Have Research and Innovation Failed Australia?

By Quirk, Tom | Review - Institute of Public Affairs, September 2004 | Go to article overview

Have Research and Innovation Failed Australia?


Quirk, Tom, Review - Institute of Public Affairs


OVER the last 20 years, we have been invited to get up early to stand on the summit of innovation and watch the sunrise industries rise.

The road map has been laid out for us. Australia has a perceived market investment failure because it has spawned so few high technology businesses-a consequence of low business research and development expenditure compared with many OECD countries. Industry does not do enough, so governments-both Federal and State-must help. Universities and research institutes are to be the vehicles to carry the load. The start-up ideas are to carry Australia to an increased standard of living and protect us from the decay of our present economic base.

Our policy-makers consider our universities 'golden geese'. The golden eggs of technical innovation are expected to hatch and grow to be new, high-tech and dynamic businesses. The process is called research and development (R&D) or sometimes, 'industry policy'. Further, our universities are expected to help solve important issues of the day, such as global warming.

Yet, after many years of effort, what has been accomplished? Within the OECD, Australia has remained in the lower third of business expenditure on research and development for the last sixteen years. But, despite this failure, the country has enjoyed dramatic and sustained economic growth.

Could it be that all our handwringing to the siren's song of R&D has been completely beside tbe point? We have had endless repetition of the theme, but could it be that none of it-including the apparent failures of university or commercial R&D-has anything to do with the real economy in Australia?

SOME FACTS

In 2001, the total R&D expenditure for Australia was 1.53 per cent of GDP with the business contribution at 0.72 per cent of GDP. The equivalents for Finland were 3.40 per cent and 2.40 per cent.

Are we in trouble? No, the explanation for the difference is structural. In Finland, the electronics industry's R&D is 1.3 per cent of GDP. It is a technology-intensive business and the major contribution comes from one business, Nokia.

By way of comparison, Merck, Intel and IBM each spend more on R&D than the sum of all Australian businesses.

The R&D figures are based on an OECD definition which excludes the exploration and development expenses of the mineral and petroleum industries. Yet this expenditure on exploration and development is the exact equivalent of manufacturing R&D. Exploration and development requires graduates and post-graduates as a professional group, and frequently operates at the leading edge of technology, using exotic sensors, satellites and computers-all perfect for the 'high tech' world. A mineral or petroleum discovery comes as much from someone's head in terms of conceptual thinking as any invention. After all, a deposit only gains value by its discovery and subsequent development to the point where it can be exploited.

So depending on what year is selected and the accounting method chosen, another one billion dollars could be added to Australia's R&D account, giving it a 0.2 per cent of GDP boost.

Australia's R&D performance has to be understood by looking at our industrial structure compared with other countries.

Table 1, taken from the OECD's Figures Report for 2003, shows countries ordered by business R&D expenditure. It also shows growth in GDP and higher education expenditure on R&D.

A number of observations can be made from this table:

* Australia's higher education R&D is not out of line with most of the major developed countries. So universities are not disadvantaged in Australia.

* There is little to demonstrate a connection between the levels of higher education and industrial R&D. Increased high-tech R&D levels are not matched by increased higher education R&D levels. There should be a time lag of some five to 15 years for feedthrough from higher education to business. …

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