17 July 2018

Australia Again Fares Woefully in Capitalising on Innovation in WIPO’s Annual Index

Anger and frustrationLast week, the World Intellectual Property Organization (WIPO) published its Global Innovation Index 2018 (GII) report, as it has done every year since 2011.  Jointly authored with Cornell University and the INSEAD Business School in France, the GII is intended to provide ‘a detailed quantitative tool that helps global decision makers better understand how to stimulate the innovative activity that drives economic and human development.’  It ranks 126 economies based on 80 indicators, ranging from intellectual property filing rates to mobile-application creation, education spending, and scientific and technical publications.

In 2018, Australia ranks 20th overall, which is a gain of three places since 2017.  The countries that were ahead of Australia and that have slipped behind in 2018 are New Zealand (now 22nd, down from 21st), Austria (down from 20th to 21st), and Iceland (crashing down from 13th in 2017 to 23rd in 2018).

Yet, while Australia has risen slightly in the overall rankings, it continues to languish in a pathetic 76th place, i.e. in exactly the same position as last year, in a measure that I regard as particularly telling – the ‘innovation efficiency ratio’, which indicates how much innovation ‘output’ the country is getting in return for its innovation ‘inputs’.  Australia’s efficiency ratio is just 58%, which compares to the median of 61%, and is way below the values for those countries that are most effective at converting innovation inputs into outputs, such as Switzerland (96%), Luxembourg (94%), China (92%), the Netherlands (91%), and Ukraine (90%).  Yes, you read that correctly – Ukraine is the fifth highest performing economy on innovation efficiency because, while it ranks just 43rd overall in the GII, and a rather poor 75th on innovation inputs, its effectiveness in converting those inputs places it at number 35 in the output ranking.

I have previously noted Australia’s poor performance on measures of ‘business sophistication’, on which the country has slipped one place to 28th since 2017.  On the particular measure in this category of ‘patent families filed in two or more national offices’ (relative to GDP by Purchasing Power Parity), Australia continues to perform appallingly, with no change from the 2017 result of just 1.0.  In fact, it appears that many other countries have slipped on this measure since 2017, but Australia still falls significantly behind New Zealand (2.6), Canada (2.2), the United Kingdom (2.0), the USA (3.1), Japan (12.9), and South Korea (14.6), to name just a few.

It is not enough for Australia to rank highly on innovation inputs so long as the country continues to underperform in converting those inputs into measurable innovation outputs.  It is not good enough for the Australian government to spend A$3 billion per year on R&D tax incentives for businesses to generate ‘new knowledge’, if that knowledge does not produce demonstrable benefits to the country.  Providing tax breaks on self-declared R&D expenditure is easy.  Providing effective incentives and assistance for businesses to convert the results of that R&D into commercial outcomes is hard.  Changing ingrained cultural attitudes towards intellectual property, and its role in innovation and successful commercialisation, is hard. 

By and large, Australian governments do not do anything that is hard any more.  They do things that they think will get them re-elected.  They are quite happy, for example, to borrow money that may never exist, from a future too far away to predict, to pay for tax cuts that we cannot afford today.  And it is not as if the Government can actually take a great deal of credit for Australia’s strong performance on the innovation inputs sub-index, within which the country somehow manages to rank third in the world on ‘human capital and research’, despite being placed 43rd on education spending as a percentage of GDP, 69th on the percentage of STEM graduates, and 19th on gross R&D expenditure relative to GDP.

Actually spending taxpayers’ money on investing in Australia’s long-term future is a concept that the Government seems to believe is too difficult to sell to the average Australian voter.  Personally, I think the Government is wrong about this; I believe it underestimates the Australian people.  But I do not expect anything to change, and I imagine that this time next year we will again be reading about Australia’s woeful performance on innovation efficiency in the 2019 edition of the GII report.


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