Innovation - Knowledge Economy

Australia's innovation and future knowledge economy is underpinned by the country's science base – which despite its relatively small population (20.6 Million 2007), just 0.32% of the world population it is responsible for some 3% of the world’s research papers and is well represented with Nobel Prize winners (10).

It has four science Academies who coordinate activities through the National Academies Forum (formed in 1995). The Australian Academy of Science (modeled on London’s Royal Society) was founded in 1954.

Unlike the Royal Society it is not a major grants body but does offer awards for scientific excellence and receives government funding.

The three other learned academies of Australia are the Academy of the Social Sciences in Australia, the Australian Academy of the Humanities, and the Australian Academy of Technological Sciences and Engineering. Australia has a long history of government supported research – most ably demonstrated by the dominant role of the government’s Commonwealth Scientific and Industrial Research Organization CSIRO (founded as the Advisory Council of Science and Industry in 1926).

This large government research organization has 6600 researchers in 50 sites across Australia and research centers overseas (France and Mexico). Its investment (mainly in kind) into Australian pure and applied research is close to $1 billion p.a.

This is achieved in various different ways – by participation in the CRC program (See below), CSIRO’s own National Research Flagship Program, the Science and Industry Endowment Fund , and its Australian Growth Partnership Program AGP.

CSIRO is also proactive in collaborations and partnering with SMEs through its SME Engagement Center SME-EC, and its long standing research partnerships with larger organizations like Boeing, e.g. advanced and composite materials, the Queensland government (formation of the Australian e-Health Research Center), and with the Chinese government (Australian-Chinese Wireless Technologies Research Center), etc.

Most significant, is the CSIRO’s Flagship Program which receives considerable funding from the Federal Government and is targeted at large scale research aimed at solving critical national issues and reinforces CSIRO’s well practiced charter for investing for impact. Australia has numerous longstanding programs (typically supply-side ) to foster innovation, research and development dating back to the 80’s. During the 90’s the government increased its efforts to bring the public and private sectors together.

For example, one of its largest of these programs is the Cooperative Research Program CRC (of which the CSIRO is the most frequent participant – 49 out of the current 69 CRC projects) introduced during the Hawke Administration (Labor-Socialist) in 1990.

The program was the brainchild of the then Chief Scientist – Professor Ralph Slayter and its objective, at the time, was primarily to encourage collaboration in research between the public and private sectors and address the need to develop large concentrations of world-class research in order to tackle many of the ‘bigger issues’ facing the nation’s future development, e.g. developing new high tech. industries. Since then it has drifted towards commercialization, but not always in an effective way .

Other significant research and collaboration funding programs of significance are the ARC linkage program which funds discovery, university research links to the private sector, and various centers; the NHMRC Partnership for better Health Program, DEWHA’s Commonwealth Environmental Research Fund Program CERF, and the National Collaboration Research Infrastructure Scheme, etc.

Despite this Australia’s National Innovation System NIS has languished. With the more conservative administration of John Howard (Liberal) 1996-2007, Laissez faire policy dictated less intervention and hence reduced government investment in the marketplace, sector research and development and in industry in general.

During this time government spending on science and innovation fell by 22% as a share of GDP and business spending on research collapsed during the late 90’s and the number of firms introducing innovations has been consistently stuck at 1 in 3.

During this time Australia failed to keep pace with the rest of the world, slipping from 5th to 18th in the WEF’s Global Competitiveness Index.

Although productivity grew by 1.4% p.a. on average between the early 80’s and the mid 90’s, growth only averaged 0.9% p.a. since then, with productivity further declining since 2003-04. Similarly, Australia’s commitment to education (the fuel for innovation, scientific and engineering advancement) for so long higher than the OECD average fell away too, such that in 2003, it fell to just 4.7% GDP - below the OECD average of 5%.

The OECD program for student assessment – PISA, shows the proficiency of Australian 15 yr. olds had dropped from Australia from 3rd and 5th in 2000 to 9th and 9th in reading and mathematics respectively by 2006.

This was accompanied by a decline in the students’ interest in science – dropping Australia to 24th amongst the 30 OECD countries surveyed.

