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SUBMISSION TO REVIEW OF APPROACHES TO GREATER COMMERCIALISATION AND SELF-FUNDING IN THE COOPERATIVE RESEARCH CENTRE (CRC) PROGRAM
4 November 1997

Summary

The Academy recommends that a prime policy setting for Australia into the next century should be to produce a greatly enlarged knowledge-based industry. To do this, there need to be pluralistic linking mechanisms to the science base of the nation, tertiary education and science agency research sectors, whose current excellence should be sustained. The Cooperative Research Centre (CRC) process is strongly supported by the Academy as one such linking mechanism and, to engage further linkages, should be complemented by alternative strategies such as the Joint Development Program proposed here to extend the process and engage a wider segment of the unified national education system, in particular, engineering aspects. Strategies for more immediate returns and greater self-funding of such an extended scheme could be developed in ways that have already been proposed by current CRCs as well as by ploughing back profits from marketed developments. The paper addresses some of the specific terms of reference of the Review Committee with this strategy in mind.

Overview

A great opportunity for setting long-term science and industry policy has been provided by the present government through the recent Stocker, Mortimer and Goldsworthy reports, as well as the expected West Review on Higher Education. Development of a broad strategy from these inputs will have great political significance and the evolution of the CRC process should play a key role in this.

This paper develops the Academy's strong commitments to the CRC process in the light of the terms of reference of the present review and using the best information available to the Academy from its own enquiries and the Report Changing Research Culture by Professor Rupert Myers, July 1995.

The Academy recommends that the statistics in that Report relating to the success of CRCs be brought up to date as part of the present review.

Linking Australian innovation to Australian industry

Introduction of the 150% taxation concession in 1985 led to a more than doubling of business expenditure on research and development (R&D) from about $1,500 million per annum to $4.2 billion per annum (1995-1996) - a major change for industry which nevertheless still spends less than the OECD average on R&D. The Academy sees a continuing need to link excellence in Australian basic research to a continued growth in the industrial R&D. To what extent has the CRC process been successful in this? What lessons have been learnt on how the process might be improved?

Several points are clear immediately.

1. In the context of the 125% tax relief program the cost of the CRC program is about 10% of industry support.

2. The program has led to new products for development.

3. Fifty per cent of the students graduating through CRC link programs have found employment in industry.

4. There has been a change in culture in the tertiary education sector, in some government research agencies and in industry. The CRCs have changed drastically the mind-set of the people involved.

In the most general sense, the CRC program can be seen as a true industry support program by providing tangible inputs for commercialisation, contributing to a major culture change in favour of greater entrepreneurial activity and sensitivity to opportunities for commercial exploitation of scientific discoveries. Because the process invites open competition, it has the qualities of contestability and is thus complementary to programs run by science agencies such as the CSIRO and by the universities themselves.

The CRC program has generated seven spin-off companies and more are proposed. The success rate of these companies can be expected to be better than the 50% failure rate (after five years) noted for the OECD countries in general. (From OECD Report Thematic Report of Entrepreneurship and Job Creation Policies 1996, Table 3.10.)

Long-term value of public-good CRCs

The Academy endorses the Recommendations of the Stocker Report in relation to public-good Cooperative Research Centres. The program has embraced the protection of the national interest in Antarctica, in relation to the marine sciences and in environmental and related areas. The longer-term value of their contribution to the national good is high.

Targetting of CRCs

The current group of Cooperative Research Centres has involved major industrial firms, such as Goodman-Fielder, BHP, Rio Tinto, Nylex, Pacific Dunlop, amongst the top 50 Australian companies. Recent data show that the 150% (later 125%) tax concession for R&D has stimulated employment in R&D by about 250% over 10 years for medium-size businesses and the same is probably true for small businesses. This suggests that an evolution of the CRC process to involve small and medium-size businesses might be worth studying as a means to enlarge the scope of the program and provide a means for Australia to undertake the necessary development projects associated with vertical integration.

Specific comments on the guide to submissions

1.1 Significance of public and private benefits generated.

Since Australia has an internationally-competitive record in scientific innovation at the basic level, a major public benefit of CRCs has been to begin or support the process of entrepreneurship by linking this to an economy which is knowledge-based. This is quite vital, considering the reduced employment in the mining, utilities, manufacturing sectors of Australia over the last 10 years and the corresponding worrying increase of up to 25% in low-knowledge-component industrial activity.

