Getting the Most out of our National Innovation System

Access to the World’s Ideas

Even if Australians prove hugely successful as innovators in future, it will remain the case that the vast majority of the world’s new ideas and products will be developed elsewhere. Ensuring that Australians have access to the benefits of those innovations will be even more important for our future welfare than the ideas and products we develop ourselves.

There is little governments can do to enhance the international exchange of ideas.

Australia should minimise its own barriers to trade and be an active advocate of trade promotion through agencies such as the World Trade Organisation.

In addition to the long established benefits of free trade based on comparative advantage, new growth theories suggest two other benefits – larger markets provide greater incentives to innovate, and importing other peoples’ products and services gives us access to the ideas and innovations those products embody. This is even more the case for overseas investment, which allows Australia to use and imitate technologies and processes developed overseas.

Perhaps the most important policy role for government is to facilitate change at the broadest level. While it is clear that a public innovation policy can assist firms, governments can ultimately act only in an indirect way, as it is firms not governments that deliver innovative products, processes and services.

The Policy Framework

The importance of innovation as a key driver of economic growth and the role of government in creating an environment in which innovation is fostered are increasingly being recognised by economic theories.

By creating the right environment, specific policy outcomes to enhance Australian innovation could include increasing the attractiveness of R&D investment as a home for venture capital from the financial community and ensuring public sector spending in research institutions and universities on R&D is relevant to industry through improved and increased linkages and supporting policy initiatives to increase linkages.

As the Industry Commission in its 1995 report, Research and Development, rightly concluded there is an economic justification for a government role in funding R&D as there is public benefit with externalities for the economy and spin off benefits as a result of the R&D.

To date innovation has not been widely measured around the world with the exception of one of its elements – R&D expenditure. In comparison to other OECD countries, public spending on R&D in Australia is above average. But Australian business expenditure on R&D remains below average and dropped in 1997-98 and again in 1998-99.

Against this framework, the following issues need to be addressed either by Government and/or business:

• a national vision of the nature and importance of innovation (the Innovation Summit in February 2000 was a positive initiative)
• further development of private/public sector cooperation to sustain competitive R&D across all sectors of the innovation system and to foster commercialisation of public sector R&D outputs including a greater focus of higher education research on industry needs and priorities
• design of cost effective public R&D support
• opposition to the transition of R&D assistance towards outlay-funded programs as this is likely to be inflexible and costly for business and government alike, as well as inconsistent with development of commercial capital markets
• direct funding (possibly coupled with matching funds) of industry R&D which has clear community returns
• indirect support (i.e. through higher levels of R&D tax concessions) to industry R&D as it is recognised that net community benefit will eventuate
• sufficient funding, with minimal bureaucratic impost, for both the R&D Start and core schemes to satisfy the R&D and venture capital needs of business especially SMEs including at the development phase of near commercial projects
• supply of skilled manpower and appropriate signals to the education and training system
• support for the Prime Minister’s Science Engineering and Innovation Council and its committees
• support for monitoring and evaluation of performance, e.g. maximising the extent to which existing ABS data can be used.

The imperative for these measures is clear. Innovation is essential if Australia is to achieve ongoing improvements in living standards and quality of life. A systematic and coordinated innovation policy which identifies and advances the appropriate roles of the private and public sectors would represent a major contribution to Australia’s economic future.