1 Higher education research: a national investment

The importance of research to Australia

1.1 Knowledge is fast becoming a key factor determining the strength and prosperity of nations. Research—as a key source of knowledge and new ideas—is central to success in the new `knowledge economy'. Those nations with strong research systems will be well placed to prosper both economically and socially.

1.2 The vital importance of knowledge to a country's economic health and living standards is now widely recognised internationally.² Investments in the generation and transmission of knowledge—in the education and training of young people, in updating skills and know-how of the workforce, and in the generation of knowledge through research—are increasingly accepted as an essential requirement for a nation's long-term growth and competitiveness. Equally important is the capacity to innovate, to apply knowledge to productive ends and to exploit the benefit of new ideas.³

1.3 These observations carry particular force for a country such as Australia. In an environment increasingly influenced by international and global factors, Australia is making a major transition from an economy based on the wealth of its physical resources and commodities to an economy which draws its competitive advantage from the skills and creativity of its people. The success of that transition will profoundly influence the quality of life for all Australians: the availability of jobs for our young people, the quality of working life for those in employment, and the living standards of Australian families. Critical to success will be our national ability to innovate—to generate knowledge, ideas and technologies through high-quality basic research and the commercial development of its findings, and to link effectively with knowledge generated elsewhere in the world.

1.4 The capacities of individuals to propose interesting ideas and a funding base adequate to support long-term basic research are fundamental to underpin the discovery of fresh insights and knowledge. In its policy statement, Investing for Growth,⁴ the Government has made it clear that it sees innovation as crucial to Australia's future economic security and prosperity, and that the generation of knowledge through scientific and technological research must be a vital component of the national innovation system. Equally, the Government recognises the important role of research in other fields—in the arts, humanities and social sciences—and its contribution to the shaping of our national culture, society and institutions, as well as to economic innovation.

1.5 Research in fields such as marketing, communication, business and law will be important if we are to take full advantage of the commercial opportunities created by new developments in science and technology. Just as important, research will play a major role in assisting societies to manage the consequences of continued rapid change, including managing the social changes and adjustments flowing from the transition to a knowledge-based economy. High-quality social research, for example, will be vital to dealing with the ethical issues arising from developments in biotechnology; to preparing citizens for the changes flowing from the rapid growth in information and communications technology; and to ensure that there is not a widening gulf between the `information-rich' and `information-poor'.

1.6 Research in the humanities and social sciences makes a major contribution to our sense of identity and cohesiveness as a nation. It promotes an appreciation of our culture and history; fosters an understanding of different traditions and customs, and of the importance of tolerance and respect; and stimulates and informs debate on the goals, directions and values to which our democratic society aspires.

1.7 Research of this kind helps to promote—indeed, is itself a mark of—a civilised society. Increasingly, citizens are required to take or at least to sanction complex decisions. The quality of our democratic process is coming to depend more and more on our ability to generate and make effective use of advanced knowledge and to develop policy analysis based on this knowledge.

The changing environment for research

1.8 The nature of knowledge creation is changing, not only in Australia but internationally. While the inspiration and persistence of individuals will always remain the foundation stone of discovery, breakthroughs do not occur in a vacuum. Increasingly, the important questions for research are not based on disciplines but on issues or problems, demanding multi-disciplinary research solutions. As a consequence, there is now a growing emphasis on teamwork in research and complementarity of skills, with many networks of researchers pooling their diverse talents in a flexible way to pursue a common goal.⁵

1.9 At the same time, the traditional distinctions between `pure' and `applied' research are rapidly breaking down. While research unconnected to an ultimate use must continue to have a prominent place in our research institutions, there is no longer a simple one-way flow from `basic' to applied research; rather there is a constant and increasingly rapid interaction between the two, with applied research efforts often generating questions which can only be answered at the `basic' level.

1.10 The locations of research activity are also changing, and knowledge generation is increasingly crossing the traditional boundaries between institutions and sectors. For example, in addition to their traditional task of generating knowledge, universities now receive and transform knowledge. At the same time, the primacy of the universities in basic research is being strongly challenged in a variety of fields such as the computer sciences, many applied sciences and engineering where the emphasis is on application of research.⁶ There is an increasing role for applications-driven approaches in many spheres of research, and a growing share of the national research effort is occurring in commercial settings. These trends are particularly pronounced in the fields of science and technology research, but are by no means confined to them; similar trends can also be observed across a range of the social sciences and humanities.⁷

