Bill Ferris counts two big letdowns from his three years as the first chairman of the agency Malcolm Turnbull tasked with driving innovation in Australia: Business research and development is getting weaker, not stronger, and the Coalition government shunned innovation when it didn’t play with voters.
The veteran venture capitalist said business spending on R&D had fallen since the global financial crisis to just below 1 per cent of GDP while top nations, including the US, Israel, Korea, Sweden, Japan, Germany and Singapore, had increased theirs to 2 to 3 per cent, and Israel to more than 4 per cent.
“We are heading the wrong way and so it doesn’t seem to be being valued or promoted enough – and I would include big companies in that,” Mr Ferris told The Australian Financial Review in an interview to mark the end of his chairmanship of Innovation and Science Australia next month.
“When you look at the R&D intensity of major Australian companies, it is very low.” Except for obvious standouts such as CSL and Cochlear, he said most companies used less than 1 per cent of expenditure for “first to market” R&D.
This is a big setback. Reversing falling business spending on R&D to create a new engine of growth as resources and financial services become less valuable was one of the reasons former prime minister Turnbull launched the national innovation agenda in 2015.
Mr Ferris said this was a cultural problem, and contrasted US S&P 500 companies – 40-50 per cent of which have a university professor on their board – with Australian attitudes.
“I don’t think many boards in Australia would admit it if they had a professor,” he said.
‘IP is number one’
He said big companies must change their mindset from a past when adapting other people’s R&D to Australia worked well to “one where in the digital economy intellectual property is the number one resource“.
To bring about such a big change government must be “in the wagon” and increasing its investment in R&D, not reducing it, Mr Ferris said.
He said government policy, service delivery, procurement and boardrooms needed to be rejigged, and described as “unfinished businesses” ISA’s call for nearly $3 billion in savings from the R&D tax incentive (RDTI) to be reallocated to direct grants for “impactful” R&D used by top countries.
“The unfinished business for government and ISA and for all stakeholders is to reverse this BERD [business expenditure on research and development] decline. There is an urgent opportunity to reallocate these savings.”
Mr Ferris said the priorities of a review of a federal public service that was under way should be to break down public service “silos” to better tackle problems, embrace digital service delivery and use $50 billion in non-defence procurement to drive innovation (for which Australia ranks 70th in the world).
Mr Ferris counts some big wins from ISA’s first term. The government contributed $250 million to the Biomedical Translation Fund, drawing matching private investments from superannuation funds. It also offered more generous up-front tax deductions for investments in early stage commercialisation – the first steps from laboratory on the journey to creating a commercial product known as the “valley of death” – to wealthy investors.
Leap in VC
The upshot of these initiatives, combined with more tech entrepreneurs tipping their gains into venture capital, has been a huge leap in VC funds raised in Australia, from below $200 million from 2009 to 2014 to $567 million in 2016 and a record $1.32 billion in 2017.
The lack of VC funds was one handbrake on commercialisation in Australia and the surge had – if not totally removed it – released the brake significantly, Mr Ferris said.
He also counted as wins the publication of ISA’s Australia 2030: Prosperity through innovation report, and the budget funding of one of its main recommendations: “National missions” to save the Great Barrier Reef and make Australia the world’s healthiest nation by harnessing the rapidly developing science of human genomics.
But the government’s decision to turn its back on Malcolm Turnbull’s enthusiasm for innovation because it didn’t play well with voters worried about job security – and cycle through five ministers in the three years – rankles.
Mr Ferris said boosting national innovation performance was a long-term challenge requiring bipartisanship and “it clearly isn’t helpful to have a revolving door from the minister down”.
Boost EMDG, CRCs, ‘challenge grants’
He said it was “urgent” that this be reversed and “whoever the next government is the responsibility will be to talk about innovation and to explain it and to discuss the future of work and be up front way about the pluses and minuses, because absent innovation there’ll be way less jobs in 2030 than otherwise”.
“We have got to get on with it and speak truthfully and our experience is that if you do people get it.”
Lack of government backing made it harder for Mr Ferris to get one of the first pieces of work under innovation – the review of the RDTI – accepted in full. The review found that the RDTI – which costs about $3 billion a year – did not always spur real innovation because it was self-assessed in tax returns. It recommended that the RDTI be cut back – except for R&D carried out in partnership with a public research agency, which should get a 20 per cent premium – and the savings reallocated to direct grants.
But the government just banked towards an eventual surplus. Mr Ferris said the Export Market Development Grant program better targeted fast growing small and medium enterprises (SMEs) and should be expanded dramatically from its current $130 million a year cost.
To encourage industry-research collaboration – where Australia lags badly – he suggested expanding Co-operative Research Centres (CRCs), short term CRC projects (CRC-Ps), Accelerating Commercialisation and challenge grants, as well as a renewed bid for an RDTI collaboration premium.