The new Rudd Administration (Labor) came into office in late 2007 with a policy manifesto based on addressing market failure, and an awareness that innovation was critical to lifting per capita incomes and community living standards (once one of the highest in the world), and a view that urgent action was required to boost Australia’s innovation capacity and performance.

Since the labor administrations of Hawke (1983-1991) and Keating (1991-1996), Labors economic telescope has long been focused on Asia rather than the US or its traditional European markets.

In this respect, Australia was falling far behind its Asian neighbors – China’s R&D spend was growing at 22% p.a. since 1996, compared with just 8% p.a. in Australia.

Australia was spending just 2% of GDP on R&D, compared with Korea at over 4%, Japan at 3%, and Taiwan at 2.5%. In addition, most European countries including Russia (doubling investment in a decade), Scandinavia, and the USA were all spending more than 2.5% of GDP; with the Obama administration pledging to double its investment in R&D.

Faced with the urgent need to catch-up, the Rudd administration embarked on a series of reviews during their first year in office (2008), coupled with increasing Australia’s science and innovation budget by 5% from AU$ 6.56 billion (2007/8) to AU$ 6.88 billion (2008/9) followed by a 25% increase in 2009/10 to AU$ 8.58 billion.

Commissioned just one month into the administration and completed in August of 2008 the comprehensive review of the National Innovation System NIS was published entitled ‘Venturous Australia: Building Strength in Innovation’ .

Significantly, the report called for a ‘renewal, refurbishment, recasting and re-imagining’ of the NIS in Australia. Citing the fact that it had been in place without major refinement for a number of decades – in other words the NIS was in urgent need of updating and various programs have drifted away from some of their earlier ideals, e.g. that public sector research being treated as a public good, and had become increasingly bureaucratic, unwieldy and misaligned with often conflicting programs.

Surprisingly, the report concluded that too much emphasis had been placed on commercialization to the detriment of both the pure and applied research as well as the participants – particularly the private sector participants .

Drawing on the above report and earlier sector specific reviews of the Australian Textile, Clothing and Footwear; Automotive; and Pharmaceutical industries as well as the reviews of Australian Higher Education and the Cooperative Research Centers Program; the government published its policy framework document –Innovation: Powering Ideas in 2009 – reestablishing a far more proactive government stance in all aspects of the national innovation system.

The Innovation: Powering Ideas report sets a number of priority outcomes that compliment national research objectives:

Priority 1: Public research funding supports high-quality research that addresses national challenges and opens up new opportunities.

Priority 2: Australia has a strong base of skilled researchers to support the national research effort in both the public and private sectors.

Priority 3: The innovation system fosters industries of the future, securing value from the commercialization of Australian research and development.

Priority 4: More effective dissemination of new technologies, processes, and ideas increases innovation across the economy, with a particular focus on small and medium-sized enterprises, i.e. knowledge transfer.

Priority 5: The innovation system encourages a culture of collaboration within the research sector and between researchers and industry.

Priority 6: Australian researchers and businesses are involved in more international collaborations on research and development.

Priority 7: The public and community sectors work with others in the innovation system to improve policy development and service delivery.

The action framework to meet these priority outcomes focuses on the following seven (7) key areas:

The key player in implementing and coordinating the new program is the Department of Innovation, Industry, Science and Research DIISR – who manage, oversee or are heavily engaged with the entire portfolio of government initiatives including the enhanced governance proposed for the office of the Chief Scientist CCST (now renamed the Coordinating Committee for Innovation).

The terms of reference for this cross-jurisdictional and multi-agency committee will act as an information sharing forum for Australian Government innovation activities and for co-ordination of cross portfolio advice on innovation matters. The Coordination Committee will:

Such has been the drifting and often conflicting objectives, commercial hunger of many Australian research organizations, the plethora of programs and creeping bureaucracy over the last decade that private sector collaboration and partnership was at an all time low – with just 3% of Australian firms collaborating with Government and only 2% collaborating with Universities on research and development.

The Australian government now seeks to raise the level of collaboration significantly, particularly in engaging innovative SMEs.

