6. Application to New Zealand

6.1 Comparison of Contexts
6.2 Comparison of Policies
6.3 Applicability

Having analysed Singapore's growth and innovation policies and implementation, we now turn to consider whether or not any of those policies might be worth considering further for application in New Zealand.

6.1 Comparison of Contexts

We first compare and contrast the contexts for growth and innovation policies between the two countries. Similarities and differences between New Zealand and Singapore will have important implications for the applicability of Singapore's policies to New Zealand.

Table 26: Comparison of Contexts
	New Zealand	Singapore
Geography and resources	Extremely remote, with small and sparse population; agriculture, forestry, fishing, some minerals.	Along strategic air and maritime routes; close proximity to enormous populations and markets; densely populated city-state, although small population; no natural resources - imports even water.
Ethnic, cultural and social base	Ethnically heterogeneous with Pakeha majority; economic inequality across ethnic groups; Treaty of Waitangi as founding document.	Ethically heterogeneous with Chinese majority; diversity of cultures, religions; economic inequality across ethnic groups; Confucian ethics and collectivist culture.
Political and legal institutions	Westminster-style democracy; British common-law framework; "clean" and transparent public service; local legislation; recognition of property rights; compared to Singapore, relatively frequent political changes and resulting economic policy changes.	Westminster-style democracy; British common-law framework; "clean" but not so transparent public service; local legislation; recognition of property rights; strong governing party (continuously in power since 1959).
Economy and economic philosophy	Small and moderately rich economy, although with declining relative living standards since the 1970s to 1990; maintaining position since then; limited market system, although the degree of government intervention varies over time; relatively low savings rate; open economy.	Relatively undeveloped economy in the 1960s, but has very quickly grown into rich (but small) economy; hybrid economic model - market system subject to selective government intervention; open economy; high savings rate; persistent public sector surplus.

From this analysis, the key differences that emerge are:

New Zealand's significant geographical disadvantage;
Possibly a more individualistic culture in New Zealand;
Relative political and economic policy volatility in New Zealand; and
Lower savings rate and more volatility in budget balance in New Zealand.

6.2 Comparison of Policies

In this section, we place the Singapore growth and innovation policies described in Section 4 into the GIF framework, and map those policies to equivalent policies in New Zealand, if they exist. The result is the identification of a set of Singaporean policies in respect of which either:

New Zealand has no equivalent; or
New Zealand's equivalent is materially narrower in scope or shallower in depth.

Table 27: Comparison of Policies
Growth and Innovation Framework	Singapore Policies	New Zealand Equivalent?
Enhancing the Innovation Framework	Subsidisation of processes to transfer FDI technology to local firms.	No.
	Publicly financed venture capital (co-investment) funds.	Yes - Venture Investment Fund.
	Investment encouragement in approved start-ups via tax incentives (e.g., capital loss deductibility).	No.
	R&D tax incentives and other forms of assistance.	Yes - funding of grants to support private sector R&D (recently enacted).
	Overseas investment (by local firms) tax incentive (loss deductibility).	No.
	Publicly financed research councils and institutes.	Yes, e.g., the CRIs, the Marsden Fund and the NERF.
	Publicly funded secondment of research scientists and engineers from research institutes to local firms.	No, although interaction occurs at a more informal level.
	Advice to SMEs (either direct or subsidisation of consultants)	Yes, e.g., BizInfo, BizTraining.
	Loans to SMEs	No.
	Facilitation of clusters	Yes, e.g., Hobsonville.
Developing Skills and Talent	Subsidisation of training schemes for employees (for a wide variety of purposes, e.g., primary or secondary maths and English; skills redevelopment; ICT)	Yes - Modern Apprenticeships scheme, and other industry training initiatives. Although query whether scope is as wide.
	University partnerships with selected international institutions	Yes, to some extent.
	Regulation of tertiary-level enrolments to line up with demand-side predictions; bias towards science and engineering	Query whether the Tertiary Education Commission is heading in this direction? Also signalled by existing cross-subsidisation.
	Immigration policy is focussed on workers with relevant skill sets, as opposed to family unification.	Yes - immigration policy is becoming more focussed on people with relevant skill sets.
	Scholarships for foreign university students. All foreign students qualify for loans to cover their tuition and living expenses.	No, unless permanent resident.
Increasing Global Connectedness	Foreign direct investment encouraged by tax incentives and "one-stop shop" investment facilitation.	Not generally - New Zealand's FDI regime has been passive to date. However, there are examples of more active incentives, e.g., in respect of Ericsson Synergy and the film industry.
	Singapore International Foundation: Supports relief and volunteer work Supports overseas networks of Singaporeans	Yes - foreign aid programmes; Kiwi Clubhouse network; WCNZ Networks; KEA; GNOK.
	Contact Singapore: General overseas marketing and promotion of opportunities in Singapore Recruitment and promotion services through overseas offices	MORST employs country coordinators in certain countries; Jobs New Zealand website; New Zealand Trade & Enterprise.
	International advisory panels for government and agencies	No.
Focussing Government Resources	Biomedical sciences: Research institutes Venture funding	Yes, e.g., the CRIs, the Marsden Fund and the NERF, and the VIF.
	ICT: Incentives to adopt	No.
	Publicly financed broadband infrastructure	Not to same scope - more of a regional and educational strategy (Project PROBE).
	Subsidisation of ICT innovation	No.
	Subsidisation of processes to transfer FDI technology to local firms	No.
	Research institute	Yes, e.g., the CRIs, the Marsden Fund and the NERF.

