Jeremy Byrne’s AussieInnovation weblog

Part III: Implications

A cynical (or politically motivated) observer might suggest that the review’s gloom and doom evaluation had been spun to favour to government’s position, and a comparison of Venturous Australia and the New Directions policy document does reveal significant parallels in focus and position. According to Kim Carr “the setbacks of the Howard years have made the need for review even more urgent,”^[8] but is the big “F” report card—and the explicit blame attached—fully justified?

Anti-deficit economics clearly played as much a role in Howard’s policy-making as small-government neo-liberalism, and Rudd’s Labor has itself demonstrated a willingness to allow budgetary considerations to prevail: it cut somewhere between $313M^[24] and $1.4Bn^[25] from innovation-related programs in the May 2008 budget, including axing the Howard Government’s $200M Commercial Ready scheme, and dropping $40M from CSIRO and $20M from the Australian Bureau of Statistics funding.^[26] The review makes much of the 25% reduction in R&D expenditure between 93/94 and 06/07 but, excluding the 1996 R&D tax concession reduction from 150% to 125% and the steady drop in Higher Education Sector funding in line with the Howard government’s “user pays” education model, R&D expenditure has actually grown—albeit minimally—over the last decade.

Fully funding University research, one of the review committee’s costliest recommendations, represents in essence an ideological reversal in the education funding model. “[The] cross-subsidisation of research from teaching profoundly undermines both activities” says the document itself,^[22] and “This Review calls for an urgent restoration of public funding levels for research in universities”. Further, as review panel member and Australian Business Foundation CEO Narelle Kennedy suggested on ABC radio’s Australia Talks, the observed decline in R&D expenditure is “partly a factor of what we measure”. Some of the apparent reduction in innovation investment is an artefact of the statistical methods used, and we’re not getting “the whole story” because we’re missing “hidden business innovation that’s not picked up in those more traditional indicators.”^[27] (The report’s recommendation 12.10 to increase ABS funding is, in part, an attempt to improve that situation.) Cutler’s own InnoFuture presentation reported that Australia is 7th out of the OECD 30 for GDP per capita, around where we’ve been “for decades”; our terms of trade are “currently booming”; we produce 3% of global scholarly publications—ten times our relative population size—our ICT investment is “high”; and while our R&D expenditure may be only half US levels, we’re ahead of Europe and massively ahead of Asia on a per capita basis.^[10] To top it off, our R&D expenditure rose through the 2% of GDP barrier for the first time in 2006/07.^[28]

It’s not particularly surprising that a high-profile, policy-focused review should back the commissioning government’s position. What remains to be seen is whether the government’s White Paper response will back the review committee with a concrete legislative agenda, and how quickly the requisite changes can be implemented. And that’s clearly going to be down to dollars.

According to Cutler, the report “is framed around a 10 year view of where we need to head to”,^[29] and Carr suggested that the report and the white paper response “would set the agenda for the next decade”.^[8] New initiatives in the report have been costed out at approximately $3 billion a year,^[12], and at the report’s launch Carr referred to the $2 billion per annum that it would take to “close the gap that has now emerged [in R&D] in the period of the early ’90s to now”, stating plainly “That’s clearly an expenditure claim on any one budget that can’t be met and won’t be met.”^[9] Carr continued to manage expectations in his Committee for Melbourne presentation: “Our goals for innovation are too ambitious to be achieved in one budget, or even in one parliamentary term.”^[8]

Cutler calls the report “a working blueprint to reposition Australia’s innovation system”,^[30] but of course the international credit crisis is a factor that wasn’t so pressing during the report’s compilation. “We will respond in accordance with the capacity of the budget to deal with these issues,” said Carr at the media launch, “given the nature of the current economic circumstances and given the fact that there are many demands on available resources.”^[9] “This is a big ask given the worldwide economic slowdown, given the pressures on the budget, and the government’s priorities in other areas, such as health, education and pensions.”^[8]

