How can we make Australia’s national system of innovation more efficient? The National Reform Summit, sponsored by KPMG, Australian Financial Review and KPMG, addressed this key question. Public policy has not been able to find the answer.
This question has been address in at least 60 reports over the last 15 years by the current Senate innovation system inquiry. This is a lot of reports with limited returns in terms of overall system coherence and innovation’s contribution to productivity and international competitiveness.
Although there are many examples of great success, these reports show a wider failure in policy setting and firm-level innovation capability. This is a list that’s all too familiar: failure to convert public research into commercial results, to generate higher levels business R&D, adapt and diffuse new technologies, and participate effectively in global value chain.
This is not just about public funding. According to the 2015-16 Budget tables, $9.7 billion will be provided by Australia for science, research, and innovation. It is deeper than that. The problem is deeper.
Commonwealth Innovation Funding Summit
The Commonwealth innovation funding is an aggregate of 120 line items of expenditure spread across 13 portfolios. More than half of the funding is dedicated to universities, medical research institutes, and public research agencies. Another 30% is allocated to businesses through R&D tax initiatives. However, there is not much funding available to support research collaboration between universities and businesses.
The Cooperative Research Centres program (CRC), for example, makes up 1.5% of total support to science, research, and innovation. Meanwhile, the Entrepreneurs’ Program, which recently restructure, accounts for 0.4%. Innovation Vouchers and other state-sponsor initiatives are also limit. It is not surprising that Australia ranks at the bottom in OECD rankings for collaboration in business-research.
The majority of Commonwealth funding for research and innovation, aside from R&D tax measures is directed at health, agriculture, and university funding programs. These schemes account for more than 30% of total funding. Environment accounts for the remainder. Manufacturing accounts for less than 6% and ICT is responsible for less than 4% of the funding. This is due to the low level business investment in university research, which is becoming more dependent on student fees income.
State And Territory Governments
This picture is similar for State and Territory governments but on a smaller scale. ABS estimates that these governments spent $1.28 billion on research in 2012-13. Nearly 35% of this was for health, and 40% for agriculture. We have less than 1% allocated to ICT and manufacturing. This is a poor preparation for a boom economy after mining.
The Productivity Commission was keen to draw attention to manufacturing subsidies, but not the relatively insignificant summit research expenditures in this area that could transform prospects through smart specialty in global markets. These expenditures are dwarf in part by tax concessions and subsidies for mining, insurance, and superannuation.
The science push and linear flow models for translating research into business applications have had some notable commercial successes in the biomedical and health sector. Examples include ResMed and Gardasil, Gardasil, Sirtex and Universal Biosensors. Mesoblast is another prominent example. However, the model can’t be extend to other areas where research adoption and application are more collaborative and interactive.
Supply-Side Of Research Summit
While the supply-side of research, especially publicly funded research will remain important for the development of a knowledge economy, it is essential that policy also focus on the demand side. This includes the absorptive capability of firms to be able access and invest in fundamental research. This will require a new approach for collaboration and long-term engagement in innovation ecosystems.
Collaboration is critical in exploring opportunities for the development and application of key enabling technologies, including nanotechnology, micro/nanoelectronics, semiconductors, advanced materials, photonics, analytics, artificial intelligence and design. Collaboration is key to achieving competitive advantage in global settings.