Page tools

Cultivating Innovation

E-Brief: Online Only issued August 2001

Matthew James, Analysis and Policy
Ann Rann, Information/E-link
Science, Technology, Environment and Resources Group

Science and technology policy involves a range of public and private sector activities, education and training, product standards and intellectual property, along with support for research and development (R&D). The public good, high-risk and long-term nature of R&D has led to government involvement, particularly at the federal level as wide interests apply. In Australia, the Commonwealth and States have roughly equal powers with respect to science and technology, with the exceptions of intellectual property and defence. Australian science has had a strong bias towards agricultural R&D with a more recent lean towards resources, manufacturing and services activities. Multinational activity have served to restrict local R&D opportunities and many commercialisation opportunities.⁽¹⁾

In its reviews of science and technology, the Organisation for Economic Cooperation and Development (OECD) identifies technology-related factors as a key category among the forces enabling and shaping the globalisation process.⁽²⁾ The other factors include individual firm behaviours, overall macroeconomic effects and general government policies. According to the OECD, there are opportunities to effect Australian economic performance through appropriate science and technology policies. They include measures to:

leverage R&D towards private sector funding and market-driven partnerships with States
promote export performance through export credits and guarantees
support small and medium enterprise (SME) initiatives such as the provision of advice, seed capital, loan schemes, and others
orientate venture capital industry towards technological capabilities rather than services
develop skills development programs including further education and training cooperation
improve infrastructure in basic science, educational institutions and national facilities
provide information and stable public procurement policies over the long term, and
promote regional policies that foster industry clusters, decentralisation and national communications.

In developing the science base, governments have roles in funding scientific research and improving the interaction between science and industry. This is because of the complexity of competing outcomes, the need for international cooperation and to cope with an ageing scientific workforce coupled with a decline of interest in science and engineering careers. Direct government support for R&D has generally dropped in other nations, given declines in defence budgets, with moves towards more commercial outcomes, while tax incentives for R&D have increased in importance. Large-scale programs such as for energy and space have declined in support while funds have risen for information technology and medical endeavours. Direct support for pure science has declined and collaborative requirements with industry have risen. These sometimes compromise intellectual property outcomes reflecting the possible conflicts that can arise in attempts to devise appropriate industry support programs here.

Industry Policy

In reviewing where industry policy should go from here, there are two broad lines of thought. The first is that industry policy should not be industry or company selective and that governments should not try to select winners ahead of the market. The second is that as industry pursues successful outcomes, government should also encourage or promote certain sectors. The first prevailing ethos assumes that industry policy should be targeted at general, i.e. non-selective, measures that are directed at market failures and externalities. These 'general' government assistance to industry measures are mainly in the following areas:

support for R&D and innovation
export assistance and market development
assistance to SMEs
venture capital
education and training
provision of infrastructure, and
business taxation reform.

The first three, and recently the fourth item, in the above list, have a wide acceptance as important on-going parts of Australian industry policy. Nonetheless, the individual policy measures in each of these areas has been subject to almost constant change either because they fall victims to reviews or appear subject to abuse in one form or another. This variability in industry policy means that it is very hard for industry to factor in the benefits of such policies in its long term planning or by the Department of Industry, Science and Resources (DISR).

The bottom three items in the list do not form integrated parts of industry policy and the prime responsibility for them lies outside the industry portfolio. Major changes in business taxation have been implemented. Many commentators have suggested changes to education and training are critical to the future performance of Australian industry and should be given a much higher priority. Infrastructure provision is rarely considered in an industry context.

Another less developed line of thought is that governments should provide assistance to selective firms and industries such as the newer, knowledge-intensive, leading-edge firms and industries. The logic of this new approach is obvious but to date there has been little progress in Australia with the task of designing policies to implement it. The level of intervention and appropriate policy to encourage investment in new technology and public policy for new technologies are important issues now at stake. In recent years, the Federal Government has provided some 'seed-money' budgetary assistance to information technology, solar energy and biotechnology, but the Government has shown a greater propensity to provide assistance to resource-based projects such as under the Strategic Investment Coordinator program, for example. Structural change in Australian industry and among sectors is documented by DISR.⁽³⁾

One of the difficulties with trying to design an assistance package to assist knowledge-intensive activities is that there is no clear definition or boundaries to them. They tend to embrace a mix of rapidly changing activities with a large number of small firms with high rates of entry and exit. As well, their comparative advantage may lie in the development and export of new technologies, processes and management skills with respect to mature industries such as mineral and food processing. Sometimes, a preoccupation with information technology and telecommunications (IT&T) issues has excluded new technologies so that, for example, high profile Internet development often actually involves low-level technology applications.