Where exactly do science and innovation rate amongst the issues facing the government? And how much will Treasury be prepared to commit to it in the “current economic circumstances”? Only the release of the White Paper—with a draft tipped for as early as the end of this month^[31]—will answer those questions.

end

[24] Tim Colebatch, “Rudd must earn venture capital”, The Age, 10 September, 2008

[25] Eric Abetz, quoted in “Report calls for innovation funding boosting”, PM, 09 September, 2008

[26] “Surveys cut as ABS faces $20m budget cut”, Sydney Morning Herald, 21 April, 2008

[27] “Innovation review”, Australia Talks, 24 September, 2008

[28] “Australian R&D expenditure cuts through 2% GDP barrier”, Forum for European-Australian Science and Technology Cooperation, 21 October, 2008

[29] “Innovation review causes concern”, Lateline, 09 September, 2008

[30] Ministers for Innovation, Industry, Science and Research, “Release of the Review of the National Innovation System”, Media Release, 09 September, 2008

[31] “Go8 calls for urgency on Innovation White Paper”, Group of Eight Australia, 19 September, 2008

Part II: Recommendations

After seven months reviewing the National Innovation System—poring over a vast stack of 730-plus submissions which, themselves, demonstrated little “common purpose” or “mutual understanding” of such a thing^[13]—the review committee has, perhaps unsurprisingly, come back with a massive swathe of policy recommendations and spending proposals it feels should help make whatever the National Innovation System may be work better. In his InnoFuture presentation, Cutler explained that the report, formally titled Venturous Australia: Building Strength in Innovation, identified needs for more entrepreneurial firms and innovative workplaces; an expanded talent pool; freer information flows and innovation opportunities; and mandatory internationalisation.

In achieving those “key thrusts”, the committee feels we should concentrate on “leveraging the national endowments and existing strengths”, “concentrating on the ‘rules of the game’” such as re-establishing distinct roles for the public and private sectors, and “prioritising and specialising”; and Cutler emphasised that the role of government in supporting these four thrusts is “core”. Beyond that, however, there’s not much in the way of concrete prioritisation of the committee’s 72 individual recommendations. While the report is full of suggestions about quality assessment and metrology for innovation itself, it is notably weak in setting tangible milestones,^[14] or providing indices by which progress can be measured.

According to the Minister, “the report’s big ideas include […] adopting national innovation priorities to focus our efforts and our resources”.^[9] “Australia is a small country with only so many dollars it can devote to research and innovation,” he explained to the Committee for Melbourne. “That’s why it’s so important to set priorities”^[8] So, what the report does prioritise is industry sectors.

The report identifies as “national priority” industry sectors “[a]griculture and food security (productivity and yields; nutriceuticals; food safety, biological testing and certification); climate change mitigation and adaptation; population health; tropical solutions (disease management; education delivery; logistics and infrastructure delivery); broadband applications (open democracy; database and privacy standards for health information; educational uses; traffic systems and standards; national collections of information and knowledge).” Additionally, it nominates a second tier of “opportunities”, where private sector investment should be encouraged, including: “resource industries; space and astronomy; finance and risk management; marine industries”. These priorities are intended to focus on existing strengths and “have been selected because of their existing market structures and capital availability.”^[15]

In something of a contrast to its tight-focus industry-sector specialisation, there’s an emphasis in the report on what Cutler sees as the “strong case for incentivising early innovators”, as an alternative to the “less risky strategy of being a global follower […T]he bottom line is not to count the successes and failures but, like a venture capital firm, say what’s the return on the overall portfolio, because that’s the bottom line for the country.” In the Minister’s words “we need to be less risk adverse in this country. We need to take some chances.”^[8]

