Dr John H Howard, 23 July 2024
The 2008 global financial crisis (GFC) had profound implications for economies worldwide. It caused a sharp contraction in economic activity and a decline in business and consumer confidence.
Australian businesses were not immune to these global pressures, and the subsequent economic uncertainty likely played a substantial role in the observed reduction in business R&D investment. In 2008, Australian R&D reached a peak of 2.24% of GDP (close to the OECD average of 2.28%). Then it collapsed and now stands at 1.68%, well below the OECD average.
While business investment in other economies recovered, this was not the case in Australia, suggesting deep systemic and structural forces have been at play. For example, the large multinational R&D-intensive companies in pharmaceuticals, motor vehicles, and technology, which invest in R&D globally, seem to no longer regard Australia as a preferred location, notwithstanding their strong sales and marketing presence. CSL is an outstanding exception.
Australian tech company Atlassian, which in 2022-23 reported an R&D spend of $2.8 billion (on revenues of $5.307 billion), has reported that a large part of this spending is incurred overseas, principally in technology hubs in the US, India and Europe. Australia has only 14 tech companies listed in the ASX200. Atlassian is not one of them.
In Australia, as in most other countries, the business sector undertakes the largest proportion of R&D in GDP; in 2008, that proportion stood at 1.37% but has since declined to 0.92%.
This collapse in business R&D, together with a trend decline in government expenditure on R&D, has been the major source of Australia’s R&D problem. If it hadn’t been for the growth in higher education expenditure R&D, which has trended upward since 2000, Australia’s overall R&D performance would have been much worse.
The Paper proposes five core policy initiatives that would strengthen Australian business R&D commitment and revitalise the path to knowledge-driven growth. This pathway would involve—
An integrated strategy of targeted public support for business R&D
A massive lift in public research investment through public research organisations
An active and coordinated foreign direct investment (FDI) program targeted at large global R&D investors.
Building and sustaining the commitment to education, skills, capabilities, and talent development that underpin success in these industries.
Ensuring that businesses in the industries of the future are effective partners in the development of innovation districts, precincts, and hubs.
It almost goes without saying that Australia requires a National Business Research and Development Strategy and Action Plan. The Prime Minister and the Minister for Industry and Science should orchestrate this through the Australian National Science and Technology Council. It should not be outsourced to an independent Review.
The development of the Strategy and Action Plan must involve rigorous analysis and testing of propositions not only in terms of their desirability but also in terms of their practicality and feasibility.
Many previous reports on lifting business investment have tended to use the "wisdom of the crowd" through extended consultations and relied less on the knowledge contained in previous reports and understanding why they have not had an impact, even with the input of national and business development experts.
The Paper concludes with a proposal to establish a National Research/Science Foundation, building on the models of Germany, Israel, Korea, and the USA. The Foundation would guide the development of a strategy to lift business R&D investment in a broader national R&D context and address its implementation across Australia's very complex system of public administration.
This Paper consolidates four contributions to the @AuManufacturing.com project on Turbocharging the Australian Economy so that R&D can reach 3% of GDP.
The complete paper, Innovation at the Crossroads, can be downloaded at
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