6.3 Applicability

In this section, we briefly address the potential applicability to New Zealand of the set of policies identified in Section 6.2. In particular, we provide our brief views on the costs and benefits of each of these policies, and on whether or not it is worth considering each of these policies further. We stress that our views are tentative only, and that a more detailed analysis would be required prior to a recommendation on whether to implement one or more of the policies in New Zealand.

Table 28: Application to New Zealand
Policy	Benefits	Costs	Worth considering further?
Subsidisation of processes to transfer FDI technology to local firms	A key benefit of FDI is the associated technology spillovers. However, it is difficult to see why the beneficiaries of these spillovers (local firms) don't have the incentives to appropriate the benefits.	Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	No. However, it would be worth considering whether competition policy could be more permissive of coordination between firms.
Investment encouragement in approved start-ups via tax incentives	May overcome under-investment consequent upon capital market imperfections May provide positive signalling effect	Risks of lobbying and capture In general, government employees are likely to have less experience, poorer information and poorer incentives than private investors May crowd out private investment Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	No. While there are conceptual justifications for subsidisation of start-ups, the evidence on the success of governments in "picking winners" is at best mixed, and arguably very negative.
Overseas investment (by local firms) tax incentive	Difficult to see any misalignment between private and social investment incentives.	Over-investment overseas, potentially at expense of domestic investment. Risks of lobbying and capture In general, government employees are likely to have less experience, poorer information and poorer incentives than private investors Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	No.
Publicly funded secondment of research scientists and engineers from research institutes to local firms	Conceptually, firms may under invest in this human capital, because of the externalities. May improve transfer of scientific know-how as well as tacit knowledge, and so, improve absorption of new technology among businesses. Low cost and low risk.	Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes. The literature is very supportive of government assistance for R&D. While this particular policy does involve a public agency making a decision about where to invest the resource (as opposed to, e.g., a generic tax incentive), presumably the risks can be managed contractually with the recipient firm. Lobbying and capture risks are probably mitigated by the fact that the ultimate decision must be a voluntary one by the scientist; presumably she wouldn't accept the role if she didn't believe in the science.
Loans to SMEs	May overcome under-investment consequent upon capital market imperfections	Risks of lobbying and capture (as presumably loans would be at subsidised rates, vis a vis the rate available from private banks) In general, government employees are likely to have less experience, poorer information and poorer incentives than private bankers As public sector cannot be better than banks at eliciting private information from borrowers, the government would take on risks that the private sector is not willing to do May crowd out private investment	No. While Singapore mitigates some of the risks by running its schemes through private banks, this is likely to introduce a moral hazard problem.
Advice to SMEs (whether directly provided by government agencies or via subsidisation of consultancies)	Rationale is probably a mixture of capital market imperfections making it costly to raise finance for the investment in advice, and/or the externalities associated with education.	Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes. A relatively low cost, low risk intervention.
Facilitation of clusters	The literature suggests that clusters enhance innovation. However, there is no apparent divergence between private and social returns. In other words, private firms have the appropriate incentives to form clusters anyway. Government policy should be aimed at removing impediments to the formation of clusters.	Risks of lobbying and capture In general, government employees are likely to have less experience, poorer information and poorer incentives than private investors May crowd out private investment Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes, but limited to removing impediments to the formation of clusters, e.g., regulation and competition law that makes coordination difficult. But to avoid "picking winners," the removal of impediments should be generic and not ad hoc.