The other “big ideas” in the report relate to its call for the restoration of government funding for science and innovation to the 1993/94 level of 0.75% of GDP, from its current 0.55%. These big ticket items include a move to full government funding of University research—accompanied by an altered funding allocation model which would both reward success in competitive funding rounds and take note of the centralised “research quality rankings” from the Excellence in Research Australia initiative—and the scrapping of the four existing R&D tax concessions in favour of a refundable tax credit—50% for firms under and 40% for firms over $50M turnover, which the review recommended be paid more regularly (“at least quarterly in arrears”). While the first represents an ideological shift, the second is merely catch-up. As Carr told the Committee for Melbourne, “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.”^[8] (The US passed a 20% tax credit as part of the $700bn bailout bill four weeks later.^[16])

The New Directions document, which identified “169 government programs in Australia aimed at supporting business innovation”, defined the review’s primary purpose as “work[ing] with the States and Territories [to reduce] the fragmentation of innovation assistance.”^[5] In the end, Venturous Australia makes no recommendations about eliminating funding packages, but it does identify a range of programs it believes should be initiated, continued or extended.

It recommends extending the business networking Enterprise Connect program to include services firms and the addition of a new Knowledge Connections program; expanding and continuing the Commercialising Emerging Technologies (COMET) program for five years—precisely echoing the recommendations of the ostensibly independent COMET evaluation report released on 15-September^[17]—boosting the Innovation Investment Fund; continuing the Pre-Seed Fund; and providing grants to local angel investment firms to help them raise their profiles, network, and mount investor education programs. Additionally, it recommends introducing a $150M Competitive Innovation Grants program to help capitalise high-risk “proof of concept” stage innovation in a target 200 firms within the range of industries identified as “national innovation priorities”, with firms to repay the grants from earnings—although whether reporting and audit burden will be worth the effort is debatable^[15]—specifically encouraging US and other foreign venture capital through a range of measures including the partial opening up of the tax concessions to overseas firms (which provide nearly 20% of Australia’s venture capital^[18]); and a new $15K research voucher scheme to allow small firms to purchase services from public research agencies.

To be fair, the report does make some attempt to address its original purpose, suggesting that “governments together develop a single mechanism (such as a web portal) for providing information to clients about access to the full range of Australian and State and Territory government innovation programs.”

Amongst the plethora of less costly recommendations are a number of bureaucratic shuffles, including rebadging the Prime Minister-led Science, Engineering and Innovation Council as the National Innovation Council, and the establishment of an Office of Innovation. Perhaps more practically, the report calls for the establishment of an Advocate for Government Innovation to coordinate initiatives such as leveraging government procurement policy to favour innovation and share risk, manage the ongoing review of policy, and encourage public sector innovation through prizes, trial funding and conferences. It also recommends that a permanent Chief Scientist be appointed: a recommendation which, fulfilling a promise in the New Directions document, has already been met, with the appointment of Professor Penny Sackett on 30-September.^[19]

The report includes a range of shifts in emphasis and direction less tied to specific funding proposals. The “core roles” issue, “[t]he need to actually get a better fit between the public and private sectors when it comes to the questions of research and development and the broader innovation system” is, says Cutler, “the great strength of this review. It actually talks about how we could achieve that outcome.”^[9] There’s a strong focus in the report on extending innovation beyond its traditional areas and into the Creative Arts, the Humanities, and the Social Sciences, as well as the politically mandatory “recognition of the special importance of preserving indigenous collections and the unique value of indigenous traditional knowledge and practices within Australia’s innovation system.”

This translates into recommendations for national consistency in funding Tertiary Creative Arts training, and the extension of the National Collaborative Research Infrastructure Scheme to explicitly include these areas. The same “humanities, arts and social sciences” trio appeared prominently in the Strategic Roadmap for Australian Research Infrastructure, described as “an important input to the government’s white paper response”^[19] to the review and released prior to the review on 04-September. Similarly, the O’Kane Collaborative Research Centre Review report Collaborating to a purpose recommends more focus on the Humanities and Social Sciences.^[21]

