Senator the Hon Helen Coonan

Minister for Communications, Information Technology and the Arts

Deputy Leader of the Government in the Senate

Address to Israel Prime Minister's Conference

Plenary Session

The Land of Innovation and R&D

Tel Aviv Israel

Thursday 9 November 2006

INTRODUCTION

It is a pleasure to have been given this opportunity today to participate in this important discussion on innovation and R&D.

I will be putting an Australian perspective to this session which has been appropriately titled: The Land of Innovation and R&D.

It is certainly a fitting description of Israel but I think it is very much one that Australia can also claim.

PROFESSOR HUGHES

A noted commentator on innovation policy issues, Professor Alan Hughes from Cambridge University recently visited Australia as part of an innovation conference organised by the Queensland state government.

He stirred up a bit of controversy by criticising the current thinking on innovation policy, with its focus on R&D targeting university spin offs
and what he sees as an undue emphasis on start-ups venture capital and tax subsidies.

Professor Hughes thinks the preoccupation with technology firms arises from misunderstanding the drivers of the US economy, and too much emphasis on the key role in the US economy of start-ups based on university research.

But when you look at the real performance of the US economy in recent decades, the data tells a different story— one in which productivity growth in services e.g. wholesaling, retailing, finance and insurance has played a key role in US economic growth – with technology based start-up companies playing a valuable but substantially lesser role than many people have suggested.

This is because developed economies are overwhelmingly service economies.

Consequently, small improvements in services can have huge payoffs.  It is becoming clear that there has been a massive growth impact in the USA from investment in ICT in services, and growing evidence that ICT is transforming business models.

Australia 's economic performance also reflects the influence of ICT in helping to transform the services sector. 

Now, Professor Hughes' ideas could well be seen as heresy in countries like Israel and I have to tell you that they are viewed that way by many people in Australia as well.   

But he does have an important underlying point – which is that innovation can occur in all sectors of the economy and it is the incremental innovations based on diffusion of technology that often produce the greatest economic benefits. 

THE AUSTRALIAN APPROACH

So today I want to discuss Australia 's approach to Innovation and R&D at two levels: 

First, I want to discuss our approach and some of our success in what I term “classic innovation” through R&D -- leading to start up companies – and on to successful commercialisation of the sort that Israel knows so well. 

And secondly, to talk about Australia 's approach to the broader economy-wide transformations that are arising through services sector innovation. 

Since 1996, the Howard Government in Australia has endeavoured to create a bustling entrepreneurial spirit that has helped to change the innovation landscape in our country. 

In that time, gross expenditure on R&D by Australian businesses has increased from more than $8.7billion in 1996-97 to over $15.7 billion in 2004 – which is almost 2% of Australia 's GDP.

This 80 per cent increase in private sector R&D is a key ingredient in Australia 's economic success and positions us well for the future.  
And we have certainly had our share of success stories in that time.

SUCCESS STORY - RADIATA

One that I am particularly keen on is a company called Radiata – and the Radiata story is the type of story that will be familiar to many Israelis in the audience. 

The success of Radiata, a high, speed wireless networking start-up company, is underpinned by:
– excellence in R&D;
– a long-term investment in basic research;
– appropriate government support;
– active business leadership;
– and a groundbreaking technology that reached the market well ahead of its competitors.

Radiata was formed in 1997 to commercialise research by CSIRO and Macquarie University in wireless local area networks (LAN), and the market potential of the international standard for wireless communications.

A $750,000 government R&D grant in 1998 helped Radiata to develop the first integrated wireless LAN chip that conformed to the new standard. 

In 2000 the company was bought by Cisco Systems in a deal then valued at $US295 million, as part of Cisco's move into wireless networking. 

As Israel well knows, while individual company successes like this are always welcome, the benefits of these success stories are often felt further down the track, and this story is no exception. 

One of the founders of Radiata, Dr Neil Weste,  has gone on to form “g2 Microsystems”, a wireless technology venture focused on the Radio Frequency ID (RFID) market which has recently raised $6m to further develop its technology.

G2 Microsystems demonstrates the significance of serial entrepreneurship, where successful teams of entrepreneurs build on the experience and knowledge from previous companies to develop other successes. 

NICTA

Another of the founders, Dr David Skellern has gone on to become the CEO of Australia's ICT Centre of Excellence –known as NICTA.

Dr Skellern recently said of NICTA that:
“We don't want to develop initiatives that replicate what others are doing.  
“Our focus is to understand where the real gains can be made, making fundamental breakthroughs in knowledge.” (AFR 31/10/06)

NICTA is a major initiative in which the Australian Government has made a 10 year $380 million commitment to the creation of a world class ICT centre of research excellence.

Now in its fifth year of operation, NICTA which is also supported by seven universities and four state governments, is rapidly establishing itself as a new force in ICT research with an increasing number of its own patents and a growing range of national and international research collaborations. 

So you can see that Australia is focussed on raising its capabilities in world class ICT R&D.  But we have also had a strong focus on commercialisation as well. 

COMMERCIALISATION

In fact, if you asked me what the critical factor in the Australian Government's approach to innovation has been, then I would have to say like Israel, we recognise the critical importance of commercialisation.  

