|CPDS Home Contact||A Case for Innovative Economic Leadership|
A package of measures, which some have labelled Backing Australia's Ability 2 (BAA2), designed to support R&D and innovation was announced by the federal government in May 2004. Features of BAA2 include:
This package reflects the institutional weakness which seems to determine Australia's approach to economic strategy because the 'tail' (publicly funded R&D) is being expected to wag the 'dog' (the innovation capabilities of Australia's business and industry).
However the issue may have broader implications because Australia's failure to create an effective innovation system, the need for which has been obvious for two decades, arguably illustrates even more fundamental defects in the methods and machinery used to develop the economy.
Australia is not succeeding with innovation (see Commentary on Smart State) - though this is vital to:
BAA2 seeks to boost Australia's innovation capability [1, 2] by requiring that publicly funded research have a strong economic / commercial focus and encouraging partnerships with private investors. This amplifies trends towards economically-relevant R&D established under BAA1 [1, 2], which have also applied to CSIRO's work 
Various observers have noted that BAA2 will reduce the total level of publicly funded R&D [1, 2, 3]. And its has realistically been pointed out that trying to force economic gains will damage the integrity of the basic process of discovery through research [1, 2, 3]
However these are not the major deficiency of BAA2.
|Leveraging off R&D||
Leveraging Economic Gains off Public Funded R&D
What the federal government is currently trying to do (ie leverage business successes off publicly funded R&D) parallels what Queensland (and perhaps other states) have sought to do.
Both are futile because economically productive innovation must primarily emerge from organizations focused on market demand (rather than from those focused on the technical issues of research). Undertaking R&D is an indicator, not in most cases the source, of successful business innovation. Likewise having an effective system to commercialize publicly funded research is an indicator / component, not the prime cause, of an economy-wide innovation capability. It is moreover unlikely to constitute more than (say) 10% of any properly developed innovation system.
Current programs are the result of: thinking in terms of inputs to the economic system (which are likely to be introduced as disconnected fragments rather than part of an integrated, functioning economic system); and limiting concern to government programs.
The alternative is to stimulate changes in the economic system directly (eg in the innovation system as a whole, rather than just in 10% of it).
Changing the Economic System Directly
The primary problem to overcome is that the mainstream business community lacks the motivation and ability to succeed with innovation [1, 2, 3, 4] (eg innovation is seldom a focus of business strategy, and business investment on R&D is thus miserably low by international standards).
To overcome this requires stimulating systemic changes in the mainstream economy (eg in the ability of mainstream companies (especially SMEs) to profit from innovation - and thus at some future time to perform internal R&D and to value publicly funded R&D). How this capability could be stimulated in practice and at low cost is suggested in Commentary on Smart State. This would involve a form of strategic management leading to a 'systemic' shift - resulting in simultaneous changes in many different types of enterprises within industry clusters, and also in public policies, whose overall impact is to provide a supportive internal and external environment for business innovation.
Such systemic changes can not occur quickly through a 'free market' (because all actors face a 'chicken and egg' constraint which prevents them individually from doing much). And unless addressed, it is this systemic constraint which will ensure that the R&D expenditures which governments are currently making will achieve little. However if this was addressed then:
Various analysts have suggested the sorts of changes that are probably needed [1, 2] (eg establishing financial and organizational vehicles to manage risk; venture capital; public risk sharing; broadly based innovation orientation and capabilities ) - but they has not suggested how such options could be refined and changes achieved in practice. Moreover similar diagnoses were put forward by many analysts in the 1980s, and the problem remains unsolved.
The problem will continue to remain unsolved if all that is done (as some analysts have suggested ) is to improve integration between publicly-funded research institutions and a business community which remains unfocused on market opportunities for gaining competitive advantage through innovation.
Innovation can be driven by 'technology push' or 'market pull' - and both are equally viable if a well developed innovation system exists. However to develop an immature innovation system, emphasis on 'market pull' seems far more likely to generate the necessary energy and realistic sense of direction. Moreover, by emphasis on building an innovation system off existing economic capabilities by following 'market pull', business would be given the opportunity to crawl before it was expected to run.
Breaking the Iron Triangle
In order to overcome the problem due to Australia's traditional 'technology push' strategy, there is first a need to break the 'iron triangle' which has dictated the ineffectual character of Australia's efforts to develop its immature innovation capability - namely:
Then business groups (such as the Business Council of Australia ) need to redirect their attention from lobbying for government to change institutions such as universities and CSIRO, and give priority mainly to ways to develop the systemic capabilities of the mainstream economy on whose effectiveness their members (and the value of the teaching and research by institutions such as universities) are even more dependent.
The distortion now being inflicted on publicly funded research institutions as a substitute for more broadly based systemic change seems similar to the damage that was done to Australia's system of public administration over the past 10-15 years in misguided efforts to make it 'commercial' and overcome bureaucratic 'resistance' (see Decay of Australian Public Administration). The latter was arguably also based on some misunderstanding of the nature of Australia's economic challenge - and the view that it was government, rather than the effectiveness of community and economic systems, which most needed to be upgraded.
Upgrading Australia's Economic Leadership
Australia's lack of progress in creating an innovation capability illustrates fundamental problems in its approach to economic leadership.
Policy related to technology has for decades been driven by science / engineering interests rather than by commercial / economic considerations – perhaps because:
The result was a policy based on prescriptive government supervision (mainly from Canberra) of R&D type issues and a ‘pretence’ of interest in innovation.
The need to change this to develop a strong commercial ability to deal with innovation was recognized by everyone who studied the subject in the 1980s (as many did) – and this could have been achieved (through a ‘learning by doing’ approach) but the message did not get through to enable sufficient practical action, apparently because:
Moreover the Commonwealth Government's dominance of Australia federal system might be an important cause of Australia’s problem in establishing an effective innovation capability (and of slow changes to economic systems generally). It can be noted that:
The explanation could be that:
In assessing Australia’s failure to deal with innovation in 1990s it needs to be recognized also that (in Queensland at least - and perhaps nation-wide) the political system largely eliminated the skill base required to do so (which had emerged in the 1980s), in order to get unquestioning compliance in implementing their 1970s’ understanding of what was required (see Towards Good Government in Queensland). In practice Queensland then emphasized replicating the traditional national-level ‘government supervision of R&D type issues and a pretence of interest in commercialization’ - a focus which carries over into the (ironically titled) Smart State agenda in the early 21st century.
But there is no reason to suspect that Queensland was unique in that respect. The inadequacy of a purely R&D focused approach to development of technology-based activity was becoming well recognized by national economic institutions in the 1980s, and would never have become the focus of Backing Australia’s Ability if the skill base of those institutions had not also been demolished by political interference in the 1990s.
Faster development of Australia's economic capabilities requires institutions which can take the lead in developing them which are not constrained (as politically accountable institutions are constrained by their popular mandate) to act on ideas about the nature of economic ‘progress’ which were devised 15-20 years earlier and have thus had time to become widely understood. Moreover given a reduced dependence on central funding and control by Commonwealth agencies, universities would be able to play a constructive role in regional innovation systems – given apolitical leadership in creating those regional systems.