Anne Tolley, talk about the Tertiary Education Strategy.

On the same day, I spoke about my key themes for Vote RS&T.  It will be no surprise to you to know that these are interlinked.  Innovation traverses the broad sweep of education, research, development and business assistance.  We are determined to encourage all sectors to work together towards building New Zealand's future.

Today I want to discuss the contribution higher education makes to research, science and technology, to innovation and thus to the Government's primary goal - lifting New Zealand's economic performance.  In particular I will focus on the importance of tertiary and higher education providers to our overall national research and development capacity.

I have three major points to make. These are:

• the importance of the independence and excellence in our tertiary institutions


• the role of PBRF in helping New Zealand build excellence and therefore contributing to economic growth


• the responsibilities of universities as major recipients of public funding through Vote RS&T.

Independence and excellence

Universities and other higher education institutions play a pivotal role in our knowledge system.  They link the education of our future workforce, the development of new ideas, and the absorption of those people and their ideas into our firms and society.

We are all aware of the role of universities in education.  They are there to teach, train and educate students.  Highly skilled, well-rounded knowledgeable people are the primary benefit to society from higher education.  Many students can go on to lengthy training in law, medicine, engineering and postgraduate studies.  Universities provide this vast education choice.

Universities also have a particular role as a critique and conscience of society.  We expect that the talented pool of academics and researchers will provide commentary on government, business, community and societal issues.  The reason is to ensure that people think critically about the issues facing our nation.

Universities are therefore actively involved in researching and reporting on policy developments from the Government.  We do not expect them to always agree with us.  This role stimulates the formulation of quality policy.

Excellence in research also gives scientists and academics higher profiles, so that their voices and critiques carry weight with society.  For instance, Professors Sir Paul Callaghan and Sir Peter Gluckman are two high-profile science researchers that I seek advice from in Vote RS&T.  

Sir Peter is, of course, the Chief Science Adviser to the Prime Minister.  He is a world leader in his field, and has a powerful voice that reaches beyond the research community.

The expectation of all tertiary institutions from this Government, and from society, is that they focus on excellence, no matter what the field. Focusing on excellence is the principal expectation we have of universities in their research output.

The role of PBRF

The Performance Based Research Fund is now $242 million.  The fund supports excellent research in tertiary institutions.  There is quite a lot of debate in the education sector about whether the PBRF effectively measures the full range of research output.

I should note that the PBRF does not purchase research, because it does not fund individual researchers, specific research projects, or specific research areas.  Instead, PBRF funding is bulk-funded to each institution to pay for the teaching of degree-level students and the supervision and training of postgraduate students.  In practice, most PBRF funding is allocated to the eight universities.

As you know, PBRF funding is allocated on the basis of the quality of the research of each provider, as assessed through three mechanisms

• a portfolio of each academic researcher's work is assessed periodically by peer review panels, with an award of a quality evaluation score;


• the volume of research degree completions by each institution


• the external research income earned by each institution.

Sixty percent of PBRF funding for each eligible institution is allocated according to the sum of quality evaluation scores, with significantly more funding attached to the highest level of assessed excellence.  The cost of research is also taken into account, with more funding attached to areas with a higher cost of research, such as engineering, applied biological sciences, veterinary and medical studies.

Twenty-five percent of the PBRF fund is allocated on the basis of completed research degrees (masters degrees and doctorates).  This is an indicator of both excellence and capability.

Fifteen percent of PBRF funding is allocated according to the level of external (i e non-TEC) research income earned by that provider.  External research income is a good indication of the value that the wider community place on the research generated.

The overall amount of the PBRF is set each year by government.  This year's Budget was set in the most challenging economic situation for at least two decades.  In spite of this, PBRF funding was increased by nearly $6 million.  It is an indication of the importance the Government places on research.

PBRF is one of the most significant investments that the Government makes in building our fundamental science capability.  It is the single largest fund across government for research - larger even than the $215 million in FoRST's Research for Industry Fund.

Because PBRF goes to institutions rather than researchers per se, we do not control what research is undertaken.  Nor do we want to.  But we do want to ensure that science with a commercialisation potential can migrate without penalising the PBRF indicators for the institution.

An independent strategic review of the PBRF was completed in June 2008.  This review was in general positive about the purpose and operation of PBRF.  It did however indicate areas for improvement.

For example, the report noted concerns that applied and field-based science, and science that was conducted over the longer term, might be penalised by PBRF.  It also sounded warnings that PBRF may not encourage collaboration.

The report was also mixed on the impact of PBRF on commercialisation.  One Department Head of Science was quoted as saying: "The incentives are for international publication.  Our Department has taken work right the way through to commercialisation but the PBRF gives no reward or recognition for this."

The report also noted a tension between the PBRF's focus on individuals and the need to have a healthy research environment.  Dr Jonathon Adams, the author of the review, was challenged by the Review Advisory Group to describe a "healthy research environment".  He characterised it (in part) as:

" . . . a track record of research achievement, collaboration and developing people who went on to make contributions elsewhere. It would have good links with both the public sector and relevant industry, contributing tangibly to innovation through IP, products and process. It would be able to produce clear statements about what is important in its track record and why its future strategy is valuable to discipline and the economy".

I agree with this description.  Fundamental science, and the flexibility and freedom to pursue scientific endeavour, are vital attributes in our tertiary system.  But the ability for science to flow through to the trading economy is equally vital.

The importance of serendipity is certainly recognised.  So much of the modern world stems from unexpected discovery.  But we should not rely on the hope that serendipity will occur.  We must make it easier for businesses to be exposed to the range of research, so that they can make serendipitous discoveries among the science being undertaken.

