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Australian innovation at the dawn of the ‘20s

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Speech

6 February 2020

Dr Charlie Day, CEO of Innovation and Science Australia, delivered this speech at the Commencement Dinner of the Victorian Division of the Academy of Technology and Engineering.

Introduction: Australia’s distinctiveness

Thank you for that kind introduction, and thank you for the invitation to speak tonight. I want to start by acknowledging the traditional owners of the land on which we meet, the Wurundjeri people of the Kulin nation, and pay my respects to their elders past, present and emerging.

As I was drafting this speech in Canberra last week the air was thick with the smoke from the nearby bushfires. It’s a distinctive smell, that aroma of burnt Eucalyptus oil. For me, it evokes both happy memories of cold winter nights spent in front of my family’s log fire, but also fearful memories of a drive with my Mum through the Ash Wednesday fires as an 11 year old boy. The sense of smell can be remarkably evocative.

Since then I’ve spent time in Europe, North America and Asia and seen fires (albeit not big ones!) in all of those places – but they smell different. The unique ecology of the Australian bush, as captured in the smell of those fires, is unlike anything else in the world.

Why do I mention this, in a speech ostensibly about our innovation system? Because I think of innovation systems in terms of ecosystems. And tonight I want to make the case for respecting the distinctiveness of Australia’s innovation ecosystem. And just as we are going to need to adapt to live in a natural ecosystem that is changing before our eyes under the influence of climate change, so we will need to adapt our innovation ecosystem to thrive in the decade ahead, albeit in a way that reflects our distinctiveness.

As many of you will know, I’ve been CEO of the Office of Innovation and Science Australia for the past three years. Fewer of you will know that next week I will finish my role with ISA, having finally accepted I can’t juggle the challenge of living in Melbourne, working in Canberra, and being a good husband and father for my family. But I hope you might indulge me as I take a look back at the past few years in Australia’s innovation ecosystem, and also offer some (parting) thoughts for the future.

Reflections on the NISA

The obvious place to start is the announcement of the National Innovation and Science Agenda (“The NISA”) on 7 December 2015. It was an exciting time – some said there had never been a more exciting time to be an Australian – and with a package of some 24 policy measures the Government signalled that innovation was to be a major part of Australia’s future economic agenda. It was an intense burst of policy activity which has had significant impact on several fronts in the four years since it was announced. Some of the changes that have played out since include:

  • An injection of funding to cement Data61 as a part of the national science agency, CSIRO, which has developed a critical national capability which is now drawn on in fields ranging from fintech to agtech to regtech, among others. Given the intense interest around Artificial Intelligence and Machine Learning today, the establishment of Data61 as a core national resource was a timely decision.
  • The creation of the $500m Biomedical Translation Fund, which was a shot in the arm for Venture Capital in the life sciences sector, and has provided a valuable complement to that other major initiative the Medical Research Future Fund, which itself will shortly reach the milestone of full capitalisation at $20bn.
  • The pilot and subsequent roll-out of the Business Research and Innovation Initiative (BRII), which is still smaller than I would like it to be but in my view represents an important move towards driving innovation through government procurement, which has worked well overseas.

These are just three of many initiatives, and it is not my intention to catalogue NISA’s achievements exhaustively tonight. Suffice it to say that it was an ambitious and impressive program which fostered a lot of new growth in our ecosystem.

Whilst the Government has not followed on with a “second wave” of NISA, it has continued to make further policy announcements relevant to science and innovation on a continuing basis, including in areas such as research infrastructure and data regulation. Even with this progress, though, there is much work still to be done by Government, and ISA continues to work with them on several possible areas of action.

But it’s important to remember that innovation ecosystems, like natural ecosystems, tend not to achieve step-changes upwards. As the recent fires remind us, natural ecosystems do experience step changes downwards, where destruction can be widespread and indiscriminate. History tell us the bush will heal, as green shoots emerge from the blackened trunks of eucalypts and the wildlife that remains outside the fire zone gradually returns. But it will be a slow process, and there are limits to how much that can be accelerated.

I see similar processes with innovation ecosystems. I’ve lived through two major downward step changes – the tech crash of 2000 and the GFC of 2008, and in each case the ecosystem has recovered, slowly. And it’s this perspective that leads me to discourage anyone from looking for a “sliver bullet” in innovation policy – that sense that if only we could get “X” right then we’d all be fine. Innovation ecosystems need time to develop, to diversify and to mature, just like their natural cousins. I must emphasise that this is not an argument for inaction - as an untended ecosystem can rapidly be over-run by weeds – but it is an argument for a measured and strategic approach.

