Attila Brungs is right about the facts and wrong about the conclusion. The University of NSW vice-chancellor told InnovationAus last week that Australian universities play an outsized role in our innovation system compared to peer economies, and that this justifies a larger share of system funding.
The first half is true. Higher education expenditure on R&D reached $16.4 billion in 2024, and universities now perform roughly a third of all Australian R&D against an OECD norm closer to one sixth.
But the ratio is high because the other side of the ledger collapsed. Business expenditure on R&D has fallen from 1.37 per cent of GDP in 2008 to below 0.9 per cent today.
The university share is outsized not because our universities are exceptional (they may well be outstanding) but because Australian business has withdrawn from research. It is the fact of missing demand.
Keep the eye on the prize
The purpose of a national innovation system is not research volume, spin-out counts or university rankings. It is a prosperous economy in which Australia makes products and delivers services the rest of the world is prepared to pay a premium for. Everything else is instrumentation.
The Harvard Economic Complexity Index is one of the few instruments that keeps our eye on that prize. Australia now ranks 77th, down from 55th in 1995.
The current figure reflects a recalibrated methodology, so it cannot be compared casually with older published rankings, but the caveat cuts the wrong way for optimists: the revision reflects a change in measurement, not a recovery in capability.
For a wealthy advanced economy, a tradable base this narrow exposes us to commodity cycles, carbon transition risk and supply chain disruption, and it caps our productivity growth.
Complexity does not rise because universities publish more or push technology further along readiness levels. It rises when firms build the capability to make sophisticated things and sell them into global markets at scale.
That happens inside businesses or it does not happen at all.
The claim that does not survive the data
Professor Brungs argues that because Australian industry is dominated by SMEs, universities must do the translation heavy lifting that firms do in the United States, the United Kingdom and Europe, and that Australian universities in fact progress translation further than their international peers.
The system-level evidence says otherwise. Australia ranks last in the OECD for collaboration between universities and business. More than 80 per cent of Australian firms that innovate do not collaborate with anyone at all.
Sasan Bakhtiari’s network analysis of Australian patents, published in the Economic Record, shows our innovation slowdown coincides precisely with business retreating from collaborative research networks. The fragmentation came from the business side.
There is a narrow sense in which Professor Brungs is correct: Australian universities do carry work further down the development pipeline than universities elsewhere. But they do so because no firm is standing there to receive it earlier.
That is not superior translation. It is supply push into a vacuum. Translation is only complete when a firm converts research into competitive advantage in a market it can win.
John Howard’s July analysis of the triple helix deficit makes the mechanism plain. In every productive innovation ecosystem he examined, industry, universities and government collaborate as a matter of habit. Where the pillars run in parallel, value migrates to ecosystems where trust is dense.
And absorptive capacity, the ability of a firm to recognise, value and apply external knowledge, depends on firms doing research in-house. No university, however well funded, can build that capability on a firm’s behalf.
This is why the funding conclusion fails.
If industry’s absence becomes the standing justification for resourcing universities to do industry’s job, the university share grows, the case for university funding strengthens, and the demand side is never built. We would be institutionalising the disease and calling it treatment.
Start with problems most valuable once solved
The scarce input in the Australian innovation system is not readier technology. It is firms capable of framing commercially significant problems, committing to outcomes, and integrating research into strategy.
Businesses rarely want research projects. They want solutions to problems that are worth a great deal once solved: a defect rate costing export contracts, an energy intensity that will fail tightening international standards, a process constraint competitors have already broken through.
That is where a serious innovation system starts. Not with the research we have, looking for someone to take it, but with the problems whose solutions command a premium in global markets, and the disciplined question of whether Australia has a genuine right to win in solving them.
When public support for R&D is conditioned on clarity about the problem, the competitive advantage sought and the additionality of public money, behaviour changes upstream, before projects are defined and money is spent.
Firms learn to frame problems. Researchers engage with real constraints. Government can finally distinguish R&D that builds national capability from R&D that would have happened anyway.
None of this diminishes universities. Australian research excellence is real, and UNSW’s record on spin-outs leads the country.
But a system where one institution can plausibly claim to be four per cent of the national innovation ecosystem is not a system to be resourced as it stands. It is a system whose missing half must be built.
Ambitious Australia will slip into another decade of well-intentioned activity unless it holds one question above all others: are Australian firms becoming more capable of solving the problems the world will pay a premium to have solved?
The Economic Complexity Index will tell us whether the answer is yes. Funding the strongest pillar to compensate for the weakest guarantees the answer is no.
Russell Yardley is Principal of Algonquin Investments. The views expressed here are his own and do not represent any organisation with which he is involved.
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