R&D and business in Australia

I have no quarrel with anything Allen Greer wrote in "Funding scientific research: money can't buy love". Measuring the quantity and quality of scientific output is always going to be difficult. There is no one measure.

That being said I think he did an excellent job of presenting the most important measures and I agree absolutely with his concluding remark.

"…in scientific research, money doesn't buy impact but collaboration does."

I would however like to present a different perspective on Australian R &D, one which is complementary to Mr. Greer's.

In Australia, as is the case in all OECD countries, most R & D is funded by business. To call the figures rubbery is an understatement. The most recent stats I was able to find, from the OECD iLIbrary, suggests a business-public ratio of 2:1. This is in line with a report presented to parliament in 2002 that also had a ratio of 2:1. By OECD standards this is quite a low ratio. In most countries businesses spend more.

At any rate, more than half of R & D expenditure in Australia seems to come from business.

From the business perspective, expenditure on R&D needs to result in some sort of profitable innovation for it to be sustainable. So, how innovative is Australia?

As a proxy for innovativeness I've taken the number of patents Australian inventors registered in the US per billion dollars of GDP and compared that to other countries. Registering and defending a patent in the US is expensive and, presumably, the inventors who do so believe they have a commercially valuable property.

Here are the results for 2013 for selected countries:

*Included in the "other category" on the USPTO website.

I took the GDP figures from the CIA World Factbook and the number of patents from the USPTO website. The selected countries are all the OECD countries excluding the US plus Brazil, China, India, Hong Kong, Russia, Saudi Arabia, Singapore, South Africa and Taiwan.

Clearly Taiwan, Israel, Japan and South Korea are the outliers. Australia is well down the pack at number 20. Canada, a country to which Australia is often compared, easily outperforms this country.

For the size of our economy we're not very innovative.

How much bang for the buck are we getting for our R & D dollars?

I used the Batelle Memorial Institute's 2013 estimate / forecast for 2013 R & D expenditure and produced this table for selected countries.

We find the same four countries at the head of this table. However, notice Canada at number 5.

As you can see even Saudi Arabia outperforms Australia in patents per R&D dollar. Canada is far ahead of us. It manages 226 patents / billion dollars compared to our meagre 71.

I'll readily concede these are rough and ready measures of innovativeness. For example comparing 2013 patents with 2013 R&D expenditure is not really realistic.

However more refined measurements do not tell a different story. Comparing 2013 patents with 2011 and 2012 R&D alters the absolute numbers but not the rankings.

Our relative performance is miserable.

Does it matter? So we're not the world's most innovative country. We can always dig stuff out of the ground. This is the "lucky country" after all.

Starting in 2003 Australia experienced what will probably turn out to be a once in a lifetime terms of trade boom. The price of our major exports, especially iron ore and coal sored compared to the cost of imports. In January 2003 the spot price of iron ore delivered to China was around $14 / ton. (All prices are taken from the IMF External Data Library). It peaked at $187 / ton in 2011 and is now back to $92 / ton. This is still well above the long term trend but the fundamentals do not look good. The first Hockey budget assumed an iron ore price north of $100 / ton.

Thermal coal went from $26 / ton at the beginning of 2003 to a peak of $193 / ton in mid 2008. It is now down to $74 / ton. Again the fundamentals do not look good.

Right now we'd be in real trouble if the falling Australian dollar had not acted as a shock absorber.

I would never claim to be able to forecast commodity prices but staking our whole future on volatile mineral prices does not seem to be a good bet. Having a depreciating currency will eventually catch up with us in the form of higher prices for the commodities and intellectual property we need to import.

In many countries, including Canada, investment in intangible assets, especially R & D, seems set to overtake investment in physical plant and equipment.

Bottom line. When it comes to innovation we need to up our game.

How is this to be achieved?

I have no easy answers but taking $100 mn from the CSIRO and spending a quarter of a billion on school chaplains is probably not a step in the right direction.

But, while more government spending on R & D is needed the bigger problem is to foster a culture of innovation and invention in Australian business. Here I think we can learn from Canada, Israel and South Korea.

In 1950 the economist John Maynard Keynes reportedly said that better than Marshall Aid would be for the US Air Force to bomb all British businesses at a time when only the directors were present. (As reported by Tony Judt in "Postwar"). Maybe it will take something like that to change the culture of Australian business.