Improving the level of debate about population and innovation

Tony Peacock, CEO of the CRC Association and a Professor at the University of Canberra, delivered the following speech to Global Access Partner’s National Economic Review: Australia’s Annual Growth Summit in Sydney on Friday 16 September 2011.

Innovation is the single most important component of long-term growth, and innovation and population have always been entwined.

Thirty thousand years ago better rock flake production enabled certain Indian groups to vastly improve hunting success and thus increase their population. The domestication of livestock and cereal production, of course, also allowed for much greater populations to develop.

There are only two ways that an economy can grow. The first is to increase the inputs and the second is to use those inputs more efficiently, that is, in more innovative ways. I’m not an economist, but economists tell me that the ratio of these two factors is interesting. Over the long haul, increasing inputs only account for 15 per cent of long-term growth, whereas innovative capacity is the single most important component of long-term growth.

We need innovation to grow

Population growth is often assumed to mean more environmental damage. It’s important to realise that while this can be the case, population growth and environmental damage are not as strongly correlated as one might think. Take Spain: 40 million people and 40 per cent of electricity derived from renewable sources (on a really windy day it has touched 50 per cent of their electricity needs – almost the equivalent of the power needs of the whole Australian population). Australia derives only 6.5 per cent of our electricity from renewable sources. We should not dismiss that leadership plays an important role in stimulating innovation.

Besides leadership, culture plays a very important part in innovation. I think necessity plays a role in innovation, but I don’t think it is the mother of innovation by any stretch these days. I can’t accept that necessity is the mother of Facebook.

Innovation is a cultural issue

Leaders, attitude and culture are critical factors for innovation. There are detectable differences both between and within countries. Whether it is Cambridge in the UK or Cambridge, Massachusetts, innovative people like to congregate. When we look at issues of decongesting clogged cities, we must look at innovation hubs as one way to help.

The development of biotech in Southern California and the IT economy in Northern California are not the result of complete chance. I think there is a natural drift of smart, innovative people away from megacities like Los Angeles.  Wollongong and Newcastle should take note. We should aim to develop new economy jobs, learning centres and technology hubs in these types of places that have a great lifestyle to offer innovative people. Even places like Dubbo should be trying to attract new economy jobs – I lived for a while in Saskatoon, Saskatchewan and the city was successful in moving from a potash, oil and wheat economy and has developed biotech and other industries.

Returning to how Australia is doing as an innovative economy. There are three recent bits of data worth examining. Before I do so, I think it is important to note that I’m not a subscriber to the view that Australia’s fortunes are simply the product of luck. To a degree, we put ourselves down with the tag of “Lucky Country”. Our miners are clearly the most innovative on earth and there are a lot of minerals easier to get at that are closer to China – so let’s not think the mineral boom is dumb luck. Anyone that thinks we just had a lucky break in producing agricultural products hasn’t ventured onto a farm in the last few decades. We do well through hard work and innovation.

How are we doing? “Has potential, but could do better”

It is right to look at international comparisons, but I want to use them to inform us about the way forward, not to beat up on ourselves or to sit back and relax. The three sources I’ll point to are:

• Our own Australian Innovation System Scorecard 2011. It’s great that the government is now keeping a scorecard like this and publishing it annually. Overall, it shows improving levels of investment in innovation in Australia, but we are skewed to academic research – we publish papers at a level 30% higher than the OECD on average, but those papers get cited less well; we perform relatively poorly on lodging triadic patents (an indicator of targeting world markets); and then we perform even poorer on firms developing new products for international markets.
• The Global Competitiveness Index. We’ve slipped in recent times (and obviously we must with the recent hike in the dollar). But our innovation score is back to 22nd in the world and our “business sophistication” score back to 29th.
• General Electric does a regular world survey of executives and the most recent one indicates they view Australia as a “traditionalist” nation in terms of innovation.

Together, these indicators are showing us as a country that is lagging on innovation and is also seen to be lagging on innovation. We should probably accept they give an accurate picture and move on to “what do we do about it?”