In addition, many of the recent research collaborations have been undertaken through an intermediary – typically representing a particular industry sector, e.g. pharmaceuticals, automotive industry, etc. The government is keen to establish more direct contacts with industry and to maintain and sustain concentrations of research for the future.

To help achieve this ‘direct connection’ the Federal Government introduced the Enterprise Connect Program in May 2008, with a budget of $50m p.a. The program has established some 12 centers across the country to foster such collaborations.

These centers are of three types:

Despite what has been said in this section regarding the interface between the Federal government and the State governments – the rhetoric of the knowledge economy is accepted across the States – and is being interpreted at that level. In some cases the sophistication of the research backing at State level is more advanced than that at Federal level and each State has its own innovation strategy.

The NSW government has in common with a number of other States commissioned the Australian Innovation Research Council AIRC to guide its innovation measures, led by Professor Jonathan West.

The AIRC is based at Tasmania University is a primary adviser to the Tasmanian government and also advises the Federal Government. The AIRC, presents powerful new arguments, sometimes controversial, but enlightened and based on a somewhat different perspective of innovation related productivity and condemns the notion that the creation of an innovatively-effective economy simply reduces to the sponsorship of ICT, Bio-technology or nanotechnology or to companies that can show a high R&D/Sales ratio, i.e. so called high tech. companies – this is in marked contrast to its neighbor State Victoria (See below).

In its advice to the NSW government , the AIRC criticized government for adopting policies that either sort to, or resulted in participating organizations (stakeholders) attempting to:

West argues that so called high tech companies (typically 4% R&D/Sales) are not as important contributors to GDP as is often supposed – citing OECD figures that indicate High Tech manufacturing worldwide only contributes on average 3% to GDP. He also criticizes government for usurping activities more appropriate to the private sector and as a result severely distorting the market. Policy should seek to compliment private sector innovation – not replace it.

Controversially, he cites the financial support of start-ups in this respect.

Like some other experts in the field – West stresses the need to be focused on the end point, which is identified customer needs as innovation often (predominately) begins with a customer problem, not a technical discovery.

He also highlights again, the fact that returns do not always align with investments – where such ‘market failures’ exist, governments can step in.

Controversially, perhaps, he encourages governments to direct their policy towards existing high impact sectors (typically large) right across the economy (high leverage sectors) – based on solid analytical understanding of the impact those policies will have, the prevailing innovation processes and the sectors specific requirements that cannot be met under normal circumstances, e.g. knowledge infrastructure, business capabilities, resource allocation processes.

He concludes that private firms alone cannot develop some of the essential components of an effective innovation system – and will typically need assistance to develop essential:

Fundamental to the AIRC advice to State innovation policy makers is the argument that innovation is more widely diffused across the economy (similar findings were made in the UK) and that concentration on so called high tech companies by policy makers was fallacious and was as evident in the larger service sector than in the product sector. Science, he claims, can contribute here too – citing University based research for the three major financial innovations of the 20th Century, Venture Capital, Options Pricing, and High Yield Bonds.

On the other hand, the State of Victoria’s interpretation for developing the knowledge economy sits in stark contrast to the AIRC’s recommendations – having made considerable inroads into the development of biotechnology, nanotechnology, urban developments, life sciences and health through public and private sector investment.

The States cluster developments, claiming major successes. For example, the Ballarat IT cluster, home to the Global Innovation Center is thought to have contributed some AU$ 350 million p.a. and 2350 jobs to the State economy.

The Australian Urban Systems AUS cluster formed around three companies by the Victorian government has secured major contracts for smart city developments in the Middle East, e.g. UAE, and Asia, e.g. China.

Victoria also remains committed to supporting SMEs innovation and has launched (2009) an innovative pilot whereby the Victorian government public sector entities will identify Technology Requirement Specifications TRS and will proactively select, engage and fund SMEs to undertake feasibility studies (3 months) and to develop Proof of Concept research (up to 2 years) starting in 2010.

Intellectual Property

Australia, as most developed information and knowledge based economies, has an elaborate legal Intellectual Property (IP) rights protection system. Intellectual Property rights come under the responsibility of the Department of Innovation, Industry, Science and Research and are administered by IP Australia . IP Australia carries its duties as stipulated by an elaborate set of legislations.

