CASE STUDY 14

In recent years the Australian economy has been relatively prosperous. The country has enjoyed a high rate of economic growth with the annual rate of growth averaging 3.5 percent for the last decade and a low level of unemployment. A factor in this has been relatively high commodity prices, which have benefited economies like Australia which have large agricultural and natural resource sectors. Productivity in these sectors has also increased markedly. Consequently rising resource exports have fostered growth and prosperity.

Despite this apparently good performance, concerns have been expressed about Australia's international performance in terms of the level of innovation. Although Australia enjoys levels to expenditure on research and development and education that are comparable to other GECD countries, and has a well-developed and well-regarded university system, from the early 1990s a range of concerns were raised over Australia's relatively poor track record on commercialization of research. The view was expressed that, despite the country having a strong track record on scientific research, this was not feeding through into the commercialization of research to deliver new products and services. Some suggested that academics felt reluctant to be seen to be profiting from their research. Added to this were concerns over the lack of well-developed venture capital markets in Australia and the comparatively unsophisticated nature of the venture capital provision that was available. Some even argued that these inadequacies were leading to a "brain drain" as young scientists, researchers and entrepreneurs left the country for less risk averse environments overseas. Against this background, the need for Australia to invest in research and development was seen as critical to the nation's ability to maintain its international competitiveness.

A measure of the concern felt about the country's capability to sustain innovation can be gauged from some of the policy initiatives designed to boost innovation activity introduced by the Australian government in the late 1990s and the early 2000s. In 1997 the government's "Investment for Growth" statement introduced a programed designed to boost the innovative capacity of firms. Two years later in August 1999, the government commissioned Australia's Chief Scientist, Dr. Robin Batterham, to review the effectiveness of the country's science, engineering and technology base in supporting innovation. In the same year the government published a White Paper entitled "Knowledge and Innovation", outlining a new policy and funding framework to enable universities to contribute more effectively to the national system of innovation. In addition,

the government also injected $614 million into health and medical research in response to a report by the Health and Medical Research Strategy Review, a move designed to double the National Health & Medical Research Council's annual budget by 2005. The government also introduced a new capital gains tax, (CGT) system designed to encourage risk-taking and entrepreneurial behavior, and set up the Innovation Investment Fund (IIF) in order to stimulate overseas and domestic early-stage venture capital investment in new technology.

Then in 2000, the government, working closely with the Business Council of Australia, called a National Innovation Summit. Attended by more than 500 senior figures from across the scientific and business communities, it met to assess the strengths and weaknesses of Australia's system of innovation. The Summit's recommendations highlighted the need for government, business, education and research organizations to work together in order to enhance the country's capability for innovation.

Finally, in 2004 the government published, "Backing Australia's Ability", a five-year strategy for science, research and innovation, designed to "pursue excellence in science, research and technology, to build an even more highly skilled workforce and increase opportunities for the commercialization of new ideas" (DCITA, 2004: p3).

The strategy had three principal aims:

1- to strengthen Australia's ability to generate ideas and undertake research

2- to accelerate the commercial application of these ideas.

3- to develop and retain skills

The first of these aims was designed to bolster the flow of new ideas which underpin innovation, to create critical mass in leading research fields, and to build competitive advantage in key sectors, especially ICT and biotechnology. In support of this the strategy provided significant investment comprising both additional funding and incentives. Funding included an extra $736 million for the Australian Research Council for competitive grants, $337 million for infrastructure projects, $246 million for upgrading universities' infrastructure and $176 million to establish Centre of Excellence in ICT and Biotechnology. The incentives were designed to stimulate business investment in R&D, and included new tax concessions to encourage companies to increase their R&D (estimated to be worth $115 million over five years), a rebate to assist small companies to undertake R&D and continued direct grant assistance via the STRART scheme valued at $535 million over five years.

The second of these aims, accelerating the commercial application of ideas focused on improving the flow of finance into business innovation and stimulating innovative firms by improving the country's capability to commercialize research and technologies. It included a range of initiative focuses on enhancing the country's capacity to create innovative enterprises, encouraging spin-offs, strengthening IP and increasing access to global research and technologies. Specific measures included doubling the value of the Commercializing Emerging Technologies (COMET) program which provides assistance to firms in improving their commercializing skills, enhancing spin-off opportunities by providing an additional $227 million for the Cooperative Research Centre Program, an additional $100 million for the Innovation Access Program, and sector specific assistance to biotechnology and agriculture.

Finally the third aim of developing and retaining skills included a range of initiatives designed to enhance the nation's skill base and encourage a wider interest in science, mathematics and technology. It included measures to increase university places in critical fields such as ICT, mathematics and science, support ongoing skills development and enhance science and technology literacy, provide increased access to online learning opportunities and boost the skills base through immigration.

The total value of initiatives that formed part of the strategy was some $2.9 billion spread over five years. This expenditure was designed to underpin the $6 billion contributed to research made by business and research organizations. However, as important as the financial resources was the theme of the "Backing Australia's Ability" strategy which emphasized "the complex nature of innovation and the importance of the people, linkages and interactions between the different system elements "(DCITA, 2004): Evidently, Australia's National Innovation System had several excellent outcomes, yet in reality it lacked strategic effectiveness, which was compromised due to the lack of policy focus and collaborative thinking in government, public agencies, businesses and academic institutions with major gaps at both the strategic and operational levels. Not only that, a survey by ABS-DITR (2006) entitled "Patterns of Innovation in Australian Business" identified that focus being limited to technological innovations, rather than organizational or institutional innovations. Similarly, a recent report by the Committee of Economic Development of Australia (CEDA2007) entitled "Competing through Innovation - An International Perspective" identified shortcomings of the strategy that require urgent attention.

It is in this context that the Australian Labor government (appointed in November 2007) recently completed a review of the Australian National Innovation System detailed in their report "Venturous Australia - Building Strength in Innovation" (DIISR, 2008). The government is currently considering the review's recommendations and preparing a ten-year White Paper on Innovation. This will hopefully address some or all of the shortcomings of the current strategy, promoting both the generation and systematic application of knowledge within the across sectors, and building up dynamic capabilities at the firm and organizational levels to position Australia for long-term competitive success in global markets. The outcomes of this review are awaited; however, the collaborative efforts of the government working jointly with business, industry and academic institutions should help contribute to in innovation performance of the Australian economy as a whole, providing an integrated national policy and a funding framework for the development of a knowledge-based economy.

CASE STUDY 14

QUESTIONS:

1. What aspects the Australian economy were the concerns of the 1990s directed at?

2. Which of the linkages between institutions within the national innovation system were seen as inadequate?

3. What is the meant by commercialization of research?

4. How can one have a strong record of scientific research and a relatively poor record of innovation?

5. What is venture capital? What is the connection between venture capital and innovation?

6. In terms of its national innovation system, why should a country be concerned about a lack of venture capital?

7. What were some of the weaknesses of the "Backing Australia's Ability" strategy which required urgent attention and focus?