Research and Development Policy

With the rise of globalisation, Australian companies face the prospect of competition with highly technically advanced competitors in foreign countries. However, given a prevailing ethos of market-driven economics and dwindling industry protection policies, it is not at all clear that our manufacturing industries in particular can survive. The science, engineering, technology and innovation sector has the potential to lift Australia's declining manufacturing sector into a dynamic future. Through innovation-led manufacturing strategies, the nation can provide value-added exports to the ever-changing, competitive world. Our existing R&D intensive industries, though few in number, have achieved successes on which to build. They seek stronger investment support from the financial sector, a national policy approach and better support programs for advanced manufacturing, engineering and science, if they are to prosper further.

Over the past decade, there has been a plethora of studies and reports on the state of R&D in this country, but with little apparent change in policy outcomes. Most of the studies recommended a simplification of longstanding policies and administration whereas existing Australian science and technology policies reflect a legacy of past arrangements built around public sector R&D. There has been an absence of a strategic, national technology management plan. The Australian Bureau of Statistics (ABS) publishes 8104.0 Research and Experimental Development, Businesses, Australia, 1998-99 data.⁽⁴⁾

The 1999 Higher Education White Paper Knowledge and Innovation: a policy statement on research and research training concentrated on matters of collaboration, commercialisation, training and research. The paper announced measures involving excellence and diversity, inter-university collaboration, commercialisation, research strength, training and skills. The Australian Research Council is the primary agency for distribution of academic R&D grants.

The R&D review completed by the House of Representatives Standing Committee on Industry, Science and Resources in 1999 noted the thin spread of support over a wide range of research fields that tended to lack overall coordination.⁽⁵⁾ The review suggested a need to establish sectoral R&D brokers for collaborative, pre-competitive research. Noting that tax incentives for R&D have increased in importance, the review also recommended that we require all organisations to report on R&D in their annual reports. Finally, the review recommended attention to international intellectual property regimes as being required along with joint ventures in R&D.⁽⁶⁾ See too, the yearly R&D and Intellectual Property Scoreboard.⁽⁷⁾

In program terms, the annual Science and Technology Budget Statement, prepared by DISR for the Minister, outlines support for science and innovation along with comparison figures for other sectors and nations.⁽⁸⁾ The Industry Research and Development Board (IRDB) is an independent statutory body whose purpose is to provide advice to the Government on national industry-based R&D strategies and priorities and administer specific Government programs in support of industry-based R&D.⁽⁹⁾ The Australian Industrial Property Organisation handles Australian Patents, Trade Marks and Designs.⁽¹⁰⁾ Mention should be made of the success of the Australian Cooperative Research Centre program in establishing joint ventures in R&D. ⁽¹¹⁾The Commonwealth Scientific and Industrial Research Organisation (CSIRO) is our largest government-funded research agency and combines with commercial links.⁽¹²⁾ Key features of the modern CSIRO include its multi-disciplinary capability, university links, and industry focus, but there have been tensions resulting from pressures for commercialisation and strategic foresight, as reflected in further review findings.⁽¹³⁾

Innovation Policy

Innovation is the constant adaptation to change through creativity. Innovative firms determine national technological and thus economic performance.⁽¹⁴⁾ Australia's rate of technological innovation is half the world average, based on patents, according to a mid 2000 report commissioned by the Australian Research Council.⁽¹⁵⁾ The report found a strong (publicly funded) science base in Australia but a failure to commercialise the research. Our innovation is driven by primary resource industries, rather than by the high technology sector, as occurs overseas. However, it is possible to identify some world-class cases such as the Lok-Tek Syringe, LookSmart's Internet search engine, video-game creator Auran, Metal Storm electronic rifles, Cochlear bionic hearing technologies and Incat catamarans.