And it’s also important to remember that the Government is only one participant in our innovation ecosystem, so to get a true sense of where we are at the start of a new decade we need to take a broader perspective. Let me now turn to highlighting some of the things that excite me, and some things that concern me.

Three things to celebrate in our national innovation system as we enter the 2020s

I’ll start by identifying three things that I think we should be really proud of in our national innovation ecosystem. I know that our self-deprecating national character means it may be a bit gauche to trumpet our successes, but I’m going to do it nonetheless.

  • Firstly, the Startup/Venture Capital ecosystem in Australia today is healthier than it has ever been. We have seen more capital flow into the sector, and more highly valued companies than ever before. The AFR Yong Rich list includes more tech entrepreneurs than property developers in the top slots, and last year the venture fund Blackbird reported a partial sell-down of its first fund, demonstrating its investment strategy was on track. As a matter of fact, if you had shared the PM’s enthusiasm back in December 2015 and bought $1000 in shares in two of Australia’s innovation leaders, Atlassian (which actually listed on the Nasdaq 3 days later) and CSL, they would today be worth $7,100 and $3,100 respectively today (in round numbers). I would therefore argue that it is clearer today than it has ever been that there is money to be made here in Australia by backing Australian innovators.
  • Secondly, our Universities have continued to rise in global reputation and rankings, and are contributing more and more to our national human capital as well as to our export income. From my time as a postgrad student at Oxford I know how much a genuinely international student milieu enhances the learning experience, and I am excited at the value our Universities’ alumni communities can create across our region. We should celebrate and build on the quality and distinctiveness of our educational offer – admittedly not an easy task right now in the face of challenges such as the bushfires and Coronavirus. And whilst on the topic of Universities I think we need to challenge the widespread view that they are uniquely bad at engaging with industry: first of all, I see issues with the data typically used to justify the claim, but secondly I have seen significant change in this regard over recent years which I think will take some time to play out. There is plenty more to be done here, but we do not start from the bottom of the international pack.
  • And finally, Australia retains its status at the top table in terms of leading edge science and technology, whether it’s building the world’s most sophisticated scientific instrument (the Square Kilometre Array) in the WA outback, or leading the fight against Coronavirus at the Doherty Institute in Parkville, or creating the next generation of advanced carbon fibre technology in Geelong. I could go on all night about this, and the privilege of observing this talent hard at work across the country, as well as the incredible talent in the next generation that is rising through the ranks, is one of the fondest memories I will take with me of my time in ISA.

These are some of the parts of our innovation ecosystem where I see strong growth and impressive achievements – and unlike bush ecosystems I see definitely no need for any hazard reduction burns!

Three things that still need work in our national innovation ecosystem as we enter the 2020s

As optimistic as I am about the good things, there are still things that worry me about our ecosystem. Here are three that I’ve been particularly focused on lately:

  • Firstly, as you have probably heard many people including the RBA Governor and the Treasury Secretary note, the business community is not investing at the rate we would like to see to get robust growth in the economy. Whilst others are concerned about this from the perspective of investment in all its forms, my particular interest is in the component of business investment that is devoted to innovation, and there the story is arguably even more concerning. I mentioned before the impressive returns delivered to investors by Atlassian and CSL, who are both prodigious investors in R&D, but unfortunately they are the exception rather than the rule. Across the board Australian business is not investing in innovation at the rate that we need to drive future productivity growth. It’s a complex problem, and one where the distinctiveness of our innovation ecosystem (and our economy) needs to shape our thinking. It’s one which we’ve been looking into at ISA over the past year or so, and to avoid stealing the thunder of my Chair, Andrew Stevens, I’ll just note that you can expect to hear more on that topic soon.
  • Secondly, at the same time that business has reduced its investment in innovation, the Federal Government has also been cutting back. The Government’s Science, Research and Innovation budget tables show that investment in this important area has not been immune from the broader fiscal restraint across Government, and now stands at multi-decade lows as a share of GDP. This could be a topic for a whole new lecture, but for tonight let it suffice to say that we need fresh thinking (and commitment) here.
  • Thirdly, the rising isolationist trend in international affairs presents a risk to Australia’s innovation system, as it is very much in our best interests to be embedded in international flows of talent and technology. Innovation requires continued engagement internationally, as well as an ongoing commitment to open movement of talented people into Australia. The Government has made some good progress in this area with the Global Talent visa program, but make no mistake we are in a competitive environment with peer nations such as the UK and Canada and we can’t let our guard down.

