John H Howard, 29 October 2024.
In May 2024, the Government announced a "strategic examination" of the entire R&D system to "strengthen its alignment with Australia's priorities" and generate better outcomes.
The examination, or Review, is being positioned as a response to the Australian Universities Accord released in February 2024, which recommended sweeping changes to the research system and as a way of encouraging more business investment.
To date, the Review Panel and Terms of Reference have not been announced.
This "root and branch" review of public research funding presents a critical juncture for reforming an underperforming and fragmented system. For decades, Australia has struggled with entrenched challenges in research funding, governance, and the translation of research into economic and societal value.
The Review provides an opportunity to reshape Australia's research system, aiming for a coherent, future-facing model that boosts investment, integrates research efforts, and aligns them with national priorities.
Institutional Fragmentation: A Core Systemic Problem
Australia's research system suffers from institutional disintegration, with growing responsibilities spread across various government departments and divisions, statutory research agencies, corporations, and research funding councils. This lack of central coordination results in inefficiencies and missed opportunities to align research efforts with national priorities.
By contrast, countries such as Germany, South Korea, and the United States have successfully implemented national research foundations that play a central coordinating role. For instance, the German Research Foundation (DFG) allocates resources strategically and long-term, ensuring that investments align with national research priorities and broader economic objectives.
The United States National Science Foundation (NSF) similarly operates as a centralised entity that coordinates funding across disciplines through national competitions and agencies (e.g. National Institutes of Health, Departments of Agriculture, and Energy) while aligning research initiatives with national imperatives such as technological innovation and national defence.
Numerous policy discussions have recommended the creation of a National Research Foundation (NRF) for Australia. However, it is often seen as constitutionally and administratively challenging.
The Review should play a catalytic role in rethinking and resolving these blockages. That won't be easy, but the goal must be to create a powerful organisation that will transform research investments with national priorities and ensure that resources are allocated to areas of greatest need, particularly in fields where Australia is a long way from peak performance, areas such as information technology, advanced manufacturing, quantum science, and now AI.
There is a lot of money around from numerous Commonwealth and State sources, but even then, it is poorly targeted, spread thinly (the vegemite problem) and not enough to shift the dial.
This organisation would also provide a platform for integrating higher education research with Government and business R&D, fostering interdisciplinary and interagency collaboration and reducing institutional silos.
The Overreliance on Higher Education for Research
Australia relies heavily on higher education institutions, which perform around 35% of the national R&D effort. However, this model is unsustainable, especially given the decline in both Government and business R&D investment.
Countries like Germany and South Korea have more balanced systems where government research institutions play a significant role alongside universities.
The problem with relying too heavily on higher education is twofold. First, universities are not typically structured to deliver applied or commercial research outcomes, which are crucial for driving innovation and economic growth. Second, the orientation and incentivisation of research towards scholarly publication means that translating research into tangible economic outcomes is highly challenging.
Several universities, particularly those with a strong technology orientation, have resolved this challenge, but it is still widespread.
The system's reliance on higher education has made it vulnerable to external shocks, such as fluctuations in international student revenue, which has been a critical funding source for universities but is inherently unstable.
A diversified model, where government research institutes, higher education, and the private sector each contribute robustly to the national research effort, would build greater resilience and enable a more dynamic research ecosystem.
To achieve this, Australia must establish or significantly strengthen public research institutions outside the university sector. A model similar to Germany's Fraunhofer Institutes, which focuses on applied research and technology transfer in close collaboration with industry, could be particularly effective in addressing Australia's commercialisation gap.
Business Investment in R&D: The Missing Piece
The low levels of business investment in R&D reflect a major structural problem in Australia's research ecosystem. This is due, in large part, to the absence within Australia of research-intensive multinational corporations undertaking research in Australia.
