Hilton on the Park
East Melbourne, Victoria
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It is characteristic of the Business-Higher Education Roundtable to be thinking about what Australian R&D will look like in the future.
The Commonwealth is thinking about it, too.
This is just one of the issues addressed by Dr Terry Cutler and his colleagues in their review of the national innovation system.
The panel reported at the end of August and the government will respond with a policy white paper before the end of the year.
I believe Dr Cutler plans to go through the framework he and the panel adopted for understanding and analysing the national innovation system.
I’m not going to steal his thunder, but it will surprise no one that the review panel’s report has a fair bit to say about the future of R&D.
This was also one of the issues considered by the Australia 2020 Summit in April.
The summit suggested we should be aiming to double our R&D expenditure from all sources by 2020.
That would take us from the 1.8 per cent of GDP we spend today to 3.6 per cent – an intensity currently achieved only by Finland, Sweden and Israel.
We understand the risks involved in setting targets like these, but floundering about and hoping for the best is a whole lot riskier.
At the very least, I would argue that we should adopt the summit’s 3.6 per cent target as our light on the hill.
Business R&D
We won’t have much impact on our overall R&D intensity until we boost business spending on research and development.
Industry already does more than half of Australia’s R&D.
But we also have to acknowledge that business accounts for an even greater share of R&D in many other countries:
• two-thirds in Germany, Finland and the United States
• and three-quarters in Japan and Korea.
Looked at another way, while our total R&D intensity is 78 per cent of the OECD average, our business R&D intensity is only 68 per cent of the OECD average.
I’m not making these comparisons to bag industry – far from it.
I’m making them to highlight how critical it is for all of us – government, industry and the public research sector – to focus our minds on how we can do better.
Open access
Australian universities do a prodigious amount of research – we produce 3 per cent of the world’s research papers with just 0.3 per cent of the world’s population.
Yet we still fall down in making the fruits of this research available to industry.
The focus on commercialisation in recent years has made public sector researchers more secretive, narrowed their horizons and in some cases squandered their talents.
It has discouraged publication and reduced people’s capacity to work on new problems and long-term projects.
On the whole, it has contracted rather than expanded the pool of ideas available to industry – and all for little or no financial benefit to the institutions involved.
There is a strong case for leaving the work of commercialisation to business – whether through direct collaboration, or by establishing an open access regime that makes the fruits of publicly funded research available and discoverable to all comers.
CRC review
This point has been reinforced by Professor Mary O’Kane’s recent review of the Cooperative Research Centre Program.
It argues for more emphasis on the application of CRC research by industry and less on CRCs trying to commercialise it themselves.
This is one of several recommendations designed to renew the focus of the program.
Other recommendations aim to increase its flexibility and promote excellence.
Professor O’Kane’s headline conclusion is that while the CRC Program is due for an overhaul, it continues to serve a valuable purpose.
Her report says “there is still a need for a large scale program bringing research providers and end-users together to solve roadblock problems” (p. i) – especially when the risks involved in solving the problem are high (p. xi).
Her report acknowledges the role of collaboration in building capacity and critical mass, and disseminating skills and knowledge.
But it also argues for revitalising the CRC Program by:
• restoring public good as a funding criterion
• engaging more with SMEs, the humanities and social sciences, and the service sector
• and encouraging CRCs to pursue social and environmental benefits along with economic ones.
On the question of flexibility, Professor O’Kane has recommended that each CRC should be established to solve a particular problem – although participants should be allowed apply again if they have a new problem to solve.
Her report also says we need to be more flexible about the lifespan, governance, funding and evolution of CRCs.
One recommendation is that centres should normally run four to seven years, but might run for up to ten.
Another is that they should not be required to incorporate.
Another is that there should be annual funding rounds.
And another is that successful CRCs should be offered a pathway out of the program, for example as ARC Centres of Excellence.
On the question of excellence, Professor O’Kane recommends:
• making the selection and evaluation regime simpler but more rigorous
• de-funding under-performing CRCs where necessary, so that the money can be returned to the program
• and seconding people with expertise as researchers, research administrators and research users to administer the program.
These are all valuable ideas, and they reflect the huge amount of work Professor O’Kane and her colleagues have put into this review – I am in their debt.
The government will respond to the review’s recommendations in its innovation white paper later this year.
Supporting BERD
Transferring knowledge from the public research sector is one way of supporting business innovation.
Historically, governments have also supported R&D in the private sector through public procurement and direct subsidies.
That’s changed over the last decade, with the emphasis increasingly being placed on tax relief. (OECD, STI Scoreboard 2007, p. 13)
Or at least it has everywhere except Australia, where this form of support has actually been cut.
We entered the 1990s with a pioneering R&D tax concession scheme, but it has come through John Howard’s watch much the worse for wear.
