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Science and Innovation

Research report

This research report was released on 27 March 2007.

See also: State and Territory based assessment of Australian research

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  • Key points
  • Media release
  • Contents

There are widespread and important economic, social and environmental benefits generated by Australia's $6 billion public funding support of science and innovation.

  • On the basis of multiple strands of evidence, the benefits of public spending are likely to exceed the costs.
  • But, given a host of measurement and methodological issues, it is not possible to provide anything other than broad estimates of the overall return to government contributions.

Major improvements are needed in some key institutional and program areas.

The adequacy of existing program evaluation and governance arrangements is mixed, with some notable shortcomings in business programs.

The net payoff from the R&D Tax Concession could be improved by allowing only small firms access to the 125 per cent concession, changing the thresholds for tax offsets, amending the base for the 175 per cent incremental concession and considering a narrower, more appropriate, definition of R&D. This should increase the amount of new R&D induced per dollar of revenue and achieve more spillovers.

Strong public support of Rural R&D Corporations with a public good orientation is justified, but the level of government subsidies for some narrower, industry-focused arrangements is likely to crowd out private activity and produce weaker external benefits outside the supported rural industry. However, industry will need time to adjust to new arrangements.

Collaboration can generate significant benefits. The CRC program is, however, only suited to longer-term arrangements. There are complementary options for business collaboration with public sector research agencies and universities that could provide more nimble, less management-intensive, arrangements.

There are grounds for dealing with problems in the governance and intellectual property frameworks of universities, weaknesses in their commercial arms and shortcomings in proof-of-concept funding.

  • However, the pursuit of commercialisation for financial gain by universities, while important in its own right, should not be to the detriment of maximising the broader returns from the productive use of university research.

The structure of funding for higher education research has increasingly eroded the share of block grants. Further erosion would risk undermining their important role in enabling meaningful strategic choices at the institutional level.

The costs of implementing the Research Quality Framework may well exceed the benefits. The benefits from the 2008 RQF round could be improved if its funding scales provide more significant penalties for the poorest research performers than apparently currently envisaged. In the long run, a transition to less costly approaches, such as those that target poor performing areas, should be considered.

Background information

Ralph Lattimore (Assistant Commissioner) 02 6240 3242

There are important economic, social and environmental benefits to Australia from the $6 billion public support of science and innovation, according to a report released by the Productivity Commission. Nevertheless, in its final report on Public Support for Science and Innovation, the Commission has identified a number of areas of the science and innovation system where reforms are needed.

Commissioner Mike Woods, in releasing the final report, said, ‘The most important functions of publicly-supported science and innovation are nurturing a highly skilled and creative workforce and generating knowledge that is broadly and publicly useful. Increasingly, public support has focussed on commercialising R&D, but in most instances the private sector is best placed to fund this activity.’

Consistent with this, the Commission argues that the objectives of Cooperative Research Centres should be re-aligned to the broad attainment of economic, social and environmental goals, not just commercial ones. Strong public funding support is justified for Rural R&D Corporations that have a significant public good orientation. But the Commission considers that the level of public co-funding for some of the more industry-focused corporations could be too high and should be re-assessed.

The Commission found that there would be a better chance of stimulating R&D in the business sector if there were changes to the design and scope of the $600 million R&D Tax Concession. Commissioner Woods said ‘we need to increase the likelihood that businesses getting these subsidies use them for R&D they wouldn't otherwise undertake.’ The Commission also identified a need for more nimble R&D collaborative arrangements between business and universities, and has proposed a complement to the CRC program that could achieve this, as well as a 'proof of concept' program that would help universities transfer developed ideas to businesses.

The Commission canvasses some options that might increase the possibility of net benefits from the recent Government decision to adopt the Research Quality Framework (RQF). The Commission favours a scheme that is more strongly weighted against the poorest research performers than currently envisaged. But as the RQF evolves, the Commission suggests the use of a lower cost, risk-minimisation approach that only applies to poor performing areas in universities.

Further information

Ralph Lattimore (Assistant Commissioner) 02 6240 3242

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

Cover, Copyright, Foreword, Terms of reference, Contents, Abbreviations, Overview , Key points, Findings

1 Introduction
1.1 Why is this study timely?
1.2 What we are not doing
1.3 What is science and innovation?
1.4 Participation in the study
1.5 Structure of the report

2 A snapshot of Australia's science and innovation system
2.1 Introduction
2.2 An overview of investment in knowledge capital
2.3 Government undertakes R&D
2.4 Governments are major funders of R&D
2.5 A plurality of modes of delivery
2.6 Where are resources allocated?
2.7 The business perspective
2.8 Public support and conduct is in flux
2.9 The international perspective

3 Rationales for public support
3.1 Introduction
3.2 Why do rationales matter?
3.3 Knowledge spillovers - the conventional rationale
3.4 Spillovers from basic research
3.5 Spillovers from commercially-oriented research
3.6 The paradoxical role of the service sector
3.7 The bottom line on spillovers as a rationale
3.8 R&D as an input into government activities
3.9 Intangible values: a cultured and worthwhile society
3.10 Risk, uncertainty and capital markets
3.11 Tackling myopia and information deficiencies
3.12 Successful firms and transformed industries
3.13 Evolutionary theories and the 'innovation system' approach
3.14 Empirical rationales for support
3.15 There are some dissenters
3.15 Bottom lines

4 Impacts
4.1 Introduction
4.2 What is meant by 'impacts'?
4.3 How much additional R&D does public support elicit?
4.4 The macro evidence on economic impacts
4.5 What do quantitative case studies suggest about the impacts of public support?
4.6 Environmental impacts
4.7 Social and health impacts
4.8 Other impacts
4.9 What are the implications of good returns to public support?

