The Terms of Reference for the Strategic Examination of R&D sought an examination of Australia’s “research and development system.” However the report, Ambitious Australia, presents itself as a reform of the “research, development and innovation (RD&I) system.”
It proposes a National Innovation Council, organises its analysis around an “RD&I flywheel,” and frames its 20 recommendations as a package for national innovation reform.
This shift creates an obligation the report does not fully meet. In innovation policy, the science and research system is a component of the innovation system, an important one, but the innovation system is a much broader concept than the research and development system, or the higher education system and other complementary systems.
Innovation arises from many sources beyond the research system. Entrepreneurship, management practice, architecture and design, the arts and creative practice, market signals and the creation of new markets, all contribute. So does the capacity of people, teams and institutions to adopt, adapt and apply new ideas some of which, but by no means the vast majority, come from new scientific knowledge.
These factors sit largely outside the R&D system, and the report’s analytical framework does not adequately account for them.
The RD&I flywheel illustrates the problem. It suggests a system in which inputs generate proportional outputs, retaining the essential logic of the linear model of innovation attributed to Vannevar Bush’s 1945 Science: The Endless Frontier and criticised in the innovation literature for decades.
The report itself acknowledges that “breakthrough innovations rarely follow a linear and fast trajectory.” That insight, however, does not reshape the analytical framework.
What the report does well
Where the report addresses research system elements, it does so with considerable depth. Research funding receives detailed treatment: competitive grants, indirect cost reform benchmarked to the UK’s TRAC model, and indexation provisions responding to long-standing concerns about funding base erosion.
The governance redesign, workforce provisions from PhD reform through to migration settings, and a well-developed capital market package covering angel investment, venture capital, superannuation settings, and exit pathways are genuine strengths.
The difficulty is that these are primarily strengths of a research and capital formation strategy. They address the supply of knowledge and funding. They are less attentive to the conditions under which ideas, knowledge, and funding produce innovation.
What the report misses
In many ways the Ambitious Australia is a missed opportunity. From an innovation policy perspective, there are several notable omissions, that might have been addressed, including:
Management Capability and the Demand Side: The report does not substantively address management capability as a determinant of whether R&D investments translate into firm-level productivity.
Conversations have been increasingly being focused on a “management chasm”: the persistent gap between Australia’s research quality and its commercialisation performance, which has less to do with a shortage of ideas or funding and much more to do with weaknesses in the capabilities needed to bring innovations to adoption and use.
Industry Structure and Low BERD: The report documents the decline in business expenditure on R&D thoroughly but does not investigate the underlying causes. It reflects an economists perception and assumption that the problem is primarily one of incentives.
The possible explanations for low BERD extend well beyond incentive settings. Australia’s industry structure is dominated by mining, finance, and property services, sectors with inherently lower R&D intensity than the advanced manufacturing and technology sectors that drive BERD in comparator economies.
There are other factors, such as market scale which constrains the returns to R&D investment for firms that cannot readily export their innovations, supply chain relationships that may discourage local R&D where Australian firms are embedded in global chains managed from headquarters abroad.
In addition, the privatisation of formerly research-intensive government enterprises removed significant performers from the BERD figures without creating private sector replacements of equivalent research intensity.
Each explanation implies a different policy response. If the binding constraint is industry structure and institutional constraints, then R&D incentive reform will produce limited results without accompanying structural change.
Narrow Channels for Knowledge Transfer: The report’s commercialisation analysis relies heavily on startups as the primary channel through which publicly funded research reaches the economy. Startups are one pathway to market, particularly in technology, but they are not, of course, the only conduit, and in many fields, they are not the dominant one.
Research also reaches application through licensing of intellectual property to large, established businesses, contract and commissioned research with industry, and the movement of knowledgeable graduates into employment in Australia and internationally.
The German innovation system employs a very significant number of Australian technology graduates. A framework that places startups at the centre of commercialisation underweights this broader institutional infrastructure.
Other Gaps: The report frames innovation almost exclusively through science and technology, giving no substantive treatment to the humanities, arts and social sciences, and in particular design and creative practice, despite international evidence of their contribution to market adoption and user-centred innovation.
Place-based innovation receives only operational mention within the National Strategic Initiatives framework, despite the Terms of Reference explicitly requiring examination of how R&D benefits could be equitably distributed across regions.
AI is mentioned among enabling technologies, but the report does not engage with it as a general-purpose technology that may reshape the practice and economics of scientific discovery within the timeframe of the proposed reforms.
The broader regulatory toolkit, including competition policy, intellectual property regimes, and environmental standards, receives limited systematic analysis despite shaping innovation behaviour in significant ways.
Implications for policy
None of this diminishes the value of the report’s research system recommendations. The governance architecture, funding reforms, capital market package, and workforce provisions each address real deficiencies in Australia’s R&D settings. Policymakers should engage with these recommendations on their merits.
The caution is that implementing these recommendations, even in full, would reform the research system but would not, by itself, reform the innovation system. The determinants of innovation that the report underweights, including management capability, absorptive capacity, demand-side dynamics, industry structure, creative and design capability, place-based ecosystems, and the broader regulatory toolkit, will need to be addressed through separate but complementary policy work.
The SERD report provides the research architecture. The innovation architecture remains to be built. As I have argued elsewhere, structure is an enabler of strategy, not a substitute for it.
Dr John H. Howard is Executive Director at the Acton Institute for Policy Research and Innovation in Canberra.
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