IVAs President: Some thoughts on Ambitious Sweden

Dear Friends of IVA,

A couple of weeks ago, the Australian government (Department of Industry, Science and Resources) received a report called “Ambitious Australia”, whose purpose was to review the Australian R&D system. Australia’s industry minister, the trade unionist Tim Ayres, had, somewhat surprisingly, entrusted the task of leading the work to Tesla’s chair, Robyn Denholm, who has many years of experience in the telecom and IT industries. This was probably a wise choice, as the report is refreshingly unsentimental in its analysis and unusually crisp in its recommendations.

Why is this important for us? I believe that “Ambitious Australia” is highly relevant because Sweden finds itself in a similar situation. Admittedly, Australia’s industry looks different from Sweden’s, but I think both Sweden and Europe have lessons to learn from Ambitious Australia.

With productivity growth well above the OECD average in the 1990s, Australia’s fastest-growing exports were high-value, complex, finished goods – a solid foundation for the future. Now, thirty years later, Australia has fallen behind. As Denholm puts it: “Australia’s research and innovation system is broken and in need of major reform.”

Both Sweden and Europe can take lessons from Ambitious Australia. Despite its very different industry landscape, Sweden finds itself in a similar situation – how to secure its innovation system for future prosperity.

The report found that a country’s future competitiveness is not determined by the volume of R&D investment, but by how well the entire innovation system functions, from knowledge production to commercialization and market impact.

Denholm and an independent panel examined how Australia could draw greater value from its research investments in universities, industry, and the public sector; how to promote and increase corporate investment in R&D; and how to leverage its scientific strengths to secure prosperity and create new industries. It will be interesting to see how the government responds.

Manufacturing as a share of Australia’s GDP is now the smallest of all OECD developed economies, and its R&D investment is among the lowest in the OECD group – only 1.69 percent of GDP. Compare this to China at 2.4 percent, the US at 3.4 percent, and the EU average of 2.2 percent. Sweden, which is among the more research-intensive economies, stands at around 3.6 percent of GDP.

In most countries, companies make their largest R&D commitments in the manufacturing sector. It is hardly surprising that when industrial production declines, as it has in Australia, investment in research and innovation does too.

According to the report, Australia is not doing the best job of translating research into economic value, despite its very strong research base. In publication lists, Australia’s

researchers are among the most cited in the world – after the US, China, and the UK. But the report finds its innovation system to be fragmented, hindering large-scale impact.

The report’s 20 proposals for reforming Australia’s research and innovation system include several with direct relevance for Sweden and Europe.

To create focus and scale, the report recommends establishing a national innovation council, similar to those introduced in Finland in the early 2000s and in Sweden in 2015.

It also emphasizes the importance of a strong foundation in basic research and the need to ensure a balance between applied and basic research.

One weakness of the Australian research and innovation system is the low level of commercialization within the business sector. To remedy this, the report proposes R&D tax credits to simplify administration and boost impact. Although Sweden does not face this particular challenge, the issue is highly relevant due to the current study “Tax Incentives for Research and Development,” which the government recently circulated for comment (read IVA’s response here).

Ambitious Australia also highlights the need to strengthen the entire capital supply chain and emphasizes that investments require better conditions.

Regarding skills and talent, the report focuses on increasing mobility between academia and business and adapting education and migration systems to the new reality. For many years, international students were one of Australia’s largest revenue sources, and it boasted one of the largest shares of international students in the world. In addition to expanding the pool of highly educated labor, it also largely financed Australia’s higher education and research. Times have changed, however, and in recent years, policymakers have limited the numbers of international students – due mainly to recent political debate over migration and access to housing.

Another key factor in the innovation system is the government’s role as an enabler – for example, by using public procurement as a tool to strengthen domestic innovation.

Targeted administrative reforms would help Australia modernize through simplification, better coordination, and reduced administrative burden, the report concludes. It suggests better integrated and standardized processes, such as a more cohesive and user-friendly system, including, for example, a single point of entry for government R&D and innovation grant applications.

Lastly, the government should shift toward a more outcomes-based governance and monitoring system for research and innovation, focusing on results and impact, not just inputs.

The messages are: clear priorities, stronger governance, protected basic research, stronger incentives for the business sector, better capital supply, and a focus on results and impact.

This was a long and perhaps detailed overview, so thank you for reading to the end. I believe we have a lot to learn from Australia’s path forward.