The National Innovation Summit and the Innovation Summit Implementation Group follow-up was a long overdue effort towards promoting the importance of the innovation process, largely involving existing proponents. The Summit recommended the set up of a national innovation assessment commission and business linkage programs. Suggested measures include venture capital stimulation, new technology-based firms, public/private partnership programs and, technology diffusion under a national innovation system. The Innovation Summit outcomes focused on the need for evaluated R&D incentives, expanded intellectual property systems, simplified capital tax regimes and continuation of the Innovation Investment Fund and Pooled Development Funds schemes. The Summit favoured such effort underpinned by coordinated research base support and staffing networks predicated on ongoing education and foresight.⁽¹⁶⁾

The subsequent August 2000, Australian Science Capability Review undertaken by the Chief Scientist, was called The Chance to Change: A Public Discussion Paper by the Chief Scientist. This report identified innovation as the only way forward for Australia by involving people, ideas and commercialisation of science, engineering and technology.⁽¹⁷⁾ Its recommendations of support for the education sector, funding expansion to specific government programs and ongoing reviews formed a basis for further policy change. The Federation of Australian Scientific and Technological Societies (FASTS) response to The Chance to Change was supportive. FASTS called for increased national investment in science, better communications about science at all levels, and consistent and benchmarked policies. The Australian Academy of Science response to the report was strong in its support and subsequent endorsement of government policy.

In response, launched by the Prime Minister on 29 January 2001, the Backing Australia's Ability innovation action plan for the future included a large number of funding initiatives to total $2.9 billion over a five year period.⁽¹⁸⁾ They included a doubling of funding for the National Competitive Grants Program of $736 million, increased project-specific infrastructure of $337 million and Major National Research Facility funds of $155 million. The plan announced two new $176 million Centres of Excellence in information systems, communications and biotechnology, changes to the R&D tax concession and additional $227 million in funds for the Cooperative Research Centre program. As well, there was an extra $794 million in support for the R&D Start scheme, Commercialising Emerging Technologies (COMET), the Innovation Access Program and other programs. Some $151 million in university places and $736 million for extra research grants, fellowships and other measures targeted the education sector. There was no extra direct support for statutory public research agencies.

The ALP's Knowledge Nation document of 2 July 2001 took a more holistic approach in defining appropriate directions and strategies for the nation's intellectual capability, communications, education and innovation over ten years, but without any specific program commitments. A key difference to Backing Australia's Ability is the defining of targets and additional areas requiring support, as outlined in the document located at http://www.alp.org.au/kn/. The plan received plaudits from the SET sector, along with criticism from various economic commentators.

Future Policy

However funding changes for all of these programs only commence in subsequent financial years and some contain restrictions. For instance, the introduction of a new premium rate of 175% for an R&D tax concession applies to labour-related expenditure. Meanwhile, some $345 million will be saved in tightening eligibility, only to companies demonstrating both high technical risk and innovative behaviour, for the basic 125% tax concession. In essence, very little support has occurred for the commercialisation of R&D activity with the exception of $79 million in public sector pre-seed funding. The statement did not appear to directly address the Innovation Summit 'Unlocking the Future' outcomes and the stodgy approach of Australian financial markets to innovation remained.⁽¹⁹⁾,⁽²⁰⁾ We can also note that the government funding of business R&D has declined substantially in Australia, according to the OECD.⁽²¹⁾ The level of our high and medium technology goods as exports remains quite low. In the OECD view, innovation is a complex process that, with links to internationalisation, requires assistance to overcome institutional barriers and lack of cooperation.

Some policy options exist, directed towards a vision for the nation striving towards an international, integrated and innovative role. Through this priority setting and foresight studies, linkages would strengthen between the public and private sectors to enable a cooperative, coordinated and networked national science and technology action plan policy. Specific items might include:

National Science Council body to coordinate the various national academies along with a Parliamentary Office of Science and Engineering to analyse policy issues;
advanced manufacturing technology support and national engineering centres;
industry royalty payment scheme in return for R&D support and procurement contracts, and
management education programs to focus on commercialisation and innovation.