In other words, like all good gardeners we need to ensure our ecosystem has the requisite water and nutrients to grow, and that it presents an attractive destination for key species like pollinating bees. And it’s best if these are supplied consistently, rather than alternating between floods and droughts.

Towards a more positive narrative – what would make the ‘20s great for Australian science and innovation?

The three things I mentioned above are all current areas of focus for ISA, and I’m sure you’ll be hearing more about them as the year proceeds. I want to finish with some more personal observations on some of the more knotty tasks that I think lie ahead for our innovation system and where more work needs to be done.

  • Firstly, the evidence is growing that the opportunities of a clean energy future for Australia could be enormous – Alan Finkel’s Hydrogen energy strategy that was unanimously endorsed by COAG late last year is just one example of how substantial the opportunity could be, and I found Ross Garnaut’s vision of a clean energy future in his book “Superpower” refreshingly compelling. But our national conversation on Climate Change is too often focused on the costs of action (with an implied but unstated assumption that inaction is cost-free), rather than the opportunities that will come from transformation. We need to start embracing the distinctiveness of our innovation ecosystem, and put technology to work to shape our future. To take one example, ARENA and the Clean Energy Finance Corporation have provided a useful template in recent years for how transformation can be supported that we could extend further.
  • Secondly, we need to re-calibrate our understanding of the role of Government in the innovation ecosystem. I worry that some have focussed too much on our politicians’ recent reluctance to talk about innovation, and not enough on the incredible advances being achieved in some of our companies and universities, and which I’ve mentioned above. Australia has always occupied somewhat of a middle ground between the small-government philosophy in the US and the larger social democratic models in Europe, and for our innovation system we need to take the best from both whilst still reflecting our distinctive character. For me this would mean a bigger focus on Government procurement as a driver of demand for innovation (adapting the SBIR model from the US, as we have started to do with the BRII), alongside the use of missions as a systemic organising model for innovation (adapting the current focus on these in the EU). The Thodey review of the Australian Public Service, which was one of the outcomes of ISA’s 2030 Plan, has mapped out some of the changes required within the bureaucracy to better equip it for a more technology-driven future, and I know work is already underway in response.
  • Finally, we need to get comfortable in our skin as a prosperous, technologically advanced nation that has the great blessing of strong relationships with all the major parts of the global innovation system – spanning the US, Europe and Asia. Unfortunately, as ANU academic Lesley Seebeck put it in a recent article, “we’ve allowed ourselves to think of Australia essentially as a spectator rather than a participant in technological innovation”. We should therefore not see developing our innovation ecosystem as a way of weaning ourselves off digging stuff out of the ground, because there are enormous riches remaining under our vast brown land and the world will most certainly need them, including for the battle against climate change. (And, by the way, the level of innovation and technological sophistication deployed to dig stuff out of the ground is breathtaking). That framing of innovation seems to me to be too defensive – as if it is only fear and insecurity that will drive action. But experience tells me that the greatest innovators are not motivated by fear and insecurity, but by opportunity, exploiting that very human urge to make the world a better place for the next generation.  So we should grasp the opportunity to bequeath to our children continued prosperity in a future that is certain to be carbon-constrained, information-rich, and geopolitically more complicated. And we should approach the task from a position of strength and confidence in our potential, rather than embarrassment about our economy’s alleged lack of sophistication.

 

It’s been a tough summer for many, perhaps all, Australians, and there is undoubtedly more fear around about what the future may hold. But I’d like to close by saying that as I leave ISA I am more convinced than ever of the tremendous opportunities that lie ahead for Australia’s distinctive innovation ecosystem – perhaps it is still true that there has never been a more exciting time to be Australian! Realising those opportunities will require leadership, not just from Government and its various science and innovation agencies, but from our Universities, the private sector, and the not for profit sector. I’m sure many of those leaders are in the room here tonight, and I hope I’ve given you some food for thought as to how you could play your role.

Thank you.

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