Innovation is still the key to jobs and growth

Article first published by the ABC on 18^th May 2018

Don't ever call Jake Dingle lucky. Sure, he's the CEO of a multi-million-dollar enterprise, but he's hit plenty of speed humps on the road to success.

"Funding the business has been a struggle. It's by far the biggest challenge. We're very much parochial. We want to keep it Australian," he said.

In 2007, Jake Dingle's business, Carbon Revolution developed the world's first one-piece carbon-fibre wheel.

Eleven years later, it's supplying Ford Mustang in the United States and Ferrari in Italy. Soon the business will be employing 1,000 people at its advanced manufacturing plant on campus at Deakin University in Geelong, Victoria.

Like so many other great Australian innovations — namely Cochlear's hearing implant, the blackbox flight recorder and even Wifi — the company started life in a lab among PhD students.

It was pioneering work at Deakin University, which halved the weight of standard aluminium wheels, that laid the foundation for Carbon Revolution's achievement.

But continued cuts to the tertiary sector and to industry research and development are putting future development at risk.

Where is the money for inventive, new businesses?

Of the $110 million that helped power the Carbon Revolution story, $10 million has come from federal and state government grants since 2011.

In 2016, the Clean Energy Finance Corporation also made a $10 million investment in the company.

But it took a sum several times that amount from Swiss multinational, Ronal Group to fully commercialise the founders' academic knowhow.

With 32 per cent of the business in Swiss hands, Carbon Revolution has, so far, managed to keep the company majority Australian owned, with the help of private investors.

In its early phases of development, the firm met with a number of local fund managers but, despite a $2.5 trillion superannuation pool, none were prepared to invest.

Australian investment 'way behind' peers

A November 2017 report by Innovation and Science Australia (ISA), led by venture capital supremo Bill Ferris, called on government, business and investors to significantly lift their collective spending on research and development (R&D).

At just 1.9 per cent of GDP, Australia ranks ninth out of 11 comparable nations on R&D spending. The United States, Germany, Japan, Korea, Israel and Sweden invest two to four times more than Australia.

In an interview with the ABC before the budget was handed down, ISA chair Bill Ferris said we had fallen "way behind" our peers in the global innovation race.

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 He looked annoyed when he listed inventions like the heart pacemaker, photovoltaic cells and x-ray crystallography among Australian academic breakthroughs that could only find a path to profit overseas.

Even the Education Minister, Simon Birmingham laments the fact that Australia hasn't been able to do better at making money out of some of our greatest research projects.

"As a nation we don't perform as well in terms of translating research into innovation outcomes, into getting commercialisation of that research," he said.

"Compared to the OECD there we're closer to the bottom of the pack and that's what some of the changes we've made in terms of the Innovation and Science Agenda have focused on."

It's where the money goes that matters most

The Australian Government allocates $10 billion a year to innovation spending.

The problem Roy Green pointed out as expert consultant to the 2015 Senate Committee Innovation Systems inquiry is just how convoluted the money flow is. Funding is spread across 13 government portfolios and 150 different budget line items.

Since the Coalition came to power in 2013 there have been five innovation ministers.

Emeritus Professor Green who was, until recently, the dean of the UTS Business School, described the Government's approach to innovation as "incoherent" and "amateurish".

The ISA board recommended a more targeted approach to the Government's research and development spending. It would prefer to see direct grants than tax incentives.

A 2016 review of the R&D Tax Incentive (RDTI) found that too many big businesses were claiming the RDTI without doing any particularly inventive work in return.

In an interview with the ABC, Senator Birmingham said the Government had preferred not to increase funding for direct measures to support research and development such as the Export Market Development Grant.

He said the Government had reflected on the advice of the chief scientist, ISA and Treasury modelling to come up with its budget response.

The budget's innovation measures

Treasurer Scott Morrison accepted a recommendation from the review to crack down on such tax cheats. As a result, the budget is expected to be better off to the tune of $2.4 billion over the next four years.

"We believe that we can get the best results by addressing some of the issues with the way the R&D tax incentive worked, better targeting it, ensuring it's focused on better additionality of spending and investment by business but also still ensuring that business have greater control on how they prioritise R&D spending," he said.

In its pre-budget submission, the Business Council of Australia warned that making the RDTI more targeted would "bring unintended consequences and add complexity".