We have provided direct incentives for early stage venture capital through our Innovation Investment Fund program, changed the tax laws to make it easier for overseas pension funds to invest in Australian venture capital, and implemented incubators and pre-seed funds. 

In doing all this, we haven't been ashamed to learn from other countries successful approaches. 

And I am delighted to say that Israel 's Technological Incubator Program provided considerable inspiration and impetus for Australia 's successful ICT Incubators Program. 

The eight incubators funded by the Program are a key element in improving the commercialisation of Australian ICT ideas and R&D.  

So far they have raised $240 million in private co-investment which represents a significant leveraging of the Government's $122 million funding. 

Over 400 ICT start-ups had been accepted as incubatees, and by June 2005, they had generated $71 million in annual revenue and $42 million in total exports.  

Some of the successful incubator technologies include:
a)    an advanced surveillance technology and information analysis system that can detect, count and record the movements of people in open spaces;
b)    location positioning system technology that can be used underground or in confined spaces without using satellites; and
c)     mobile phone ticketing technology that can be used by 99 per cent of all mobile handsets.

So in recent years, Australia has had a strong and growing focus on ICT innovation, R&D and its commercialisation from a technology perspective.

One of the things that I have been pleased to find out on this trip is that, just as Australia has learned from Israel the lessons of your successful incubators program, so you have also taken on board some of  the lessons of Australia 's successful Co-operative Research Centres Program.

IMPACT ON THE WIDER ECONOMY

But to return to my opening comments about these matters, I want to focus for a moment on the impact of ICT Innovation and R&D on the wider economy.  

In Australia we see innovation and R&D as important for the whole economy and we view ICT as critical enabling technologies for transforming all aspects of our economy and society.

In fact, when I first came into to the communications portfolio in 2004 I was astonished to learn how deeply embedded ICT is across the Australian economy.

ICT systems are already embedded in traditional areas of activity such as mining and agriculture, in the financial and insurance sector, in government service delivery, and increasingly in the health and education sectors. 

Research conducted by my Department over the past four years has demonstrated that ICT has been the major source of Australia 's very strong productivity improvement over the past 15 years.

My Department's research suggests that up to three quarters of the productivity growth in the Australian services sector over the past 15 years is attributable to the impact of ICT.

Further research suggests that this strong contribution to productivity growth is likely to continue for the next 20 years.

INNOVATION AND R&D

ICT is also improving our capacity for research and innovation creating a virtuous circle of sustained innovation.  

In addition, it is empowering consumers and citizens by giving them more diverse sources of information and knowledge than ever before. 

There are so many examples of how ICT innovation has transformed the services sector in Australia, including simple things like:

• computerization of doctor's prescriptions which saves lives by reducing mistakes in dispensing drugs;
• or cattle and sheep tags which enable the tracking of stock through the production process and the targeting of specific markets;

But to return to Professor Hughes for a moment, his conclusion was that, while universities are important to innovation, any concentration on high technology in innovation policy is too restrictive, and we should also focus on  innovation across the broader economy. 

AUSTRALIAN GOVERNMENT APPROACH

Australia shares this view, and like Israel, we place a lot of emphasis on education and skills training as part of a broader approach to encouraging innovation across the entire economy. 

The Australian Government has also long recognised the importance of getting the economic fundamentals right. 

So we have emphasised economic management, good governance and micro-economic reform. 

Australia's sustained economic growth is evidence of the effectiveness of these policies. 

We have also recognised the critical strategic importance of access to high speed broadband for sustaining our research and development capabilities, maintaining the competitiveness our industries, and enhancing delivery of government services including education and healthcare. 

The Australian Government's commitment to spend an additional $3.1 billion in this area is evidence of our clear commitment in this area. 

Because of our size, geographical isolation, and low population density, Australia has a greater potential to benefit from the exploitation of ICT than most other developed countries. 

For example, ICT infrastructure is re-shaping the face of higher education, training and schooling. 

The tools for distance teaching, interactive learning and access to rich curriculum content are proving to be critical in reforming Australia 's education and training systems.

ICT infrastructure services are as crucial to regional, rural and remote communities as rail and road infrastructure, providing the basis for effective economic and social participation as well as strengthening the connections within such communities.

E-government is also transforming the coordination of government service delivery to regional, rural and remote communities.

And remote sensing, computer simulation and ICT-based management planning are making a crucial contribution make to the productivity and competitiveness of Australia 's primary industries.

All of this suggests that ICT diffusion across the economy should be an important focus of policy especially as there is plenty of evidence that the productivity returns to ICT investment vary enormously, between sectors and between firms. 

CONCLUSION

So in conclusion, I would like to leave you with a couple of common themes which I believe are relevant to all nations as they pursue support for innovation. Essentially, I believe that government support should be focussed at two levels.

First, there should clearly be specific support for public and private sector research and development and its commercialisation. 

Secondly, government policy should be based on an understanding that technology innovation occurs across the entire economy as new technologies diffuse through different sectors.  

While we all place a strong emphasis on R&D as a source of ideas which can be turned into successful companies, we should also all view ICT as an essential enabler of technologies for transforming our economies and our societies.

So we should all keep in mind the critical importance of technology diffusion as a driver of innovation.
Thank you.