The need for an international perspective

1.11 Research has always been a global enterprise. International publication and peer review has been central to maintaining excellence and the free flow of knowledge. This globalisation is increasing with the advent of the knowledge economy, involving international partnerships through the exchange of personnel, shared infrastructure and collaborative projects across national boundaries. A world survey by the National Science Foundation in the United States found a sharp rise in the percentage of research papers that were internationally co-authored: overall, from 13.4 per cent in 1981_87 to 20.4 per cent in 1988_93; and in Australia from 15 per cent to 22 per cent over the same period. International networks are particularly important for a country of Australia's size and location if we are to gain access to the great bulk of research which is conducted offshore. Strong international links also provide market opportunities for promoting and developing Australian ideas, discoveries and inventions. Australian researchers and research organisations have long recognised the value and importance of these linkages to the excellence of their research endeavours, evidenced in the substantial increase in overseas science and technology linkages by the Australian higher education sector over the last 15 years.⁸

1.12 The new information and communication technologies are providing increasing opportunities for Australia to become better integrated into the emerging global economy. No longer is geography, language or time-zone a limitation to participation in the global market for ideas.

1.13 In this globalised environment for research, Australia needs to be able to attract and retain the best and brightest researchers. While Australia is currently benefiting from a net `brain gain', through the net immigration of over 30 000 academics, scientists and engineers between 1987_88 to 1995_96⁹ there is an increasing trend for Australian-born academics, scientists and engineers to leave Australia on a permanent or long-term basis for professional reasons. Between 1982_83 and 1990_91, there was a net loss of 13 639 Australian-born professionals who departed Australia on a long-term or permanent basis.¹⁰ The Wills Strategic Review of Health and Medical Research has also identified the need to develop incentives to entice young researchers to return to Australia after completing further training overseas.¹¹

1.14 In combination, these profound changes in the external environment carry major implications for education policy in general, for the research endeavours of all Australian universities, and for our national research efforts as a whole. Those implications go to the skills which university researchers will need to be effective in the new environment; to the relationships which they will need to forge, not only with their traditional academic colleagues but also with researchers from other disciplines and institutions and with industry; to the quality and breadth of the training opportunities provided to young people beginning a career in research; and not least, to the way in which research in our universities is planned, managed, delivered and funded.

Funding of research: the importance of commercialisation

1.15 Compared with other advanced economies, Australia is a mid-ranked performer in terms of total expenditure on R&D. Among 24 economies (of which 20 were from the OECD) included in a recent survey, Australia ranked twelfth in terms of gross domestic expenditure on research and development (GERD) and thirteenth in terms of the ratio of GERD to gross domestic product (GDP).¹²

1.16 However, Australia differs from other nations in that it has a relatively high level of R&D expenditure in government research organisations and universities and a comparatively low level of business expenditure on R&D.

1.17 Australia had the third highest ratio of public R&D expenditure to GDP (0.86 per cent of GDP) of the countries included in the above mentioned survey. In recent years Australia has progressively increased its level of direct government expenditure on R&D.¹³

1.18 The Government accepts the need to fund good researchers undertaking high quality research which may have no immediate social or economic payoff. At the same time, there must be structures and incentives in place which ensure that Australia gains the maximum benefit from its investment in research and capitalises on the innovations and discoveries of Australian researchers. Whereas Australia has consistently performed highly in many fields of basic research, it has lagged significantly in commercialising the findings of that research—i.e. in turning them to economic advantage through business and trade. Too often the commercial benefits of Australian research have been reaped offshore.

1.19. There are many requirements to be met if Australia is to lift its performance in this critical area. Improving the availability of venture capital is one: in too many cases we have failed to commercialise promising research discoveries because small, highly innovative firms have struggled to attract funding for the early stages of commercial development. It is important we have a taxation system which is internationally competitive, and perceived as such by overseas investors; without this, investment funds will be diverted from Australia for no other reason than the prospect of higher returns available elsewhere in the world.

1.20. Among other key requirements, we need to strengthen Australian access to overseas technology and international markets; to develop our skills in the management of intellectual property; to foster an environment conducive to the growth of small and medium enterprises; to remove unnecessary regulation and red tape; and, not least, to promote a national culture which encourages creativity, values entrepreneurship and rewards risk-taking.