Subsidisation of training schemes for employees	Because the firm does not own human capital, the firm is not able to fully appropriate the benefits of its investment. Accordingly, from society's perspective there will be under investment, potentially justifying government subsidisation.	Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes. While New Zealand does have some training schemes, the Singaporean schemes appear to be broader in scope. However, consideration should be given to the inverted-U shaped relationship between education and economic growth found by Krueger and Lindahl; the payoffs in New Zealand may not be as large as in Singapore.
Foreign direct investment encouraged by tax incentives and "one-stop" shop investment facilitation	Conceptually, FDI has significant benefits, although the empirical literature is more ambiguous. Because one of the conceptual benefits is technology spillover, then we might expect there to be under-investment from a social perspective, potentially justifying government encouragement.	Risks of lobbying and capture In general, government employees are likely to have less experience, poorer information and poorer incentives. May crowd out private investment. Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes. At a minimum, appropriate policies would include those aimed at reducing the information asymmetries faced by prospective foreign investors and any policy uncertainty. We emphasise the importance of policy certainty, particularly in respect of economic regulation.
International advisory panels comprising business, academic, and institutional leaders.	Update on current strategic thinking and policy; network for promotion of NZ business and research.	Efficiency costs of taxation, and/or opportunity costs of alternatives uses of that tax money. Administrative costs.	Yes. A very low-cost move with large potential returns.
Incentives to adopt ICT	Lower prices through subsidies bring forward the point at which consumers substitute from one technology to another.	There is no justification for a policy to encourage investment in assets such as ICT that do not exhibit spillover effects. Private and social incentives are aligned. Furthermore, any such policy would lead to resource allocation distortions and "picking winner" problems, i.e.: Risks of lobbying and capture. In general, government employees are likely to have less experience, poorer information and poorer incentives. May crowd out private investment.	No. Furthermore, we note that New Zealand appears to be performing comparatively well on ICT uptake (see Table 21).
Publicly financed broadband infrastructure	There may be externalities associated with broadband infrastructure.	May crowd out private investment. At least in urban areas in New Zealand, the private sector is rolling out broadband. Risks unduly early inefficient over-investment in infrastructures if deployed too far in advance of the availability of applications¹⁰² May encourage inefficient over-investment in idle or under-utilised consumer equipment required to connect.	No, at least not in urban areas where private investment incentives appear to exist. Also relies on governments "picking technology winners" in advance of applications being developed which will determine the type, extent and location of infrastructure needed. No evidence that infrastructure availability per se encourages application development, although it may encourage the commercial deployment of an application once it has been developed.
Subsidisation of ICT innovation	Because of externalities, there is likely to be under-investment in innovation from society's perspective.	Subsidy may be used as a substitute source of finance rather than as a stimulating force for innovation. May also result in the "picking winners" problem, i.e.: Risks of lobbying and capture In general, government employees are likely to have less experience, poorer information and poorer incentives May crowd out private investment	Yes. The literature is very supportive of government assistance for R&D. To mitigate the "picking winners" problem and the finance substitution problem, a generic tax cut may be more appropriate (although defining what is meant by "ICT innovation" will be difficult and may engender game-playing). Treatment of ICT innovation should probably be generic with other R&D activity; there is nothing particularly special about ICT.

¹⁰²For example, countries like Sweden have vast quantities of under-utilised infrastructures for which there is no obvious use and no current horizon on when the sunk investment will be recouped. Shim, Yongwoon; Heejin Lee and Kyunglim Yun. 2003. The Growth of Broadband Internet in Sweden: Contributing Factors. Paper presented at the Asia-Australasia Regional Conference of the International Telecommunications Society, Perth Western Australia, June 22-24, 2003.

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