The different legislations are:

There is no specific tribunal enforcing IP. Enforcement is undertaken by the Australian Federal Authorities and, in some instances such as importing infringing goods, the Australian Customs Service.

Enforcement matters may be pursued through the Federal Court of Australia, State and Territory courts. Australia is a member of the World Intellectual Property Organization (WIPO) and Member and Signatory to the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Copyrights are administered by The Attorney-General's Department as per the Copyright Act 1968. The importance and impact of the Intellectual Property to the information society in general and particular areas such as content distribution is underlined by the inclusion of copyrights issues in the recently released "Australia’s Digital Economy: Future Directions" report by The Department of Broadband, Communications and the Digital Economy.

In the report, the Government addresses issues related to:

However, and due to the legal and technical complexity of the intellectual property system, the Government decided not to make any changes before consulting with stakeholders, a task which is being undertaken by IP Australia.

The Government acknowledged the need to raise the standard of IP management so as to ensure that new Australian ideas are translated into new wealth and new jobs for Australia. For that, the Agenda announces the Government will improve the intellectual property education for researchers and business.

Challenges

Despite many advantages , Australia has a huge challenge when it comes to competing in the Australasian region. Its large land area, its relatively small population and its rich mineral deposits have all influenced the way Australia addresses its future.

With a relatively small ageing population and high labor cost; Australia has sort to address the challenges it faces through its immigration policies, encouraging Australians to work harder and longer whilst maintaining the same rate of output, increasing capital investment – substituting machines for people, etc.

To some extent Australia has been protected by its huge mineral wealth. Such policies are providing decreasing marginal returns and productivity has been declining since 2000. Managing innovation as the pre-cursor to productivity is now the focus of attention. In recognizing its place in Asia – successive administrations have sort closer ties with Asia (largely at the expense of its traditional European ties). Its six large States are big enough to be taken seriously , but far too small (from a population perspective) to go it alone. Interstate rivalry may be fun on the sports field but seriously dilutes the overall competitiveness of the Australian economy.

Australia – must develop the same sense of national unity it displays on the sports field in its national innovation system and the manner in which it translates national objectives locally (or even State objectives locally ).

What is needed is to analyze all State Plans and rationalize them into a coherent national strategy. This will require much more than tinkering with the governance, knowledge transfer and collaboration mechanisms.

This will require deep engagement with industry and the private sector and local jurisdictions with truly comprehensive planning of national initiatives to be implemented locally.

The development of entrepreneurship, technology transfer, sector support, funding, research, skills and IP management must operate in a local environment which sees not only an integration of Australia’s various e-strategies at a State and interstate level.

This can only be achieved if there is a national instantiated vision (that goes beyond pure rhetoric) of the type found in its regional competitors, e.g. Korea. Despite, a healthy cynicism of politics by all Australians clever marketing and communications (so successfully undertaken for national events) by the Federal government in conjunction with COAG to achieve a unifying vision would go a long way to propel the country into the forefront on innovative developments in the region and globally.

Rather than being shielded by its macro-economic stability and huge mineral wealth – it needs to adopt policies not to dissimilar to those being adopted in the gulf region.

Findings Analysis

One of the key strengths of the Australian NIS is the strength and quality of publically funded research organizations like the CSIRO.

Clearly the current administration is considerably more proactive than the previous one in engaging the output from such research establishments as a public good aimed at boosting the Australian economy.

However, although it has commissioned considerable research it has yet to fully develop a demand-led policy to pull through the research and fully engage with industry.

With the resurgence in government policy making directed at innovation, research and development in the last two years – it is perhaps too soon to lay out any judgment as to its effect in the long term on its ability to foster a prosperous knowledge based economy. What is clear, however, is that Australia has lost ground – most particularly in the maturity and sophistication of its policy – that said Australia is renowned for being a nation more inclined to action rather than careful deliberation but the Australian government still seems pre-occupied with an outdated and simplistic linear model of development that depicts science as leading to innovation in the private sector along a one-way street, leading from public sector science, whether undertaken within the CSIRO, the universities or other public sector research (PSR) institutions, to industry which then does the final engineering and puts the new products to market. Although this largely ‘push strategy’ has broadened over recent years – the same underlying thinking appears to prevail.