1.21. The Government has already embarked upon policies to deal with these needs. In the area of venture capital, for example, it has recognised the importance of encouraging new high-technology businesses and the need to develop systems to finance them; its Innovation Investment Fund programme, in particular, is a direct response to that need.¹⁴ In commissioning the Ralph Review of Business Taxation, the Government has made clear its objective of developing a business tax regime which promotes investment, exports and jobs and improves the capacity of Australian business to compete internationally. The Cooperative Research Centres and Strategic Partnerships with Industry _ Research and Training (SPIRT) programmes have not only been an important source of innovation in research but also, through promotion of stronger links between research institutions and business, a significant spur to commercialisation and culture change.

1.22. In these and other ways the Government has recognised the importance of commercialisation and acted to encourage it. In this area especially, however, responsibilities for action extend well beyond the Government alone. The business sector clearly has a role to play. Business expenditure on R&D in Australia is low relative to comparable nations. In 1997_98, business invested just over $4 billion in R&D, or 0.72 per cent of GDP,¹⁵ compared to an OECD average ratio of over 1 per cent.¹⁶ While investment in R&D by business in Australia has improved markedly since the early 1980s, this investment has declined over the past two years. Business must lift its own level of investment in research—a level which is low by international standards. It must also become more aware of the commercial opportunities created by institutional research, and become more adept at exploiting these.

1.23 The Government is addressing the issues of business investment in R&D. In its 1997 statement, Investing for Growth, it announced a series of initiatives to create a climate which encouraged business R&D. These included increasing support for business research and development and the commercialisation of that research, and substantially increasing targeted support for innovation with the provision of $1 billion over the four years from 1998-99.

1.24 A further factor that affects business R&D is the current taxation system. This may have an adverse impact on the availability of venture capital for investment in business R&D. Both the Review of Business Taxation and the Wills Review have received submissions which have advised that the taxation of capital gains in Australia penalises investment and management participation in high technology start-up companies and emerging industries such as biotechnology.¹⁷ The Wills Review also identified a number of other instances where the current treatment of capital gains tax and other taxation incentives inhibits both Australian and overseas superannuation funds from investing in Australian private sector research.¹⁸ The Review of Business Taxation is currently examining options for the treatment of capital gains tax in relation to these matters.

1.25 While a key strength of Australian institutions lies in basic or fundamental research, institutions too have an important responsibility to foster an environment which is conducive to effective commercialisation. There are two major challenges for our institutions in this regard. Institutions need to create a more entrepreneurial culture within their own domain: they need to recognise the importance of commercialisation to our national economic and social interest; to value effective linkages with the business sector; and to recognise that knowledge and utility should be complementary, rather than competing, objectives. The other, related challenge is to put in place the structures and internal management arrangements which can give effect to a set of cultural objectives along these lines. In many cases this will require a review of institutional arrangements for the management of intellectual property, the employment and remuneration of staff, and the sharing of benefits from commercial ventures between institutions, individual researchers and third parties.

1.26 Since its election in 1996, the Government has continued to support a high base of R&D in the higher education sector. In its first budget, the Government announced additional funding of over $120 million over four years for targeted research programmes¹⁹ and has provided additional support for collaboration with industry, additional Australian Postgraduate Awards and Australian Postgraduate Awards (Industry) scholarships and increased funding for research infrastructure. In the 1999_2000 budget, an additional $93.3 million is being provided over three years for research infrastructure and an additional $58.1 million over three years for the Strategic Partnerships with Industry _ Research and Training (SPIRT) Scheme.

1.27 The 1999_2000 Budget also provided additional funding to put Australia at the forefront of health and medical research, with an injection of $614 million over the next six years. By 2004, this will have doubled the existing research funding of the National Health and Medical Research Council. The Government has recognised that biotechnology is one of the most important revolutions of the modern age, and is developing an integrated strategy for development and advances in this field; the additional funding for the National Health and Medical Research Council reflects this priority.

The research role of Australia's universities

1.28 Our universities play a vital part in the national research and innovation system. They are major contributors to the generation and transmission of knowledge in Australia. Many of our leading university researchers have world standing in their fields of research, enhancing Australia's reputation as a serious and credible contributor to the global development of knowledge. Our universities play a critical role, unparalleled by any other research organisation, in the selection, training and professional development of Australia's researchers of the future.

1.29 The higher education sector accounts for some 27 per cent of national expenditure on research and development, and 78 per cent of all expenditure on basic research. It is a major employer of research personnel, accounting for well over half of Australia's total research workforce.²⁰ In addition, our universities provide research training opportunities for more than 30 000 postgraduate students at any one time, of whom some 5 000 graduate each year.