R&D is good, but innovation is better

In my view, we should look much more openly and have a public discussion about the nature of “research and development” and “innovation”. I think there is a national tendency to overstate the role of R&D and to misunderstand that R&D doesn’t necessarily lead to innovation. The term innovation derives from the Latin word innovatus, which is the noun form of innovare “to renew or change”. If an activity doesn’t lead to change, then it isn’t innovation and we do ourselves a disservice labelling it as such. But we label research and development as innovation all the time, and perhaps more so in recent times.

Let me have a tiny bit of a kick at a sacred cow to illustrate my point. Earlier this year, medical researchers went berserk at the thought that the Australian Government might instigate a cut to medical research. People were put on the streets in protest and nameless treasury and finance officials were pilloried as stupid, evil, ignorant, cancer enhancers. The reaction was really quite wild from a normally placid sector, and no cuts were made in the budget. The Twitter campaign was #protectresearch and the larger public campaign dubbed “Discoveries need dollars”. The link between health research and health outcomes was assumed rather than demonstrated.

The campaign was very successful – the “National Health and Medical Research Council and Other Health” budget went from an estimated spend of $1,211.7 million in 2010-11 to $1,347.1 million in 2011-12, an increase of about 10%.

I have no problem with researchers defending their turf strongly, and I love a normally placid sector letting their thoughts be known in Canberra. But the debate was at a very immature level – secret leaks of rumoured cuts to test the water and subsequent hostile reactions. We are talking about a billion plus dollars annually and we should be able to have a proper discussion about whether that investment in health innovation is actually returning well in terms of health outcomes for Australians. There is more than a decade of reviews that indicate pretty strongly that we could be getting better bang for the buck.

One of the major recommendations of 1998 Wills committee was "priority-driven research that contributes directly to population health and evidence based health care" or, in today’s words, innovation. When a committee led by John Grant again looked at medical research in Australia in 2004, they noted "While some of the recommended actions were implemented, the research output has been limited and the impact on health outcomes has been relatively low".  In a more limited review of just National Health and Medical Research Council (NHMRC) population health work in 2009, led by Professor Don Nutbeam, the committee said it received "robust feedback indicating disappointment that NHMRC has not responded adequately to recommendations from the Wills and Grant Reviews of the NHMRC – both of which recommended an increase in priority driven and strategic research with the greatest potential to contribute to improved population health. For many, this would require a proportionately increased investment in public health funding by NHMRC, and this has not been achieved."

R&D and innovation are different

I suspect the area of health research is systematic of a bit of a national blind spot where we tend to label all R&D as innovation. We need to recognise that R&D isn’t innovation – it is merely one component of innovation (and not even an essential component of innovation). One Vice Chancellor says that we tend to fund too much “hobby” research in Australia, meaning research that is satisfying to the person conducting it, but won’t lead to meaningful outcomes. We do need to support research that is simply curiosity-driven with no immediate outcome in mind, but let’s be careful labelling it all as ‘innovation’ support, as we currently do in our national account keeping.

To take the 2011 health research campaign as an example again – it is true that “discoveries need dollars”. But it’s equally true that “breakthroughs need follow through”. We have to balance our innovation spending to deliver both discoveries and conversion of those discoveries to benefits. Discoveries alone don’t actually benefit anyone.

In my view, issues of resource exhaustion and human waste and pollution need to be considered on a global scale. We must deal with global warming, biodiversity loss and many other issues. But the question of an “appropriate” population for Australia sits below these issues. A truly innovative Australia will have few problems coping with a projected population of 36 million people. To me, we need to engage more of our national resources and our mental wealth into making Australia more innovative, and that will lead to better resilience of not only our economy, but also of our environment and our society.

Professor Tony Peacock is the Chief Executive of the Cooperative Research Centres Association. Tony was the Chief Executive of the Invasive Animals CRC from 2005 and the Pest Animal Control CRC from 2001. He was Managing Director of the Pig R&D Corporation from 1996-2001. Tony is a passionate advocate for applied research and was the 2010 winner of the Australian Government Eureka Prize for Promoting the Public Understanding of Science.