5 Impediments to the functioning of the innovation system
5.1 Introduction
5.2 Government policy and regulation
5.3 Intellectual property rights
5.4 Research infrastructure
5.5 Privacy regulation
5.6 Ethical review of health and medical research
5.7 Access to the results of publicly-funded research

6 Workforce issues
6.1 Introduction
6.2 Numbers of scientists, engineers and teachers
6.3 Working conditions and job satisfaction

7 Commercialisation and utilisation
7.1 What does the evidence show?
7.2 Perceived impediments within universities
7.3 Institutional and policy responses outside universities
7.4 Policies aimed at businesses alone
7.5 An overall assessment of the impediments to commercialisation

8 Performance evaluation and benchmarking
8.1 The importance of evaluation
8.2 A conceptual framework
8.3 Improving evaluation
8.4 Adequacy of current arrangements

9 Funding levels, funding mix and coordination issues
9.1 The role for international comparisons and targets
9.2 How much to spend in total?
9.3 The balance between basic and applied R&D
9.4 The decision making environment
9.5 Coordination
9.6 National research priorities

10 Business programs
10.1 Introduction
10.2 Elements of good program design
10.3 Overview of business sector support
10.4 R&D tax concession
10.5 Competitive grants programs
10.6 State Government support
10.7 Rural Research and Development Corporations
10.8 Automotive Competitiveness and Investment Scheme
10.9 Public-private partnerships

11 Public Sector Research Agencies
11.1 Introduction
11.2 Are CSIRO's processes effective in targeting the right research projects?
11.3 Are CSIRO's funding arrangements appropriate?
11.4 Are there any lessons from CSIRO's approach for other parts of Australia's research sector?
11.5 Defence Science and Technology Organisation
11.6 DSTO's role
11.7 Should DSTO contract-out more research?

12 Funding of higher education research
12.1 Current funding arrangements
12.2 Rationales for different funding streams
12.3 The balance of funding
12.4 The proposed Research Quality Framework
12.5 Alternative block funding approaches
12.6 Allocating competitive funds

A Participation
A.1 Discussions and presentations
A.2 Roundtable participants
A.3 List of submissions

B Major Australian Government support
B.1 Budget data
B.2 Appropriateness of the data

C International comparisons and R&D targets
C.1 OECD R&D targets
C.2 How does Australia compare?
C.3 The role of industry structure
C.4 Firm size
C.5 Researcher wages
C.6 Public support
C.7 Other measures of innovativeness
C.8 Conclusion

D Absorption costs

E Multifactor productivity

F Static models of multifactor productivity

G Semi-parametric estimates of the impact of R&D
G.1 Method
G.2 Construction of observable R&D stocks
G.3 Estimation and results
G.4 Implications
G.5 Some cautions
G.6 Conclusion

H State level panel data estimation of the returns to public and private R&D
H.1 Background
H.2 Data construction
H.3 Descriptive statistics
H.4 Econometric analysis

I What can be learnt from cost-benefit case studies?
I.1 Overview of cost-benefit analysis methods used in case studies
I.2 Findings from cost-benefit studies of returns to publicly funded research
I.3 Lessons from cost-benefit case studies

J Patent and innovation indicators
J.1 Patent indicators
J.2 Innovation Index
J.3 Innovation counts and surveys

K Publications and scientific performance
K.1 Introduction
K.2 Australia's international performance
K.3 Distribution of Australia's research effort
K.4 Collaboration

L Science and innovation workforce
L.1 Supply issues
L.2 Demand issues

M Does public support elicit additional R&D?
M.1 Introduction
M.2 The first mechanism - lowering the price of business R&D investments
M.3 The second mechanism - competitive grants
M.4 The third mechanism - publicly undertaken R&D
M.5 Summary

N Intellectual property system
N.1 Patents
N.2 Institutions

O Research infrastructure expenditure

P Privacy Act 1988
P.1 Introduction
P.2 Provisions applying to health information and medical research
P.3 Recent reviews

Q Privacy legislation

R Business innovation determinants
R.1 Background to the data
R.2 Estimation strategy
R.3 Regression results

S R&D expenditure by State and Territory
S.1 Level of R&D expenditure
S.2 Focus of R&D expenditure
S.3 Publications by State and Territory

T R&D support and 'transformational firms'
T.1 Public support for R&D and the role of 'transformational firms'
T.2 Data matching results
T.3 Implications and further work