Apart from CSL, Australia lacks the presence of global pharmaceutical, automotive, and technology giants that drive the innovation ecosystems in other countries. These companies invest globally but not very much in Australia––they look to talent pools and sophisticated innovation ecosystems elsewhere. Even Australian software giant Atlassian undertakes the greater part of its R&D in hubs in various parts of the world, particularly in the United States and Europe.
Efforts to increase Australian business R&D investment through tax incentives, such as the Research and Development Tax Incentive (RDTI), have yielded mixed results. While tax incentives are important for stimulating private sector investment, they alone cannot address the broader structural issues.
Australia must go beyond simply encouraging existing businesses to invest in R&D and actively work to attract global research-intensive companies to establish their R&D operations within the country. This requires targeted incentives, regulatory reforms, and the development of world-class research infrastructure and ecosystems, which would go a long way to positioning Australia as an attractive destination for international R&D investment.
Furthermore, while there has been a shift from basic research to applied research in Australia in recent years, greater priority should be given to experimental development that directly supports industrial innovation. This would require substantial investments in research infrastructure to support proof of concept, testing, and scale-up. Several of Australia's technology-oriented universities have made substantial investments in this area.
Countries like Germany and South Korea have successfully implemented mission-oriented research strategies, where public and private R&D efforts are aligned with national strategic priorities, such as advanced manufacturing and digital transformation and, more recently, in renewable energy and climate change.
Australia must adopt a similar approach, where research investments are strategically directed towards areas with the greatest industrial and economic development potential. Clear national research missions would provide direction for public and private sector R&D investments and foster greater collaboration between universities, research institutes, and industry.
Research Commercialisation: Bridging the Gap
A persistent challenge for Australia has been its underperformance in translating research into commercial outcomes. It is well-known and much lamented that, despite high levels of research output, Australia lags behind international competitors in areas such as patents, licences, and spin-off companies.
This failure to capitalise on its research output represents a significant missed opportunity for economic growth and innovation-led development.
One reason is the absence of strong intermediaries, such as the UK's Catapult Centres or Germany's Fraunhofer Institutes, which effectively bridge the gap between academia and industry. These intermediaries are crucial in turning research into market-ready technologies and products.
Australia could benefit from creating similar institutions that focus specifically on research commercialisation. This could be done by expanding the Cooperative Research Centres (CRCs) program or establishing a new network of applied research centres that work directly with industry to commercialise research outputs.
Additionally, the Review should consider strengthening capability in university Technology Transfer Offices (TTOs), ensuring they are adequately resourced and incentivised to actively engage with industry partners and drive commercial outcomes.
Towards a National Research Strategy
Australia needs a long-term national research strategy that aligns R&D investments with economic and social priorities, following the example of Germany, South Korea, and the United States.
Australia's international competitors, including Germany, South Korea, and the United States, have developed national research strategies that set clear goals and priorities for R&D investment. These strategies ensure that research efforts are well-coordinated and aligned with broader economic development goals.
It is pointless to examine funding arrangements without a national strategic framework.
However, in the history of Australian public policy, governments have considered funding programs first and how they might relate to a national strategy later–if at all.
Research investment decisions are often driven by opportunistic or short-term political considerations rather than long-term strategic priorities. This has led to instability in funding and hindered research institutions' ability to plan and execute large-scale, mission-oriented research projects.
An Australian National Research Foundation would be critical in developing and implementing a national research strategy. Such a strategy should address Australia's key challenges, including diversifying the economy away from its current commodity focus, strengthening advanced manufacturing capabilities, and positioning Australia as a leader in emerging technologies such as quantum computing and artificial intelligence.
The strategy should also promote greater collaboration between universities, government research institutes, and industry, ensuring that research efforts are coordinated and directed towards areas of national strategic importance.
Conclusion: The Way Forward
The 'root and branch' review offers Australia a unique opportunity to fundamentally reshape its research ecosystem. Designing a National Research Foundation, diversifying investment, and developing a long-term research strategy are critical steps. However, this transformation requires sustained commitment and bold action from all Ministers, moving beyond incremental changes to achieve meaningful national outcomes.
