Outline: A report by the Minister for Innovation and the Information Economy says that Queensland's R&D needs to increase dramatically for the state to remain competitive. Governments (state and federal) can not provide this - so they should seek private investment. A state R&D policy is to be drawn up. Queensland's expenditure on R&D as a percentage of GSP is 1.2% - the second highest in Australia. Despite a rapid growth of business R&D in the 1990s (152% compared with a national 62% growth) Queensland is still below the national average overall. Growth and diversification will depend on the development and maintenance of R&D infrastructure. Demand for government services limits government R&D funding. Government currently provides most R&D funding and private involvement is lacking (Strutt S. 'Queensland needs jump in R&D to stay competitive', Financial Review,  11/4/02)

CPDS COMMENTS

Economic implications of R&D (with which the Issues Paper is largely, though not solely, concerned) are the main focus of the following overview comments. It will be suggested that the basic 'Smart State' goal of enhancing Queensland's capability to make productive use of knowledge (eg that derived from R&D) is constructive. Unfortunately however:

• there appears to be a serious misunderstanding of the ability of R&D to determine and drive economic change - in relation to which the political 'push' on biotechnology R&D in Queensland is a conspicuous example;
• it is counter-productive for governments to try to be the ones who determine R&D priorities; and
• the strategic 'planning' methodology being used in developing an R&D strategy has a long history in Queensland of heroically failing to generate real economic development.

The Need for Reform

There has been a need to modernize Queensland's approach to R&D from an economic perspective for at least 20 years.

For example: Queensland's long established tradition of relatively high levels of state R&D spending have not produced a productive modern economy (noting that Queensland's per capita GSP has remained stubbornly about 15% below the national average, which has itself been in long term decline by international standards).  

Most R&D spending was devoted to agriculture, and this investment clearly did not make a decisive difference as Australia's share of world agricultural exports was simultaneously in long term decline.

Though agriculture's export performance was distorted by US and European protectionism in global agricultural markets (which those economies supported at great cost for security and political gains), the 'agrarian socialist' / state corporatist organization of the Queensland / Australian industry (which treated the organization of the industry as an administrative process under political control, rather than as a market process) also seemed to:

• provide much weaker access to markets than was achieved through the agribusiness arrangements that were deployed by European and North American competitors; and
• make it hard to respond to the shift in profitable opportunities from broad-acre / mass-production agriculture (where it was difficult to obtain competitive advantages and high profit margins) towards more specialized products.

A problem with the current R&D Issues Paper is that it appears to propose extending, rather than correcting, the politically-driven 'administrative' processes for managing R&D which were the major weakness in the way R&D was arranged under agrarian socialism.

The Issues Paper is undoubtedly correct in the facts that it presents about R&D in Queensland - ie that:

• public R&D investment is above the Australian average, while private (and thus overall) R&D investment is relatively low;
• government spending can do no more to increase R&D spending.

Furthermore the emphasis which is given to knowledge in the Issues Paper is appropriate. 'New growth theories', developed by leading economists in the 1990s, ascribe a very high importance to knowledge as a factor in economic growth. Thus investment which boosts knowledge tends now to be seen as potentially having high economic value to society as a whole, because of the spill-over effects which this can generate.

This is one of several justifications for public support for education and basic research.

Unfortunately the basic assumption in the proposed R&D Strategy (and in Smart State) about the commercial and economic significance of R&D appears to be unrealistic.

Many different types of knowledge and skills are required for commercial / economic success. New knowledge, such as may come from R&D, is only one of these. Furthermore:

• only entrepreneurs or firms that have appropriate business strategies (and who operate in an environment providing effective support for innovation) are likely to be able to gain useful competitive advantages from new knowledge;
• new knowledge derived from technology transfer or from market research is likely to be at least as important as that gained from R&D.

R&D performance does not usually drive innovation and economic diversification. Quite the reverse. It is the need that firms can have to create competitive advantages through innovation or by pursuing new areas of opportunity that will typically motivate private investment in R&D.

Thus a high level of private R&D is mainly an indicator, rather than a cause, of an innovative and knowledge based economy.

Likewise the 'direction' of R&D does not drive the economy (as the Issues Paper asserted). Rather it is the orientation of firms towards market opportunities and their consequent involvement in R&D which they find to be relevant to this which enables R&D to make a difference.

Certainly some business opportunities originate in R&D, but (a) this is the exception rather than the rule and (b) the major practical obstacle to this in Queensland has not been any lack of potentially valuable research results but rather the lack of commercial competence to act on them.

The proposed R&D strategy is thus a further illustration of of the lack of realism of the Smart State agenda (see Queensland's Lack of Serious Public Policy: A Comment on Smart State).

Briefly: The overall weakness of the Smart State program is that government is investing in increasing inputs (ie education and research) into an economic system that does not have the organization or skills to make productive use of them.

There is thus a real probability that the large sums Queensland is investing in 'strategic' research capabilities will eventually be found to have been wasted.

The referenced document also indicates (very briefly and incompletely) that there are alternatives.

Queensland's Biotechnology Bubble is a good illustration of this problem.

A change in basic business strategies so that Queensland firms are better able to profitably use R&D, a change which could be induced by better knowledge of market opportunities and by more effectively developed commercial and technical support, is what is really required in the first instance to achieve the Smart State goals - rather than (say) more private R&D investment.