1.30 Total expenditure from all sources on higher education research amounted to some $2.3 billion in 1996,²¹ of which 59 per cent was spent on basic research, 35 per cent on applied research and 6 per cent on experimental development. Public funding through Commonwealth grants accounted for some 88 per cent of all expenditure. Industry support for higher education research accounts for less than 5 per cent of total expenditure, but has grown steadily in recent years.

1.31 These are impressive statistics, and underline the importance of maximising the returns to the community from this major national investment.

Strengths and achievements of higher education research

1.32 Measured against accepted international standards, Australia's research activity displays many significant strengths. Its share of world knowledge production, as a proportion of world output of scientific publications over the period 1993-97, is some 2.7 per cent²²—an impressive achievement, relative to a share of world trade of about 1 per cent.²³ The research output of Australia's universities specifically is also well regarded internationally,²⁴ despite some recent indication of a decline in citations of Australian scientific research.²⁵ A recent evaluation study found that 61 per cent of research funded under the Commonwealth's Large Grants Scheme—the principal source of competitive funding for university research—is considered to be at the forefront of international research in its field. A further 24 per cent was found to produce outcomes of high quality which are likely to exert an influence internationally.²⁶

1.33 Australia is recognised as having research strengths in such diverse fields as agricultural sciences, anthropology, astronomy, biological sciences, chemistry, engineering, geosciences, material science and technologies, mathematics, medical microbiology, oceanography, philosophy, soil and water sciences, and veterinary sciences. In the bulk of these fields, the citation impact of Australian research publications is well above world average.²⁷ Australian research has also made unique contributions to the development of knowledge in areas such as telecommunications, computer animation, remote sensing, mining and mineral processing, Aboriginal culture, multicultural settlement, tropical ecology, sensor perception, marine sciences and Antarctic research.

1.34 Even this brief account highlights the fact that, whatever the limitations and deficiencies of our higher education research system, there are also many vital strengths which need to be preserved and developed. The Government will be sensitive to this in its consideration of any changes to the current policy and funding framework for university research.

The need for reform

1.35 Despite these many undoubted strengths, there is mounting evidence that Australia's policy framework for higher education research has not kept pace with the rapidly changing demands of the external environment. Elements of reform are summarised in paragraphs 1.36-1.50 below, and elaborated in following chapters.

Strengthening linkages

1.36 Research in our universities is too often disconnected from the national innovation system. Acknowledging that there are some outstanding exceptions, there are mostly only weak linkages between the producers of research and its users, especially in industry.

1.37 A key to successful innovation is the flow of ideas, creativity, skills and people between different parts of the overall innovation system—in particular, between the generators of knowledge in our universities and public research institutes and the private companies which create most of Australia's wealth. The interaction between the two has already been fostered, to mutual advantage and national benefit, through initiatives such as the Cooperative Research Centres and the SPIRT programme. Still more needs to be done to bring the providers and users of research together: to involve users more effectively in contributing their knowledge and experience to the research agenda; to promote collaborative research; and to commercialise the results of research conducted in the public sector. Government policy has an important part to play in encouraging and promoting such partnerships.

1.38 The benefits which can flow from successful linkages are well demonstrated by the prolific growth of high-technology firms—mainly small to medium-sized businesses—in regions adjacent to major universities, such as Boston and Silicon Valley in the USA, Cambridge and Manchester in the UK and Kyoto Research Park in Japan. An Australian example is the Australian Technology Park, situated near its three participating universities—The University of New South Wales, The University of Sydney and the University of Technology, Sydney. By the year 2005, the Australian Technology Park is expected to support some 7000 jobs.

1.39 Given the rapid changes in the nature of knowledge production, linkages will also need to be strengthened between the research activities of our universities and the planning and resourcing of the research training system; between the work of researchers from different but related disciplines; and between funding for research and the planning and provision of research infrastructure.

Better institutional management of research

1.40 The success of our national research effort relies not only on the quality of the work of individual researchers but also, vitally, on the institutional environment in which they operate. Important strategic decisions need to be made by our institutions about the areas in which their research will be concentrated; on their quality assurance processes for research; on the alliances to be formed with industry and other parties; on issues of intellectual property, copyright and consultancy income; and on the management and allocation of their institutional resources for research.