By learning from international models and adapting them to deliver targeted reforms in the Australian federal context and Westminster system of individual ministerial responsibility, Australia can build a more resilient, innovative, and impactful research system that contributes to national economic growth and societal well-being and sets Australia up for a sustainable future.
This reform, however, requires bold action and sustained commitment. Incremental changes will not address the deeply entrenched challenges in Australia's research funding system. The Review must aim for transformative change, aligning research investments with national priorities and ensuring that Australia's research efforts contribute meaningfully to the country's future economic and social prosperity.
The timing is opportune: the Government's committed expenditures identified in the 2024-25 SRI Budget Tables show a 30% fall in its investment obligations in 2027-28. This is an excellent opportunity to rethink priorities, particularly with the R&D review underway. Plans and resource reallocation could take effect from 2026-27, with full implementation in 2027-28.
The Action Items that flow from this analysis encompass the following:
1. Establish a National Research Foundation (NRF): An NRF would streamline R&D funding and reduce system fragmentation, focusing resources on national priorities like AI, quantum science, and advanced manufacturing. Inspired by models like Germany's DFG, the NRF would adapt to Australian governance needs, creating a unified, strategic approach to research funding and policy.
2. Implement a Long-Term National Research Strategy: A cohesive national research strategy, prioritising mission-oriented research, would direct R&D investments towards Australia's long-term economic, industrial, and societal goals, including housing, equity, opportunity, and inclusion. This strategy would counter short-term political shifts, providing stability and enabling resource reallocation to align with pressing national priorities.
3. Address Institutional Fragmentation: A centralised framework would consolidate dispersed responsibilities across agencies to reduce inefficiency. Cross-departmental funding, as in the NSF model, would prioritise critical areas like renewable energy, environmental R&D, striving for Net Zero, and strengthening resource alignment and efficiency across agencies for greater national impact.
4. Diversify Investment in Research Institutions Beyond Higher Education: Establish or strengthen non-university public research institutes, following models like Germany's Fraunhofer Institutes, to address applied research needs. This diversification would reduce the burden on universities, enhance the resilience of Australia's research system, and drive industry-focused technology transfer and commercialisation efforts.
5. Strengthen Business Investment in R&D: To attract global R&D firms, Australia should offer incentives, regulatory reforms, and advanced infrastructure, encouraging private sector engagement in research. Infrastructure investment should support experimental development, enabling collaborative R&D between public institutions and businesses for economic growth and innovation.
6. Enhance Research Commercialisation Pathways: Create or expand commercialisation-focused institutes, like the UK's Catapult Centres, bridging academia and industry. University Technology Transfer Offices should also receive resources to engage industry partners actively, increasing the commercial impact of Australia's research outputs and translating research into economic benefits.
7. Implement National Research Missions: Establish clear research missions aligned with national priorities (e.g., climate resilience and digital transformation). These missions would unify public and private research efforts toward pressing challenges, guide R&D activities, and promote coordinated, cross-sectoral collaboration.
8. Foster Greater Public-Private Collaboration: Strengthen programs like Cooperative Research Centres to support industry-aligned R&D. This would strengthen partnerships between academia, government agencies, and industry, breaking institutional silos and encouraging collaborative innovation with both economic, societal, and national benefit outcomes.
9. Align with Global Best Practices: Adapt best practice elements from successful R&D policies in countries like Germany, South Korea, the United States, Singapore, Japan and Taiwan to fit Australia's context. This would position Australia's research ecosystem for resilience, ensuring policies reflect federal structures and ministerial responsibilities while targeting long-term national objectives.
10. Set Up Governance and Accountability Measures: Robust governance frameworks are essential for the NRF and R&D entities to maintain alignment with national priorities. Performance evaluations and accountability measures would ensure that research efforts reflect strategic goals, reinforcing the effectiveness of Australia's research investments.
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