PBRF is certainly not broken.  But as we move towards the next quality evaluation we will be keen to ensure that it does not mitigate against the full value of scientific endeavour being released for the benefit of New Zealand.

Many researchers already know that the pathway to greater funding opportunities is to be able to involve other funders beyond the Government or institution in their science.  We need to remove roadblocks that prevent them taking these opportunities.

Vote RS&T and the role of universities

PBRF is one important source of research funding for universities.  Universities are also very substantial beneficiaries of funding through Vote RS&T.  This is seemingly not that well known amongst universities.  Last year, that amount totalled $216 million - just about as much as PBRF.

Where does this money come from?  Universities get about 86% of the Marsden Fund, and 92% of the Health Research Council funding.  Both of those funds were substantially increased this year - the Marsden Fund by $9 million and Health Research Council by $8 million.  This will mean an additional $16 million of research funding for universities.  The Centres of Research Excellence and social research funding also goes primarily to universities.

You also benefit from the business-facing investment through Vote RS&T.  Twenty-five million dollars or 34% of the New Economy Research Fund is spent with universities.  Another $24 million flows to you through the Research for Industry Fund.

Clearly tertiary institutions and universities in particular are a key component not only of our fundamental science capability, but also of our directed funding in Vote RS&T.

On Wednesday, I set out my key themes for the research, science and technology portfolio.  These are:

• enhancing the migration of science from the laboratory to the marketplace


• improving the way we strategically invest in the public-good science that underpins our economy


• directly boosting economic growth through more effective market driven research


• simplifying the entire system.

These themes are not solely my own.  They have come from discussions with scientists, users and other interest groups.  Over the past few months I have had over 50 meetings with groups and individuals.  I have visited every CRI, private research firms, the universities and a range of businesses from New Zealand's largest to emerging entrepreneurs.

Each one of these themes has implications for you as major recipients of funding and generators of research.  I have discussed science migration already.  It is useful with respect to fundamental research, but it is the sole purpose with respect to research funded through Vote RS&T.

We want to improve the ability to pull this science through to realise commercial opportunities.  Science and venture capital need to get closer together.  Pathways for technology transfer need to open up.

This needs to happen across all areas of research, from incremental improvement work which builds on existing ideas and technologies through to what is called disruptive technology, where breakthroughs lead to step changes.

Each university has developed new ways of directly connecting their research with the market.  The largest, UniServices, has been particularly successful in putting commercially focused resources alongside researchers.  Its revenue of $120 million is equal to that of the CRIs.

My second theme is more strategic funding for enabling science.  This approach recognises that in many areas we want to build our science capability on the core expertise we have.  The strong signal is that sharing and growing expertise is encouraged.  Long-term science needs long-term commitments.

On Wednesday I visited the MacDiarmid Institute.  This is hosted by Victoria University.  However, like all the CoREs, it has wider links with three other universities and two CRIs.  Since 2002 they have graduated 68 PhDs and 35 MScs.  That is over 100 highly-skilled people that the MacDiarmid Institute has added to national and global capability.

I have also visited the Riddet Centre at Massey.  The proximity of this centre to Fonterra, which is the largest investor in research and development next to the Government, makes good sense for everyone.

And of course I am no stranger to Professor Gluckman's Liggins Institute.  These and the other Centres of Research Excellence are good examples of collaboration for excellence between institutions.  We will focus on this collaborative approach, and fund it in a more strategic way.

These themes lead directly to the third theme of directly boosting economic growth through more effective market-driven research.  The priority here is to improve the transition from concept to reality.  

What we want to do is ensure that in the applied sciences progress towards the end goal is more sharply defined, and the pathway towards it is managed in a staged way.  Funding decisions will need to be made against real progress.

I realise that by its nature science investment in growth can have quite long time horizons.  This does not mean that it cannot be subject to time gates and ongoing support made conditional on progress.

I have directed FoRST to increase their focus on the economic return potential of the proposed investments.  Timely and accurate reporting on the benefits of the investment will form part of future assessments.

The final theme for Vote RS&T is to simplify the system.  This will make it easier to navigate for the users, whether they be scientists or businesses.  FoRST already has significant work under way to achieve this.

Greater clarity as to why we fund science and exactly where the money goes will also assist governments in making strategic choices in the future. By clearly identifying what strategic purpose funding actually supports, we can make value judgements about the relative importance of that funding.

The current funding picture is a maze of schemes, outputs, directions and portfolios.  We want a much more strategic approach.  The intent is twofold.  The first is to make it obvious to the applicant what funding stream is relevant to them, rather than hunting across a range of funds and potentially skewing their research because of the constraints of the system rather than in the best interests of the science.

The second is more important.  It will enable a much better sense of the priorities that the public should fund through Vote RS&T.  One of the big decisions we have to make is whether the current balance best reflects the overall government priorities. I will be seeking your input on these priorities.

Over the next few months, I will be working with stakeholders to develop these priorities.  I will be providing specific policy direction to Cabinet by the beginning of December this year, so that changes can be reflected in Budget 2010.  I invite you to be part of that feedback process through the Vice-Chancellors' Committee and other tertiary organisations.

New Zealand has a strong reputation in producing excellence in science.  We now need to substantially improve the connection of science with the market.  Excellence will be the guiding principle.

Sir Paul Callaghan set the key imperatives in "Wool to Weta", stating that:

"The crucial determinant of funding direction for economically focused tools should be the quality of the proposals, the science excellence, the potential for innovation and the entrepreneurial capabilities of the team."