The rapid advances in science and technology link increasingly upon global knowledge and information flows as well as good and services. Knowledge-based industries have been leading growth for many years, with investment in IT&T and Internet access as key factors. In many countries, unlike in Australia, business performs most R&D, with factors of cooperation, diffusion, and venture capital access vital for innovation.⁽²²⁾,⁽²³⁾ Networking is now a significant factor in innovation whether achieved through partnerships, technology alliances and inter-firm linkages.

In newer policy theories, the capacity and willingness to sustain science, technology and innovation policies in different economies depend on their changing economic fortunes, so that there are unique sub-systems of innovation and localised policy approaches. These local knowledge systems apply as well as social transformations between public and private sectors to balance domestic priorities and investments strategically with foreign linkages.⁽²⁴⁾ Thus it may be that Australia's unique circumstance requires specifically tailored policy responses. A means to identify these may be the use of future foresight scenario planning exercises.⁽²⁵⁾

References

Stewart, Jenny 1992, 'Introduction: Towards the Clever Federation', in Federalism and Public Policy: The Management of Science and Technology, ed. J. Stewart, Federalism Research Centre, Australian National University, Canberra, pp 1-9.
OECD 1998, Science, Technology and Industry Outlook 1998, Organisation for Economic Cooperation and Development, Secretariat, Paris.
Department of Industry, Science and Resources, 2001, Structural Change in Australian Industry, Canberra.
http://www.abs.gov.au/Ausstats/ABS%40.nsf/c1061106e0c3442fca2568b5007b861d/
db96b2dc8b5256cbca2568a900143dbc!OpenDocument
Parliament of the Commonwealth of Australia 1999, The Effect of Certain Public Policy Changes on Australia's R&D, Report by the House of Representatives Standing Committee on Industry, Science and Resources, August, Canberra.
Matthews, M., Howard, J., 2000, A Study of Government R&D Expenditure by Sector and Technology, Emerging Industries Occasional Paper 3, Department of Industry, Science and Resources, Canberra.
Feeny, S. & Rogers, M. (eds) 2000, R&D and Intellectual Property Scoreboard 2000: Benchmarking Innovation in Australian Enterprises, Melbourne Institute of Applied Economic and Social Research.
Minister for Industry, Science and Resources, Science and Technology Budget Statement 2000-01.
http://www.ausindustry.gov.au/documents/dir67/doc504867.html
http://www.ipaustralia.gov.au
http://www.dist.gov.au/crc/index.html
http://www.csiro.au/
Ewer, P. (ed.) 1995, For The Common Good: CSIRO and Public Sector Research and Development, Pluto Press, Melbourne.
OECD 1999, Managing National Innovation Systems, Organisation for Economic Cooperation and Development, Secretariat, Paris.
Australian Research Council July 2000, Research in the National Interest:
Commercialising University Research in Australia, Australian Research Council, Canberra..
Department of Industry, Science and Resources 2000, National Innovation Summit: Melbourne 9-11 February, (documentation and preparatory reports), Canberra.
http://www.isr.gov.au/science/review/index.html
http://www.innovation.gov.au/iap/
James, D. 2001, 'Our Creative Dilemma', Business Review Weekly, 2 February.
'Funding to look forward to', Canberra Times, 1 February 2001.
OECD 1999, Basic Science and Technology Statistics, Organisation for Economic Cooperation and Development, Paris.
OECD 1999, OECD Science, Technology and Industry Scoreboard 1999; Benchmarking Knowledge-based Economies, Organisation for Economic Cooperation and Development, Paris.
OECD 2000, Science, Technology and Industry Outlook 2000, Organisation for Economic Cooperation and Development, Secretariat, Paris.
Turpin, Tim 2000, Science and Technology Policies in Asia-Pacific Economies:
implications for regional knowledge systems and social transformation, CAPSTRANS – CEDA Policy Papers Series No. 3, Committee for Economic Development of Australia, Sydney.
James, M. L. 2001, Australia 2020: Foresight for our Future, Research Paper No. 18, Department of the Parliamentary Library, Parliament of Australia, Canberra.

For copyright reasons some linked items are only available to Members of Parliament.

Cultivating Innovation