Where farmers of previous generations may have relied on almanacs and passed on family notes to record the history of the land they worked, many farm machines in use today collect troves of crop and soil data in new and mind-blowing ways. Sensors, imagery and other technologies are all working together to give farmers details about soil content, weeds and pests, sunlight and shade, and other factors. When analysed, it can help them adjust their activities during planting season so they can reap bigger rewards during the harvest.
Recommendation 2: Establish a national innovation agenda and pipeline with supporting structural reforms
Establish a national innovation agenda and pipeline that defines and promotes a nation’s priority areas, which is underpinned by structural reforms that align investment and support for innovation, resulting in productivity gains and job creation.
Support for innovation creates the conditions for productivity and jobs growth as well as enabling countries to better respond to the challenges of the future world of work.
Why It Matters
Innovation is a critical engine for business growth and job creation in large and small firms alike. This is not only about research and development (R&D), but about the whole range of investments that firms and governments make in knowledge, including software, data skills and in organisational “know-how.” These complementary investments help to ensure that R&D leads to innovations that generate growth and jobs. The increasing relevance of services industries to GDP underlines the importance of harnessing the power of technology and knowledge based capital to create new business models, services and products to replace those made redundant by automation and digitisation.
The case for supporting innovation is clear – studies for the European Union and the United States show that business investment in knowledge-based capital9 contributes 20 percent to 27 percent of average labour productivity growth.10 The 2012 Australian Innovation System report showed that Australian businesses that innovate are three times more likely to export and 18 times more likely to increase the number of export markets targeted than those that do not innovate.11 Most sectors have a multiplier effect on job creation, but the innovation sector has the largest multiplier of all.12
While business takes the lead in such investments, government has a role to play by creating the right environment for innovation to flourish. Governments can strengthen efforts to support innovation by defining and promoting a national innovation agenda and pipeline that highlights the priority areas for development, whether technology-driven or more broad-based. Targeting public and private investment to specific areas is not about “picking winners”, but rather enabling a concentration of firms and sectors to realise and maximise their competitive advantage at a national or multi-national level. This provides clarity and confidence to business on where to direct development and investment efforts.
Structural reforms are essential to maximise the benefits of a national innovation agenda and pipeline, including policies that enable reallocation of investment to knowledge capital through well-functioning product, labour and capital markets; bankruptcy laws that do not overly penalise failure; policies that are specific to innovation such as well-designed tax incentives for R&D; and direct government support and financial reforms that support markets for risk capital.
Build an innovation agenda and pipeline that provide a clear vision and commitment for each country’s innovation priorities for specific areas or sectors, ideally in areas where the country has some comparative advantages.
Align public and direct funding for research and educational institutions with these innovation priorities.
Increase engagement between research organisations, education providers and businesses by providing incentives with greater weighting to commercialisation and industry collaboration outcomes in support of Priority Sectors.
Include innovation in the structural reform agenda, for example:
- Development of policies that actively support new business models and industries
- R&D tax incentives/direct support that levels the playing field for young firms and incumbents.
- Well-functioning product, labour and capital markets as well as bankruptcy laws that do not overly penalise failure.
- Well-functioning intellectual property system that maximizes innovation potential
Establish a multi-lateral working group to collate and share best practices on commercialisation of innovation and research.
What Can Be Achieved
The more individual businesses are supported by a well-functioning national innovation ecosystem, the more effective the return on investment, as demonstrated by the example set by Korea.
Case Study: Korea – Using innovation to drive development13
Korea is a well-known case of successful economic catch-up achieved through a government-led manufacturing and export-oriented strategy. However, in the second half of the 1990s economic growth slowed from 8 percent per year to 5 percent per year, followed by a year of negative growth due to the 1998 Asian financial crises. Since 1998 the Korean government has searched for new sources of growth appropriate to the knowledge economy.
In subsequent years the government extensively supported information and communication technology and creative venture companies, and initiated an extensive innovation-oriented drive in all sectors of the economy. In addition it targets specific technologies and sectors as sources of growth such as digital TV in 2003 and “green growth” in 2012. Overall R&D intensity has been rising to meet a target of 5% of GDP. This policy along with wider financial reforms in the late 1990s helped Korea weather the global financial crisis and largely avoid dramatic declines in output. Its recovery has been swift: the International Monetary Fund forecasts that the country’s economy will grow by 3.7 percent in 2014 and by 3.0–3.5 percent per year over the long term.