The private benefits generated relate to new opportunities for the industrial partners for new products, in the marketability of which they had a major decision-making input.

1.2 Stronger commercialisation of CRC outcomes

This can be achieved by linking the program to new government initiatives such as the Investment Innovation Fund (IIF) and similar schemes. It is essential that the added value from CRC and related schemes be kept in Australia and this requires government measures to ensure that a greater part of the nation's capital is directed through competent management structures into home-based development.

1.3. Impact of greater commercialisation and self-funding.

The timescales for the CRCs to produce projects for development and ultimate commercialisation need to be updated by the supplementary review of statistics called for above.

The process of culture change is a slow one; the education of students and graduates also a slow process, but essential.

Industry funding of CRCs has increased significantly in each round of CRC funding, from 12% to almost 25%. The total leverage on the Commonwealth dollar has increased from 2.6 to almost 3.3.

However, unreasonable expectations for commercial funding would be destructive of the program:

• much Australian industry nororiously under-invests in R&D

• many of the benefits of R&D, at the level that CRCs work, are not appropriable by individual firms but are available to many in the medium-to-longer term. Examples are the development of high-level skills and cutting-edge technologies.

Appendix 1 suggests an extra step to supplement the CRC program. The aim would be to gain maximum benefit from the capital already invested and speed up the commercialisation process.

1.4. If CRC program funding diminishes or ceases, there will be an inevitable and wasteful collapse of the CRC process. The good and bad points of the present process need to be identified by the current committee so as to facilitate linkages at least at the present level of activity. This must be a strategic goal so that the wealth of Australia in its natural and intellectual resources can be realised.

2. The distinctive contributions of CRCs

These have been recognised by other countries, some of whom are exploring the use of this Scheme. These contributions are a challenge to the academic and research community (including CSIRO) to go beyond a philosophy of 'research for research's sake'. This approach, though commendable in the academic context and where the most challenging intellectual problems are being addressed, has found an outlet to application through the CRC process.

The training of students in some of the best academic research cultures is combined with direct industrial contact. The large number of PhD students (about 900) involved in the program in 1995 testifies to its attractiveness for students and ensures it will have an impact in the long term on the student's judgement of the value and appeal of industry related research.

Awareness has been raised in industry of the research and other consulting advice available to them within the Australian academic and scientific communities. There had previously been too little involvement from both industry and science. The CRC process is changing this.

We have commented above on a possible stratification of the CRC process. This could involve Development Centres (in contrast to the R&D CRCs), to involve medium-size and even small-business enterprises. Typical areas where this might be appropriate might be in instrument construction, medical supply industries, food and beverage industries, building technology and environmental management. The strategic development of these areas with university know-how could place Australia in a position to respond not only to its own but also to regional needs.

3. The Australian Academy of Science supports public good CRCs as recommended by the Stocker Review.

Enhanced linkages - The development process

In the above paper, we have stressed the great value of the CRC process and its continuing need for about the same level of government finance. But there is apparent need for action on the next stage of the process so that projects brought to prototype, or other demonstrated feasibility, can be carried forward through the development phase to products which could be manufactured.

Such an extra stage is recommended so that the nation can get maximum benefit from the growing culture change and the capital already invested. We have tentatively called it a Joint Development Program. This should be thought of as a supplement to the on-going Cooperative Research Centre program.

This second step should, once again provide funding that is contestable in that existing CRCs which have a product, as well as research agencies and universities with developable products, could compete for the government component of the new funds. Being a facilitation process these would be relatively modest or in the form of some initial underwriting. The major part of the development funds should come from the industrial partner (or syndicate of partners) and venture capital. The provision of government funds would have to be along the lines which satisfy the prescription of the World Trade Organisation (WTO).

Such a supplementary scheme should have political attractiveness as, combined with the CRC scheme, it could be the basis of a major initiative to ensure vertical integration of the public good, pre-competitive and development aspects of a highly networked industry support scheme. The development aspect of the program could call upon different elements of the unified national system of tertiary education and the research agencies.

An enhanced scheme would also have the financial benefit of presenting a larger total scheme with a larger fraction of it (the development part) financed from the private sector. These ideas will need considerable elaboration and an evaluation of their relationship to the tax incentive and START schemes about to be introduced by government.