Where it has developed is in the area of knowledge transfer – where considerable extra effort is being placed on the collaborative arrangements and ensuring potential collaborators are brought into close juxtaposition through such initiatives as Enterprise Connect – however such a passive approach does not reflect current thinking.

To the extent that it can within its government mandate, the CSIRO does an excellent job (and has been emulated in a number of other countries, e.g. France), and its Flagship Program delivers against the national agenda of government. What is disappointing, is that the solid science base in Australia (particularly CSIRO) has not been drawn fully into the ‘agenda setting’ debate itself – helping government to set the agenda based on a more up-to-date scientific basis rather than simply implementing it.

In addition, coordination of the various publically funded research has come under considerable criticism as has the growing level of bureaucracy attached to research collaborations of all types.

As a corollary to this is the apparent weakness in the Federal government’s strategy for developing Australia’s competitiveness in the new global knowledge economy. It is fair to say that Australia’s world ranking in WEF’s GCI ranking has increased by three points in the latest 2009/10 Global Competitiveness Index Report – however, this should be qualified. This is surprising, given the fact that as far back as the Hawke administration (1983) – the then Minister for Science Barry Jones, understood the major shifts taking place in the world economy and in which Australia needed to participate. Jones set in motion major shifts in policy direction aimed at making coherent changes as part of a comprehensive plan for national recovery and reconstruction, e.g. tax concessions for research and development which is still in place today.

More importantly, in 1987 Jones published a paper entitled ‘Preparing for the Future: Science and Technology in Australia’, in which he outlined the stark choices facing the Australian economy.

The paper outline two alternatives – first, Australia could seek to maintain its status as a low cost producer in its traditional industries, where global dominance would need to be maintained due to the small domestic market (the low road) and would place Australia in direct competition with low labor cost economies in the Far East … or secondly, Australia could seek to sell innovative products which have a high level of differentiation and includes the introduction of new technologies.

Jones’ foresight predated Porter et al by a decade or more. Almost two decades later in 1997 a report entitled The High Road or the Low Road? Alternatives for Australia’s Future, highlighted yet again the clear alternatives for the Australian economy and pointed out the declining position of Australia compared with other OECD countries and what the OECD said would maintain economies providing a high standard of living in the late 20th Century and beyond.

There is a clear opportunity for the current administration to go further in terms of their policy directives – and given their interest in mirroring some of the UK developments; it is quite possible that a clear policy for competition will emerge along similar lines.

This would need to entail an analysis of the various sector value chains in order to identify the high value (innovative) areas which could be addressed by Australia, as suggested by Porter et al. However, for innovation to succeed in boosting the Australian economy – it will need to play out at the local level, i.e. within the States, local authorities, locally based research institutions and local firms. In this the Federal Government can only do so much – any initiative must cross the Federal State divide.

Unfortunately, States administrations tend to see themselves as autonomous economic entities, for example comparing themselves with either other States or, indeed, other national economies.

Whilst always keen to attract Federal funding – the States use of funding is likely to be on a project by project basis with little or no consideration of achieving national comparative advantage, other than in passing. This can be seen in the inter-state rivalry and squabbling over the development of a multi-function polis in Queensland or South Australia – the result was a failure of the project.

Contributions by the State, e.g. to the CRC program show that over the last decade their total contribution has been less than the Industry/private Sector and less than the Universities – and when amortized over the six states amounts to a very small and patchy contribution when taken against the backdrop of their state economies.

The greatest threat to Australian NIS and its ability to position Australia as a strong member of the future knowledge based global economy will be predicated on the federal government’s ability to translate national objectives at State level and engage the private sector.

Even given the where-with-all, the bipartite political alignments of State governments will invariably stand in the way of unilateral developments. Despite all this unilateral developments at the State level (aided by such organizations as the AIRC) are in some cases proving to be more enlightened and pragmatic than either the Federal government or indeed many other countries.

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