3. Developing a national agenda--'Victoria's National Innovation Agenda'.

The Hon John Brumby MP, Victorian Minister for Innovation

Introduction

Firstly I would like to thank the organisers and the sponsors for putting on this very timely series of summits around Australia about a crucial issue for our future--building a more innovative Australia.

I understand the Brisbane and Sydney events were very productive and thought-provoking as was today's summit.

I am now very pleased to draw the Melbourne Summit to a close by talking about the Victorian Government's concept for a National Innovation Agenda.

This is a concept that aligns strongly with today's discussions.

Today I intend to make the case for a National Innovation Agenda--what it might look like--and how we might take it forward as a framework for the next wave of national reform. But before I discuss the National Innovation Agenda in more detail, I would like to explain why I see the need for such an Agenda as an urgent matter of national priority.

Australia's challenges

Australia is now at a turning point. The world is moving faster, more countries are stepping up their innovation systems and Australia's environmental, energy and demographic challenges pose a serious threat to our quality of life.

We have successfully faced major challenges before such as the ICT revolution that transformed the business environment and drove a new wave of globalisation late last century.

Australia rose to this challenge, deregulating major sectors of what had been a fairly closed economy and introducing the National Competition Policy in 1995 to drive productivity growth. Largely as a result of this willingness to tackle a changing global environment through major reform at a national level, Australia has enjoyed a long period of sustained economic growth.

But unless we are prepared to follow through with a new wave of reform, this prosperity is unlikely to last. This is because we face imminent and unprecedented challenges that are delivering significant global change and threatening our quality of life.

Firstly we are facing a fundamental transformation in the global economy driven by accelerating technological change and the deregulation and opening up of financial and labour markets We are now competing in a global, Web-enabled playing field that lets anyone work together or compete with each other, regardless of geography, time zones or soon, even language. This means business not only has the ability to move jobs wherever there's a factory, but now wherever there's a broadband internet connection.

Countries and regions like China, India, Brazil, South East Asia and now Eastern Europe are attracting the majority of Foreign Direct Investment flows and increasingly dominating global supply chains. In fact, according to estimates by Goldman Sachs, Brazil, Russia, India and China--the BRIC economies--could together be larger than the G6 in less than 40 years.

This is because the BRICs are now putting over 3 billion new people on the global playing field. And these are highly competitive workers, not just in low-wage manufacturing and information labour but increasingly so in high-skilled areas like engineering, programming and design as well.

For example, China already produces over 350,000 tertiary qualified engineers annually compared to around 138,000 in the US.

Over 400,000 American tax returns will be processed by accounting firms in India this year.

And Brazil's second largest source of exports is now passenger jets made by Embraer, the world's fourth largest civilian airplane maker.

Some have said that Australia can benefit here primarily as a supplier of energy and mineral resources to these growing economies and that we shouldn't seek to compete directly in high-end global supply chains.

While it is true that a significant part of our current economic growth is resource-driven, we cannot afford to become dependent on this sector alone. Even in the current boom times, resources only account for 7.7% of the national economy.

And importantly, the resources sector follows international economic cycles with booms followed by downturns. So we need a diverse economy and we need to think about investing the valuable dividends of the resources boom in our future capacity for growth.

We also face a number of challenges at home. Many of our key natural resources are being severely stretched. We are facing a water crisis, along with a range of other sustainability challenges such as climate change and soil salinity.

We need to deal with rising energy costs and a volatile geo-political environment that poses new security challenges.

And we have an ageing population at a time when our workforce needs to be more productive, not less and which will place new demands on our health system.

We need to act on these challenges as a matter of national urgency, taking advantage of our current prosperity to invest in our future as a wealthy, healthy, safe, clean and smart nation.

If we get it right, we will be providing a strong future for ourselves and generations to come.

But if we get it wrong we run the very real risk of becoming a backwater in the global community, struggling along in the lower ranks of OECD countries or worse while watching our much envied quality of life erode.

Innovation as the way forward

I believe the way forward here is to put innovation squarely at the centre of the next wave of national reform.

The OECD has estimated that in advanced industrial economies, innovation and the exploitation of scientific discoveries and new technologies have accounted for 50% of economic growth.

This capacity to harness innovation will become even more critical to the economic and social well-being of industrialised countries over the next two decades as they face growing competition, particularly from low cost emerging economies.

More than ever, it is about developed economies competing on the basis of unique value delivered through the application of knowledge, skills and creativity.

An example of what I'm talking about here is that it has been estimated that the largest source of exports from the world's wealthiest country, America, is now intellectual property--in the form of software, entertainment, pharmaceuticals, franchises and patented high technology products.

So to keep us internationally competitive, we need to massively boost Australia's innovation capabilities so we can better turn new ideas into new products, services and solutions.

And we also need to put innovation to work to meet the challenges to our quality of life.

And in doing so we will also be developing products and services that other economies will also be seeking to address these issues.

These are significant opportunities with the OECD projecting that the global market for environmental goods and services will increase from $430 billion in 2000 to $770 billion in 2010.

And some of you may have noted this morning a report in The Age that China alone will spend $308 billion on such services by 2010.

Australia's innovation challenge

So what do we need to do to build up our innovation capabilities? Refer to Figure 3(a).

[FIGURE 3(a) OMITTED]

Firstly we need to be realistic about where Australia sits in the global picture. As a small, open economy, we have different innovation requirements from large economies like the USA and the European Union.

There is a lot of debate about boosting Australia's R&D performance, particularly that of business. And I am very strongly in the camp that says we must do this. The Victorian Government's track record in investment in science, technology and innovation is a testament to this.

But let us do the maths. Australia currently accounts for a little less than 2% of R&D in the OECD (exact figure is 1.6%). And this is not out of step with our share of OECD GDP at 2% and population, 1.7%. So generally among the OECD community, we are a 2% player.

Now even if Australia were to reach the level of Sweden--the OECD's best performer on R&D as a percentage of GDP--we would still only account for 3.5% of total OECD R&D. So 96.5% of the OECD's R&D would still be carried out elsewhere.

What this tells us is that wherever we stand on world R&D league tables, we need strategies to access the vast majority of knowledge that is created elsewhere.

For too long Australia's innovation policies have focussed only on the 2% of R&D that we can carry out at home.

What we need now are innovation policies to focus on both our capacity to create new knowledge and our capacity to use and exploit the knowledge created elsewhere.

There is a lot of evidence that indicates that these activities are complementary--that without the 2% we would not be able to access the 98%.

To quote one of Australia's leading innovation researchers, Steve Dowrick who is Head of the School of Economics at the Australian National University:

So if we are to access the best of the 98% out there, we need to ensure we have the people, the skills and the standing as generators of internationally-sought knowledge.

This is part of our thinking behind a National Innovation Agenda.

That in order to compete effectively in this new global environment while only creating around 2% of the world's new knowledge, we need an innovation system that:

* ensures Australian businesses significantly improve their capacity to absorb knowledge, ideas and technologies from local and international sources; and

* also invests in our own science, innovation and skills to generate solutions to our specific problems and to enable the absorption of 'imported' knowledge, ideas and technology.

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