Thus achieving the goals suggested for the R&D strategy primarily requires assessment of opportunities and internal changes to take advantage of them by large numbers of non-governmental organizations. The implications of this for the methods that need to be used in developing a realistic R&D Strategy are considered further below.

Setting R&D Priorities: The Limited Role of Government

Public funding is appropriate for basic R&D (ie R&D which is not related to current practical applications which provides a core technological capability that others may build on) - though Australia's federal financial system makes it hard for states like Queensland to support this.

Implications of Australia Federal Financial System: States, as compared with the Commonwealth, have very limited ability to capture (through taxation) the benefits of real development of the economy - and thus to financially support R&D. This characteristic of Australia's federal financial arrangements appears to be being raised in the context of a current inquiry into that system (eg see Garnaut R. and Fitzgerald V. 'Disparity a balancing act for the states',  Financial Review,  9/4/02 - and also Comments on Review of Grants Commission Arrangements in relation to the background).  

In setting priorities for publicly funded basic R&D, governments should respond to what appear to be the best proposals they receive in the light of current knowledge, rather than trying too hard to 'get it right' in identifying R&D options that would be economically advantageous.

Why: Ambitious goals are likely to be counter-productive because the insider information needed for optimal decisions can never publicly available - and because filtering of strategic information through a democratic political process  almost inevitably ensures that the result can not be commercially valuable - because, by the time insights are widely accepted, alert competitors will already have acted to capture potential advantages (see also Economic solutions are beyond politics).  For example, the allegedly 'strategic' research areas that Queensland is adopting now are those which 'everyone' saw as critically important about 15 years ago.

An aside: Australia's federal government appears to be making a similar mistake in trying to force research into subjects that are likely to make money (Pheasant B. 'The wedding of science and industry',  Financial Review,  18/6/02)

The best way to promote the 'strategic' value of publicly funded research is probably to ensure that the institutions who put forward basic research proposals have access to quality information about strategic economic, social and environmental issues and are networked with organizations (including government agencies) who are likely customers for related applied research.    Those who are best placed to ensure such awareness and networking would include business and professional associations in conjunction with research institutes and universities.

Applied R&D (whether to meet public policy or commercial goals) can not be effective if it is not controlled by the organization in which it is meant to apply.   This point of view was particularly illustrated by the practices of the Australian Industry Mineral Research Association (traditionally seen as Australia's best research association) which went to great lengths to ensure that research projects it managed were genuinely client driven rather than merely technically interesting.

Thus applied R&D can not constructively be funded or managed through a centralized 'R&D' program.

Given that private R&D is the major area of perceived deficiency in Queensland, the state government should seek to have itself replaced by more appropriate institutions as the key catalyst in encouraging firms to adopt business strategies which involve R&D.

It should take a similar approach to developing the capabilities required for commercialization - because those high-level and difficult-to-acquire competencies are not likely to be developed, recognized or tolerated in politically accountable institutions.

A Problem in Methodology

The basic principle that the Issues Paper suggested for an R&D strategy (ie that it should enable government to achieve its economic, social and environmental objectives) seems most unfortunate.

What is really needed is a method to enable a great many Queensland organizations, as well as government, to achieve their various different objectives related to R&D.

About Governing: Government's job is to 'govern' Queensland, not to try to 'be' Queensland. And in particular, government's goal should the development of the economy (eg the capabilities of enterprises, and their mutual support), rather than the development of the state (eg the final outcomes of economic activity). If the economy is developed, then the community's market-focused enterprises will become increasingly capable of productively developing the state.  If Queensland's government continues its long tradition of trying to develop the 'state', then unfortunately it will be impossible to shift into higher value-added activities, or overcome Queensland's branch-office syndrome

The Issues Paper is correct in identifying the need for an innovative and entrepreneurial culture. The problem is that governmental strategic 'planning' won't achieve this either. The essence of such a culture is that community and business leaders should be able to take the lead, but strategic 'planning' by government ensures that they are merely being consulted and watching from the sidelines.

The creation of a framework in which enterprise and community leaders can be enabled to assess the implications of the R&D situation and take the lead and initiatives in enhancing Queensland's R&D and innovation systems is a valid goal for government - but this would requires the use of strategic 'management' rather than strategic 'planning' techniques.

See Strategy Development in Business and Government.  The key difference lies in who is the strategy development process positions to make decisions and take initiatives.

Practical experience in responsibly managing the relationship between public accountability and private initiative was gained in Queensland in the 1980s. Viable protocols for this were furthermore demonstrated through a number opf private-public partnerships in the US in the 1990s.

The useful background information in the Issues Paper could easily provide a basis for driving such an initiative. However that background information will NEVER make much impact on public or business consciousness or activities through a strategic 'planning' process - because the people who need to know can not really be involved or committed.

Queensland has a long history of preparing heroic economic development strategies which fail to achieve significant impacts because of the use of strategic 'planning' methodologies (eg Quality Queensland; Leading State; From Strength to Strength; and State Strategic Plan 1997-2002: State Economic Development Strategy).

The Queensland R&D Strategy unfortunately appears likely to continue that tradition.