Even in its present form, the scheme remains one of the great legacies of John Button’s time as minister responsible for industry and technology.
In the decade to 1995-96, BERD as a share of GDP grew an average of 8.8 per cent a year, eventually climbing from 0.31 per cent in 1984-85 to 0.84 per cent in 1995-96.
It would be wrong to suggest that we owed all of this growth to the introduction of the R&D tax concession.
But it would be equally wrong to suggest the steady growth in BERD after 1985 had nothing to do with this landmark reform.
For confirmation of that, you need only consider what happened when the incoming Howard government halved the value of the concession from 150 per cent to 125 per cent in 1996.
Business spending on R&D fell for the first time on record, and continued falling for four grim years (chain volume measures). (ABS 8104.0)
BERD as a share of GDP collapsed – from 0.84 per cent in 1995-96, to 0.64 per cent in 1999-2000 – a decline of 24 per cent.
Looking at the relatively modest growth in BERD during the last ten years, we can only speculate about what might have been.
In 1995-96, we were eighth in the OECD for BERD intensity; by 2005-06 we’d slipped to fifteenth.
This is a reminder that there is no marking time in this business. If you’re not pushing forward, you are going backwards.
We now rank well behind other developed nations in our support for business R&D.
We are also behind emerging powerhouses such as China, India and Brazil.
International initiatives
Other developed countries have responded to the challenge being thrown down by these rapidly maturing economies.
They are building their indigenous innovation capacity and aggressively pursuing foreign R&D investment.
In the nine months since Labor came to office, New Zealand, the United Kingdom, France, Belgium, the Netherlands and Spain have all introduced or extended tax incentives for business R&D.
Japan and the United States have flagged their intention to do likewise.
The Australian situation
Where does that leave Australia?
While I defend the R&D tax concession as in instrument of innovation policy, I also accept there is room for improvement.
That’s why the innovation review panel was specifically asked to:
“Consider the appropriateness, effectiveness and efficiency of the Research and Development (R&D) Tax Concession Scheme in promoting innovation and make recommendations to improve innovation outcomes.”
There are serious questions about the adequacy of the concession.
In 1985, the corporate tax rate was 46 per cent and the concession was 150 per cent, yielding a tax benefit of 23 per cent.
Today, the corporate tax rate is 30 per cent, the concession is 125 per cent, and the tax benefit is 7.5 per cent.
That’s well below the incentives our competitors are offering.
Our program
Revitalising Australia’s innovation system is a huge job, but I’m convinced it can be done – especially given what we’ve achieved in our first nine months.
On the university side, we have started the ball rolling on:
• the $11 billion Education Investment Fund
• the Future Fellowships Scheme for mid-career researchers
• doubling the number of Australian Postgraduate Awards
• the Excellence in Research for Australia quality assurance regime
• and the Australian Laureate Fellowships Scheme announced last week, which will enable the world’s best researchers to conduct major projects and mentor emerging researchers in Australia.
On the industry side, we have established:
• Enterprise Connect – a network of centres which are linking SMEs to new ideas and technologies
• and Climate Ready – a grant program to support the development and commercialisation of climate change solutions.
I’m proud of what we’ve achieved, but what I really look forward to is the day when I can stop talking about this side and that side, and boast instead that Australia has a truly integrated innovation system.
The starting point was creating the new portfolio of innovation, industry, science and research.
Its task is to bridge the gulf between private industry and public research in Australia.
Other important bridge-building initiatives include:
• mission-based university funding compacts, which will give tertiary institutions an explicit role in industry engagement and innovation
• the Researchers in Business component of Enterprise Connect, which will place public sector researchers in SMEs to work on specific projects
• Industry Innovation Councils, which will bring together business, research, unions and government – the first council was announced last week
• and the recently completed review of the Cooperative Research Centres Program, which will guide us in reinvigorating this vitally important collaboration platform – another great John Button legacy.
And we aren’t just building bridges domestically.
We are also internationalising Australia’s innovation effort by:
• opening Australian Research Council awards and fellowships – including the new Future Fellowships and Australian Laureate Fellowships – to the very best scholars, regardless of nationality
• permitting overseas public research agencies to participate in CSIRO collaborations
• campaigning to host the square-kilometre array radio-telescope
• participating in international collaborations such as the European Molecular Biology Laboratory – of which Australia became the first associate member in January this year
• and establishing a presence in Brussels and New Delhi to strengthen our links with the EU and the swiftly evolving Indian innovation system.
The future
My aim is to build a pervasive culture of innovation by concentrating effort and resources, improving connections and increasing collaboration.
We will not lift our innovation performance – much less achieve our social and economic goals – unless we get individuals, institutions, sectors and nations working together.
That’s the future of R&D in Australia.