In 2024, in a context of declining R&D and productivity, the government appointed an independent expert panel to lead a “strategic examination” of Australias R&D system. In February the first discussion paper was released along with invitations to make submissions.

Unfortunately, the discussion paper is poor, bereft of insight, a-historical, a-theoretical and a-political (in the general sense of that term). It doesnt:

• explore in any useful way why investment in R&D is relatively low and is declining;
• explore why innovation is focused on low-novelty adaptation and hence why the demand for R&D is low;
• assess why, over decades, policies that aimed to address the shortcomings in R&D, collaboration and innovation have not been effective; and
• assess why policy related to innovation has been generally low in ambition and little informed by systematic policy learning.

Without a very good diagnosis, a strategy to move forward cannot be developed. An essential starting point is understanding how we got here, what has shaped the evolution of the Australian innovation system, and the R&D system with which it intersects.

That evolution has been shaped by the “resources curse” which has led to a high-cost economy, relatively high levels of foreign ownership of industry, policy regimes that have not supported domestic enterprise and a pervasive complacency.

Enterprises building global positions at the world frontier of technology account for the great majority of global BERD (business expenditure on R&D) and they form key focusing mechanisms for R&D in their home and often also host economies. The fact that there are almost no such enterprises of significant scale in Australia is critical. There is little focused value creation and even less capability for value capture.

Without strong and challenging demand what shapes R&D investment? The myth that the commercialisation of university research has been/can be a major direct driver of industrial development and particularly transformative structural change has been used to justify one optimistic policy after another. It is the strategic equivalent of a rain dance.

The third outcome from the “resources curse” is that there is no strong social “demand” for policies to develop a strong innovation system. Too often, policy has been window dressing, squeezed between the perceived political imperative to seen to be “doing something” and the prevailing economic policy regime that discourages doing anything much. In a context of increasing policy challenges in almost all policy domains, it will be difficult to build a constituency for a new approach before it becomes an existential necessity.

We can all see that with the inexorably increasing impacts of climate change and the highly uncertain geopolitical environment, domestic R&D capability and its effective governance and application are critical. It is also critical that Australia develops new bases of specialisation based on innovative value creation and capture.

We will not get there simply by increasing R&D. R&D cannot drive the systemic changes needed. The sort of marginal changes suggested in the consultation questions will not lead to the beginnings of a new direction.

To get there we need to build new systems that include, in particular:

• A focusing demand for new knowledge that guides investment in knowledge creation and capability development, ensures absorptive capacity, and is linked to value creation and capture (see Myths, Crises and Complacency)
• Co-ordination that considers the development of capabilities in the diverse players along value chains from R&D to effective application at this stage of the evolution of the innovation system the market is a very weak institution for co-ordination and new institutions need to be developed. One insightful analyst from the 1980s characterised the R&D tax concession as “theoretically sound and practically useless” and it has remained the case.
• A new economic policy regime that supports the evolution of a new economy based on domestic innovation.
• A strong emphasis on policy learning in the context of long-term strategies, and for that purpose the development of conceptual frameworks that guide analysis.

With capable researchers and entrepreneurial talent, Australia has many of the ingredients for a far more innovative society. What then can the panel propose? I suggest two:

• Investment in building the case for developing a dynamic innovation system, economy and society in which greater investment in R&D would make sense.
• Sooner rather than later, we will need that dynamism in order to achieve major innovation outcomes in defence technologies and climate change-related technologies. Rather than vague priorities, make the case for the development of integrated research, innovation and value capture strategies in these two areas and the institutional innovations to enable and drive them.

Challenge is an opportunity for innovation, in policy as in technology. So above all, Strategic R&D Panel, be challenging. Do a “Ken Henry”, uncomfortable for governments, but difficult to ignore.

The views expressed are solely those of the author and may or may not reflect those ofPearls and Irritations.