There’s also a lot of talk around a “National Information Strategy” intended to maximise the flow of information, focussed on open publishing and archiving of publicly funded R&D results and a change of emphasis in Intellectual Property management from the legal to the economic (”IP policy […] should make the same transition as competition policy did in the 1980s and 90s”^[22]). Most of the surprisingly sparse ICT-centric recommendations concentrate on this “open innovation” push, which includes hat-tips to Social Networking and the uptake of “Web 2.0” technologies by government. At the micro-level, Cutler sees a need for “real incentives” to individuals as well as enterprises to continuously develop our skillsbase, via programs such as a “lifelong-learning account, like a Permanent HECS scheme”^[12] (itself a “Deploy” idea in the Final Report of the Australia 2020 Summit^[23]). The report suggests extending the income contingent loans system to fund individuals’ tertiary education outside universities and sole traders seeking to fund innovative projects. It also recommends the favouring of “human capital” (ie. knowledge and skills) over economic capital in immigration assessments.

end of part two

[13] Mark Dodgson, “Content Analysis of Submissions by Leximancer“, University of Queensland, 08 June, 2008

[14] Kwanghui Lim, “ideaCHECK: Venturous Australia: Report of the National Innovation Review, September 2008″, Melbourne Business School, September, 2008

[15] John Haining, “Venturous Australia: It’s not Commercial Ready all over again”, Innovation Is Industry Policy, 22 September, 2008

[16] Grant Gross, “Congress extends R&D tax credit as part of bailout”, NetworkWorld, 03 October, 2008

[17] Ministers for Innovation, Industry, Science and Research, “COMET Evaluation Report released”, Media Release, 15 September, 2008

[18] Australian Bureau of Statistics, “Venture Capital and Later Stage Private Equity, Australia, 2006-07″, 14 February, 2008

[19] Ministers for Innovation, Industry, Science and Research, “Professor Penny Sackett Australia’s New Chief Scientist”, Media Release, 30 September, 2008

[20] Ministers for Innovation, Industry, Science and Research, “New Roadmap Sets Out Research Infrastructure Needs”, Media Release, 04 September, 2008

[21] Ministers for Innovation, Industry, Science and Research, “Government Welcomes Release of CRC Review”, Media Release, 05 August, 2008

[22] Terry Cutler et al, venturous Australia: Building Strength in Innovation, 09 September, 2008

[23] Warwick Smith, Julia Gillard et al, “The productivity agenda: education, skills, training, science and innovation”, Australia 2020 Summit - Final Report, May 2008

Part I: Context

While some level of review might seem judicious for a party returning to office after an eleven-year absence, the Rudd government’s 80-plus reviews^[1] do seem to invite comment; but when Tony Abbott quipped recently on Lateline that Kevin Rudd had “hit the ground reviewing”,^[2] he inadvertently echoed a phrase first used by UK MP Austin Mitchell to characterise his own now very long-lived New Labour government.^[3] New Labour’s 1997 General Election Manifesto^[4] had copiously referenced “innovation”, but hadn’t encompassed the idea of reviewing the country’s “innovation system”. A decade and a generation or two of political jargon later in April 2007, the then-opposition’s ALP’s New Directions for Innovation, Competitiveness and Productivity document^[5] did promise such a thing, and the Cutler committee’s Review of the National Innovation System^[6] was the result.

Labor can legitimately claim to have initiated government involvement in business innovation, with the first public venture capital and R&D concession schemes coming directly out of a 1984 visit to Sweden by John Button, the Hawke government’s Minister for Industry and Commerce.^[7] Button died of pancreatic cancer in April, before the Cutler review concluded, but his trademark centrist post-protectionism is well reflected in the Venturous Australia document the review produced. Likewise, the new Labor government’s agenda is well served by the report’s conclusions.