It was clearly an already complex area of tax planning, given the review found that businesses were spending circa $200 million a year on lawyers and accountants to help them access the tax offset.

The budget's headline $1.9 billion allocation to a Research Infrastructure Investment Plan is spread across 12 years and only $5.5 million of it is due to be spent in 2018/19 ($194 million over four years).

Up to $41 million is being spent on the establishment of an Australian Space Agency (over four years) and $500 million is set aside for the Medical Research Future Fund.

Professor Roy Green says overall the Government will spend less on its Innovation Budget over the next four years than it did in the previous four, but Senator Birmingham argues the Government is being very targeted in its policies.

"There's never been a 12-year plan for investment in research infrastructure but there is one funded under the Turnbull Government. It's that long-term approach that is going to give Australian researchers certainty in terms of how they operate," he said.

Universities and innovation are inextricably linked

It's widely acknowledged that the missing piece of Australia's innovation puzzle is strategic collaboration between universities and the business community.

According to the 2015 Innovation Systems Inquiry, Australia runs last in the OECD for research-business collaboration.

Most of our best new ideas come from research being done at the nation's 41 universities, eight of which are ranked among the top 200 in the world.

"The Government says they want us to be innovative, a knowledge nation, but to be that you have to invest in knowledge and they're doing the opposite of that," Professor Green argued.

In just the past year, the Government has announced cuts of $2.2 billion from universities over the next four years, mostly by way of a funding freeze for degree courses, and a further $3.7 billion was removed from the sector with the closure of the Education Investment Fund. That money was reallocated to the National Disability Insurance Scheme.

In a speech earlier this year, Education Minister Simon Birmingham explained that "too many in the university sector seem to have underestimated the resolve of the Government to live within our means, to live within our budget".

Government spending on tertiary education institutions in Australia is 0.7 per cent of GDP which is already below the OECD average (1.1 per cent). Of the 34 advanced nations, Australia ranks 30th for government spending on universities.

University-business collaboration is key

Vice-chancellor of Deakin University (home of Carbon Revolution), Jane den Hollander, bemoans the fact there are no vice-chancellors on the Business Council of Australia board.

"International students bring in $30 billion into our economy each year," she noted.

"Education is the third biggest export market (after iron ore and coal). Who are the innovators in this country? Universities are and yet they keep cutting our funding," she said.

Contrastingly, Mr Ferris pointed out that 40 per cent of US firms in the S&P 500 have PhDs on their boards.

He said it is probably no coincidence that those 40 per cent perform better than the companies without that level of expertise on their boards.

Last month, an innovation hub was launched on the Deakin campus. It provides a state of the art building with eight purpose built factories where the university also offers marketing and financial support to its entrepreneurial students.

The CSIRO is there working on more applications for carbon fibre. One PhD student is manufacturing a world-first training method for firefighters using fabric sensors and virtual reality to recreate a variety of potential fire hazards.

The first orders for the computerised kits are already flowing from the United States and CEO James Mullins sees the potential to supply most of the fire brigades in the world.

Time for 'a new chapter in Australia's economic history'

Australia's 26 years of uninterrupted economic growth are less than guaranteed to continue. Malcolm Turnbull acknowledged that at the launch of his 2015 National Innovation and Science Agenda.

As the Reserve Bank's governor Philip Lowe said recently: "It's time to open a new chapter in Australia's economic history".

Australia's century-old reliance on primary exports may have bred complacency in an economy that now ranks last, 36 from 36, in the OECD on measures of economic complexity and sophistication.

Over the past 16 years, governments at the federal level have commissioned more than 60 reports in to innovation policy.

Mr Ferris is hoping his latest offering — Australia 2030 — doesn't gather dust.

Mining investment peaked in 2011-12 and for almost 10 years investment in Australia's non-mining sector stalled. Now it is picking up again and analysts are keenly focused on the nature of that investment.

Professor Green has even suggested the Government make its big company tax cuts conditional on investment in new ideas.

More money would be good but just as important, said Mr Ferris, is a shift in attitudes.

He is certain no one in the Parliament really grasps how critical innovation is to Australia's future. Too often it is assumed the impact of innovation is job destruction.

"Our board's view is that without innovation there will be way less jobs," Mr Ferris said.

Learn more about the importance of research innovation to Australia’s future at the Research Innovation and Commercialisation Summit 2019.

Download the full event guide here.