Assessing Australia s Innovative Capacity in the 21 st Century Professor Joshua Gans MBS & IPRIA University of Melbourne November, 2003 This presentation is based on the National Innovative Capacity Project, whose contributors include Jeffrey Furman, Richard Hayes, Scott Stern, and Michael E. Porter. Our paper is available at www.mbs.edu/jgans
The Last Decade of Australian Economic Growth Stands Out Among Leading Nations Real GDP Growth Rates 8% 6% Spain Australia 4% France 2% New Zealand Canada 0% US -2% -4% -6% -8% 1990 1991 1992 1993 1994 1995 1996 1997 Source: EIU (2001), OECD (2002), Singapore Statistics (2002) 2 1998 1999 2000 2001 Sweden Netherlands Finland UK Germany
Despite this impressive performance, the Australian record on innovation is mixed Annual U.S. patents per 1 million population, 2001 400 350 300 250 200 150 100 50 0 Japan Germany UK AUSTRALIA USA Finland Sweden Canada Israel New Zealand Taiwan South Korea 0% 10% 20% 30% 40% Compound annual growth rate of US-registered patents, 1990-2001 Singapore = 10,000 patents granted in 2001 Source: US Patent and Trademark Office (www.uspto.gov). Author s analysis. 3
Not simply an IP problem, Australian firm employs fewer innovators than other leading nations Company Researchers per 10 000 Employed, 1998 80 70 60 50 40 30 20 10 0 US Japan Sweden Finland Germany Ireland UK Switzerland Source: OECD Science, Technology and Industry Scoreboard 2001. 4 Canada Korea France Denmark Netherlands Australia Italy OECD Average: 38.9 Spain New Zealand
Our Goal: Explain the Concentration of Innovation around the World 5
Assessing National Innovative Capacity Approach: Weighted Sum of National Innovative Capacity Drivers Weights derived from regression analysis relating the development of new-to-the-world technologies to drivers of national innovative capacity Technology output is measured by international patents National Innovative Capacity drivers: Innovation Infrastructure, Cluster Environment, Linkages Advantage of this Approach Avoids ad-hoc weighting of proposed drivers Per capita evaluation in order to allow international comparison Focuses attention on relative changes in National Resources and Policies versus other nations 6
What Makes Up National Innovative Capacity? Common Common Innovation Innovation Infrastructure Infrastructure Cluster-Specific Cluster-Specific Environment for Conditions Innovation Innovation Resources National Knowledge Stock Quality Quality of of Linkages Linkages Innovation Policy Context for Firm Strategy and Rivalry Factor (Input) Conditions Demand Conditions Related & Supporting Industries 7
The Evolution of Innovation Capacity Over Time Looking across the OECD for more than 20 years, key Innovative Capacity measures are highly significant in explaining international patenting output Infrastructure Investments and Policies have a significant influence R&D spending & Employment Strength of Intellectual Property Protection Higher Education & Overall Technological Sophistication R&D composition has an additional impact R&D spending by business more productive than Govt. R&D Innovation productivity is higher for countries specialised in (broad) technology areas Universities play a key role in translating funding into innovation performance 8
Finding 1: Over the past two decades, Australia has evolved from a classic imitator to a second-tier innovator nation Australia Innovation Index 55 50 45 40 Innovation Index 35 30 25 20 15 10 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year 9
Finding 2: Despite Advances Australia Maintains its Place at the lower end of Second-Tier Innovators The Innovation Index for Selected Countries 250 200 150 100 50 Australia Denmark France Germany Italy Japan New Zealand S Korea Sweden Switzerland UK USA 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10
The R&D spending boom of the late 1990s outpaced international competitors R&D Spending as Share of GDP, 1998 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Sweden Japan USA Finland South Korea Germany France Israel DenmarkAUSTRALIA Netherlands UK Singapore Belgium Canada Ireland Italy New Zealand Spain Portugal 0% 5% 10% 15% 20% 25% R&D Expenditures, CAGR, 1985-1998 Source: OECD Science, Technology and Industry Scoreboard 2001. 11
However, after strong growth in the 1980s, Australia science and engineering labour force intensity has slowed relative to similar countries Researchers per 10 000 Employed, 1998 120 100 Japan Sweden Finland 80 AUSTRALIA US Germany 60 UK 40 France New Zealand Canada Netherlands Italy 20 Spain 0-5% 0% 5% 10% Note: Finnish Growth Rate for 1991-98 Source: OECD, 2001 Growth Rate of Researchers, CAGR 1991-1999 12
Australia s position among second-tier innovator nations is limited by the erosion of educational spending Education share of GDP 4.50 4.00 3.50 % 3.00 2.50 2.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 13
And stagnation in the development of effective institutions linking the innovation infrastructure to local cluster requirements R&D performed by universities (%) 30.00 29.00 28.00 27.00 26.00 25.00 24.00 23.00 22.00 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 14
Dynamic Australian clusters have begun to evolve building upon historical strengths Mining and Natural Resources Gold Iron / Aluminum Bauxite Travel and Tourism Logistics / Trade Abundant Productive Land Wool Produce Grains Beef Wine Ag Research Centers Education and Knowledge Creation Information Technology Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals 1980 1990 2002 + 15
and an internationally competitive scientific personnel base in life and agricultural sciences 16
However, to date, leading clusters are driven by public rather than private research expenditures 17
Nurturing Australian Innovative Capacity: An Innovation Policy Agenda Current Assessment Macroeconomic Stability Improved Cost Cost // Quality Competitiveness Diversifying away from from traditional industrial sectors How to to Build Capacity for for World-Class Innovation? Some Examples of of Globally Relevant Cluster Development (e.g. (e.g. Wine and and Biotechnology) 18
Projected Innovation Rankings (2005) Country 2005 Rank 2005 Innovation Index Sweden 1 258.0 Iceland 2 208.9 USA 3 204.9 Finland 4 198.8 Japan 5 186.3 Denmark 6 181.4 Switzerland 7 156.0 Norway 8 97.8 Germany 9 97.1 France 10 93.5 Ireland 11 91.1 Canada 12 84.8 Netherlands 13 84.2 UK 14 84.0 Belgium 15 81.4 S Korea 16 73.7 Australia 17 63.9 Austria 18 60.8 New Zealand 19 29.0 Greece 20 19.0 Spain 21 16.3 Czech Republic 22 15.3 Italy 23 14.9 Portugal 24 14.4 Slovak Republic 25 6.1 Poland 26 4.4 Hungary 27 2.3 Turkey 28 1.4 Mexico 29 1.4 19
Key Lessons In a global economy, innovation-based competitiveness provides a more stable foundation for productivity growth than low-cost production Having secured a position as a leading user of global technology, Australia has an historic opportunity to pursue policies and investments to establish itself as a leading innovator nation Australia must build upon a foundation of openness to international competition, the protection of intellectual property rights, and the enforcement of an innovation-focused antitrust policy Among the many facets contributing to national innovative capacity, Australia can significantly increase investment in A university system responsive to the science and technology requirements of emerging industrial clusters Incentives for the emergence of industrial clusters that exploit historical strengths and foster innovation-focused domestic competition Higher education (beyond high school literacy), and, in particular, incentives for pursuing science and technology-based careers in Australia 20