1.41 The current structure of incentives encourages all universities to be comprehensive research institutions, rewarding them for the breadth of research they undertake. As institutions struggle to remain competitive across many fields, as well as take up opportunities in emerging areas of research, there is greater call on an institution's limited resources, which may jeopardise the overall quality of Australia's research endeavours. If Australia is to be competitive in a global knowledge economy, we must be at world standard in every field in which we are research-active. This requires institutions to determine their own research strengths and concentrate available resources to create a critical mass of internationally reputable expertise. Institutions must be encouraged to set their own clear priorities for research and research training, as well as provide an environment that will attract the best researchers and postgraduate students in its chosen fields.

1.42 Many of our universities have recognised this need, and have acted to improve the planning and management of their overall research activity. Some, for example, have made strategic decisions to concentrate their efforts on particular areas of strength or potential excellence, and to direct their resources accordingly. Some have reviewed their employment arrangements, internal reward structures and intellectual property frameworks, encouraging entrepreneurship and strengthening the incentives for researchers to pursue commercial development of their work. Some too have moved to diversify their styles of research training, offering new opportunities to their postgraduate research students for collaborative work in multi-disciplinary project teams and experience in industry.

1.43 These are all promising developments, to be encouraged and supported. They are still, however, more often the exception than the rule. A primary objective of Government policy will be to advance and accelerate such progress across the higher education system as a whole.

Improving research training

1.44 There is an urgent need to improve the quality and effectiveness of the research training system. Many of our best graduate students find themselves frustrated and dissatisfied with the quality of their research training experience.²⁸ They report that too often the training provided is narrow and limiting in its specialisation; poorly supervised; and out of line with the needs and expectations of employers. Many students feel trapped by their initial choice of specialisation, institution and supervisor, and find their options to change course extremely limited. Employers express dissatisfaction with the skills and narrow focus of many graduates.²⁹ Not surprisingly, in these circumstances, the research training system is marked by high rates of drop-out and a significant waste of both talent and investment. Unemployment among higher degree graduates increased appreciably over the decade to 1994 and has plateaued since.³⁰

1.45 It is important also to recognise the increasing diversity of employment destinations of postgraduate research students, well beyond the traditional destination of a career in academia or in a professional research organisation. The rapid growth in the numbers of postgraduate research students over the past 10-15 years has far outstripped even the relatively strong growth in employment opportunities in those traditional avenues of employment. The result has been that, whether by choice or necessity, increasing proportions of graduating students have sought employment in non-traditional fields—especially in industry and the public sector.

1.46 For reasons such as this, countries such as Japan, Korea, Finland, Norway and Germany have reviewed and begun to reform their graduate training programmes. Details vary from country to country, but common objectives have been to broaden the base of the research training experience, strengthen the creativity, communication and problem-solving skills of graduates, and provide training opportunities and experience outside of the academic environment.³¹ Some Australian institutions, too, have experimented successfully in this direction, but the pace of change needs to be lifted across the higher education system as a whole.

Improving programme integration, incentives, coordination and advisory structures

1.47 More than a decade has passed since the current framework was put in place, following the 1988 White Paper on Higher Education.³² The structures and mechanisms established at that time are now under evident strain. Current funding arrangements involve a proliferation of funding schemes which not only lack coherence, taken as a whole, but are poorly articulated, unnecessarily complex and unduly fragmented. They are fragmented and inefficient, both in their design and in aspects of their administration. More fundamentally, however, there needs to be a better match between funding programmes and their underlying objectives, and a stronger set of incentives consistent with desired directions of change. Current incentive structures are out of date and, in some cases, severely flawed, tending to promote uniformity rather than diversity, and still offering too little encouragement for collaborative research. The design of many programmes encourages short-term grant-getting rather than long-term, strategic research.

1.48 These are all important challenges within the current system of university research. With the external environment changing rapidly, the pressures already evident will become even more intense unless the current policy framework is significantly improved. The following chapters detail a number of proposals for change in this respect.

1.49 It is also timely to review the coordination and advisory framework supporting national policy in higher education research. The Government believes it is important to establish a new and more strategic role for the Australian Research Council, with greater emphasis on significant issues of national policy interest and a more streamlined approach to grants administration.

1.50 The goal must be to provide a policy and programme framework which will help our universities to maintain and build upon their traditional excellence in basic research while strengthening their links with the national innovation system, with Australian society more broadly and with the international research community. Reform should promote a national research system which is more diverse and outward-looking than the present system; offers stronger incentives and rewards for excellence; respects the autonomy of universities to manage their own affairs, but strengthens the current accountability framework for higher education research; enables universities to concentrate on their research strengths and to take advantage of emerging fields of research; and provides a broader and more rewarding range of training opportunities for young researchers.

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