Benchmarked innovation

7 February 2017

The Australian innovation system has undergone another extensive review with a new set of performance indicators. It is now called 'Australian Innovation, Science and Research System', but the general verdict from previous assessments has remained the same: we are adopters of new technology rather than disruptive inventors. And we are still not efficient enough in translating the knowledge we generate into new products.

The Performance Review of the Australian Innovation, Science and Research System released by Innovation and Science Australia (ISA) has again highlighted the essential weaknesses in Australia's innovation system.

The report was produced in the lead up to an innovation, science and research strategic plan, which ISA is due to release at the end of this year.

It details a new Australian Scorecard that it says is more calibrated to the Australian System than assessments such as the Global Innovation Index (GII), which use ranking tools with a narrow focus on certain aspects of the system.

ISA's Scorecard establishes a baseline performance against which the future performance of the system can be measured.

It is based on a framework of performance indicators that are set along three broad innovation activities: knowledge creation, knowledge transfer and knowledge application.

However, while ISA's approach provides a different way of looking at the Australian situation, in broad terms the report is in line with previous reports, including the GII and the Australian Innovation System Report series:

On the back of around $33 billion spent each year on R&D, with $10 billion invested by Government, we are doing exceedingly well in knowledge creation. But the knowledge transfer between research and private enterprise needs to be improved.

And with Business expenditure on R&D below the OECD average and falling, the application of knowledge does not currently match Australia's strength in knowledge creation.

ISA Innovation Scorecard; click to enlarge

System-wide the report finds several weaknesses that affect our innovation performance, such as a short-term oriented culture. It also points to our worsening income inequality across our society, and that we still are a gender-unequal society.

We do have a high level of entrepreneurial activity, but a relatively low level of high-growth enterprises.

Across sectors, the innovation performance is mixed, with Mining, Manufacturing and Professional, scientific and technical services found to be highly innovative. But overall our output of new to the market product innovation is low. Only 9.2% of Australian firms are engaged in such innovation, which is below the OECD average of 13.3% of all firms.

Australia's has a pronounced weakness in creating high-technology, although this has improved steadily since 1988. Among our manufactured exports, only 13.6% were classified as high-technology, with is below the OECD average of 15.1%, and a long way off the average of 30.4% found for the top five OECD countries.

We are not doing too well in the export of knowledge, which includes intangible assets such as research and technical assistance. In fact we are net knowledge importers of knowledge assets (e.g. licenses, patents, designs, trademarks), while most OECD countries are net exporters, with imports valued at $4.9 billion against exports valued at $4.7 billion. On the balance of trade knowledge Australia ranks 28th out of 31 OECD countries (based on absolute monetary value).

The export of knowledge nor of innovative goods and services does not rank high on our national income scale. Its iron ore, coal, higher education, natural gas and tourism that keep paying for our lifestyle. However, innovative goods and services are actually driving much of the growth in our exports: high growth firms creating innovation driven products generated 84% of the export growth over the seven years to 2010-11.