The tone of those conclusions was summed up by Button’s parliamentary and ministerial successor, Innovation, Industry, Science and Research Minister Kim Carr, when told The Committee for Melbourne on 09-September^[8] that “[m]uch of the great work done by John Button and his colleagues in the reforming Hawke and Keating governments has been undone over the past twelve years.” “During that time,” Carr explained, “Australia became the only OECD nation to reduce public funding for higher education. Business investment in R&D fell for the first time on record. Growth in research degree commencements stalled.” “According to the ABS,” he’d claimed earlier in the day,^[9] “two-thirds of firms do not spend any money on R&D or innovation.”

The review’s chair was both more specific and more damning in his own commentary. Dr. Terry Cutler opened proceedings on the second and concluding day of Melbourne’s InnoFuture 2008 conference—the morning after the report’s release—with a presentation that pulled few punches in its assessment of Australia’s current position.^[10] We are “underperforming massively,” Cutler told attendees, compounding our “structural handicaps” and slipping alarmingly in most relevant metrics.

At 0.2, Australia’s “trade intensity” (a ratio of external to internal trade) is one of the lowest in the world. Other than BHP Billiton, our top eight firms are purely domestic, and only half of our top 90 innovators earn more than 50% of their income offshore. Our “IP deficit” is $2.5bn annually and rising, our researcher numbers are declining as a proportion of the total workforce, and our measurement science is “massively underfunded”. Both informal and formal social networking is largely ignored by business and government, our digital media regulation is outdated, and we’re 24th in the OECD 28 for firms having their own website. Australian business investment in R&D is half the OECD average. We rank last in the OECD for employer investment in vocational education and training; we rank last for firms with foreign cooperation in R&D; and in a 2007 international business survey, less than 3% of respondents selected Australia amongst the “most attractive foreign R&D locations”.

Continuing the theme, Cutler quoted some even more esoteric statistics to the ICT-oriented audience for his Pearcey Oration speech of 11-September entitled “Not waving, but drowning”.^[11] While some 4.8% of Centenary Medals were awarded for sporting achievement, he told them, Innovation accounted for a mere 0.03%. Similarly, the Order of Australia has found Sport 54 times more worthy of recognition than Innovation. “Reviewing our recent innovation performance,” Culter said, “does not inspire confidence in Australia’s future. […] As a share of GDP we are investing less in education, talent development, and R&D than we were more than a decade ago.”

“We’ve had, I think, a misguided focus over the last ten years or so,” Cutler told Deloitte Australia’s Gerhard Vorster in a 10-September interview.^[12] “We’ve lost clarity about our core roles.” His report card summary comment for Australian innovation? “Doing very poorly.”

end of part one

[1] Tim Colebatch, “Rudd under pressure to earn venture capital”, The Age, 10 September, 2008

[2] “Abbott attacks Rudd’s ‘inaction’ ahead of speech”, ABC News, 27 August, 2008

[3] Poppy Brech, “FOCUS: UK LOBBYING - Getting ready for a flurry of activity. With the new Government keen to involve industry in its policy making process, the time is ripe for businesses to raise their voices in Parliament.”, PR Week UK, 13 February, 1998

[4] Tony Blair, “New Labour: because Britain deserves better”, 01 May, 1997

[5] Kevin Rudd and Kim Carr, “New Directions for innovation, competitiveness and productivity”, April, 2007

[6] Various, Review of the National Innovation System, Wikipedia

[7] Kim Carr, “John Button and his Artful Australian Industrial Revolution”, 09 April, 2008

[8] Kim Carr, “Review of the National Innovation System Report - venturous Australia”, Speech to the Committee for Melbourne, 09 September, 2008

[9] Kim Carr et al, Media Conference To Release The Review Of The National Innovation System Report, 09 September, 2008

[10] Terry Cutler, Innofuture 2008 Conference Presentation, 10 September, 2008

[11] Terry Cutler, “Not Waving, but Drowning”, The Pearcey Oration, 11 September, 2008

[12] Gerhard Vorster and Terry Cutler, “Venturous Australia - building strength in innovation”, Deloitte Australia Insights podcast, 10 September, 2008