During recent weeks, I have been in Europe and Israel at a number of engagements related to understanding how the world’s small advanced counties are developing and using their science and innovation systems. Several consistent themes emerge, and these are the topic of this posting.

One of the most interesting conversations was with Saul Singer, one of the authors of Start-Up Nation – this book documents and explains Israel’s rapid emergence as the crucible of start-up activity. We had an interesting discussion in a Jerusalem hotel about how countries look at themselves. As he said so pithily, “Finland has start-up envy; Israel has Nokia-envy.”

The point is that every country must have its own path to innovation and must build on what they are excellent at. Yet it is paradoxical that nations seem good at taking for granted what they are good at and dismissing it, rather than using such advantage to build upon and create excellence.

We discussed why it was that small countries such as Singapore, Israel and the Nordics have emerged as innovation hubs and have found advantage in smallness. For example, it is recognised that smallness can well drive a culture of doing more with less (although there is a limit to that concept), and that while it often might be overlooked, technology transfer tends to be more efficient in small countries.

Furthermore, smallness forces small countries (and companies) to focus on thinking globally. This is straightforward – they fail if they do not. The major role of government has to be as a catalyst rather than a manager. As part of this, he saw the role of attracting multinationals to undertake R&D in Israel as one of the keys to creating such supportive ecosystems.

In Copenhagen I was invited to join a meeting of the Chairs of the European Science and Innovation Councils. In Europe, these Councils tend to take on many of the roles that lie with the Offices of the Chief Scientist in Anglophone countries. They take on leadership in providing advice on the strategic shape of the science and innovation systems; in most cases they do not administer the funding or science systems.

The focus of the meeting was on the role of science and innovation in economic growth and on the assessment of the return on public investment in R&D. There were important presentations by Danish and Finnish economists who were working with their Research Councils.

Professor Hougaard Jensen of the Copenhagen Business School presented an extensive analysis. He pointed out that productivity growth can occur by both imitation (i.e. by knowledge absorption) and/or by frontier innovation. But as countries get closer to the global knowledge frontiers, the latter has the greater impact on growth. While knowledge transfer and absorption promotes growth in low GDP countries, in high income countries it is no longer enough to have high absorptive capacity. To be competitive there must also be high levels of frontier innovation (even in a small country). He pointed out that this requirement calls for greater focus on the tertiary sector.

In the reports that I heard, it was clear that fundamental changes are going on across Europe in the reshaping of the university sector. Such developments reflect a focus on better integration across the sectors, organisational rationalisation, more definition of institutional roles and more definition of expectations (i.e. not all universities can realistically aspire to be world class but some must – the challenge is how to align expectations). With such considerations, there is thinking on how to achieve high impact outcomes from the leading institutions.

Both Professor Jensen’s presentation and those of the President of the Academy of Finland, Professor Mannila, and Professor Christensen, Chair of the Danish Council for Research Policy, considered how to assess the ‘return’ on investment from public R&D.

Several points emerged. The linear model of a relationship between investment in an individual research project and private sector-developed innovation is now rejected in favour of a much more holistic approach. (For a more blunt description of the dangers of linking expectations to a single project, I recommend Mark Henderson’s book The Geek Manifesto: Why Science Matters). It is generally accepted that assessing the return on R&D is a complicated process with a long lag time that makes linear models rather meaningless, even though they are still favoured in some treasury departments.

Hougaard Jensen’s conclusion was that while it is difficult to measure the direct effects of public R&D spend on economic growth, there is a consensus about its importance and ability to generate growth. Annual returns are likely to be in the order of 20–40%. There is also growing evidence that public investment does not crowd out private investment but fosters it. The economic returns are greatest in the life sciences and technical areas, but it is social science and humanities research that has a greater impact on political processes.

While many countries have tried to look at this issue of impact and the broader issues of social and policy return as well as direct economic return, the reality of the various presentations I heard is that quantitative assessments are difficult, artificial and misleading. That does not mean that just because we cannot measure it well we should ignore it – “not everything we can measure is important and not everything that is important can be measured” (a quote sometimes attributed to Einstein).

It was interesting to note that the Europeans are now also working towards a broader classification of research impacts somewhat similar to the taxonomy of science I have been working on. In assessing the return on research, one needs to look at its environmental, social and policy returns as well as those of direct economic impact.

The Europeans are very clear, however, that while relevance and impact will be core to research prioritisation, there is a need to sustain a high corpus of research for ideas generation (the concepts of basic and applied research have increasingly been seen to present semantic difficulties). Such research is indeed the primary role of universities in a science and innovation ecosystem; businesses have the role of filtering and then translating such ideas into products.

In a discussion very similar to those I had in Israel, it again emerged that incentives have to be in the right place across the discovery-exploitation interface. Clarity as to roles is needed, and some models of technology transfer do that better than others.

It was also pointed out that large companies do not come to universities primarily for their intellectual property, but increasingly for collaboration. Incidentally, this is creating some challenges in some parts of academia as this new model emerges – for example, it will change the publication cycle and create attitudinal challenges in career assessments for promotions and appointments. I am grateful to Professor Mannila for the quote that heads this piece: “Science is the greatest innovation of all time” – how true!

I cannot finish this posting without noting how the last fortnight has been good for New Zealand science. More progress in the budget announcements, a satisfactory outcome on siting the Square Kilometer Array, and the announcement of the establishment of a Social Policy Evaluation and Research Unit. And the KEA World Class New Zealanders Awards gave their supreme award to Paul Callaghan – it was a highly charged moment to see Paul acknowledging the award by a video made from his hospital bed and reinforcing his belief that science has so much to offer New Zealand’s future. This week sees the Transit of Venus dialogue that Paul initiated to explore how science can best advance our economy, society and environment. It will be an important and, I hope, landmark dialogue and an exciting week.