The role of government in innovation

Overview
Should government be involved in innovation? The Cutler Report addresses this question from a number of perspectives and concludes that there is a role in Australia for government to support and encourage innovation.

Government as an innovation customer
One perspective, which is dealt with in our discussion on government procurement, is to make government a technology and services customer that recognises, rewards and shares the risks associated with innovation. Most suppliers to government would probably welcome such a change in approach to procurement contracting, but are likely to believe it when they see it.

Reasons for further involvement
The issue of direct government oversight and involvement in innovation is more complex.

The Report sets out a theoretical case for a public innovation policy by looking at the nature of information and knowledge and how a market deals with those characteristics. The key characteristics of knowledge are said to be:

• it is non‑rival – it can be reproduced many times without losing value;
• it is cumulative – new knowledge builds on existing knowledge;
• it is reproducible at negligible cost – particularly in the digital age;
• it is only partly excludable – ideas can be used by others even if specific expressions of those ideas cannot (for example, copyright and patents)
  it is intangible – so it is difficult for financiers as it cannot be used a collateral;
• its development produces uncertain benefits – investing in knowledge development (for example, education) does not lead to quantifiable benefits nor does it have quantifiable risks.

All of these characteristics mean that there can be difficulties when it comes to investing in knowledge. Even though most people recognise that there is value in knowledge, putting their own (or others’) money at risk to develop it is a very uncertain investment and one that does not meet the risk‑limiting investment strategies of many organisations

Supporting innovation
The Report then looks at whether government should “step in” to reduce or remove these risks so that private firms will invest, or at least have a better balance of incentives and risks, to make the investment feasible.
For example, the Report suggest that there are benefits to the wider economy and community from university research, and research carried out by public and private institutions. Therefore, the Report considers there is a case to be made for public support of these research efforts.
However, the Report also states that the designs of the principles for public support of innovation must be carefully considered. Such programs must:

• set out a clear statement of objectives;
• be certain about how the program will affect behaviour – will it cause the beneficiaries of the program to behave in a way that means the stated objectives will be met?
• determine whether the program funding should be contestable;
• determine its interactions and alignment with other policy objectives and be clear about how those policies will work together;
• be clear as to the duration and how success or otherwise is measured;
• understand the risks associated with the program;
• be administratively as simple as possible and have low compliance costs;
• must provide for full accountability and transparency;
• ensure effective monitoring of development and reporting.

The Report considers that this can be done.

Governance
The Report recommends a new innovation governance model illustrated on page 155 of the Report in Figure 19.

In the model, several new government bodies are proposed:

• the Prime Minister’s National Innovation Council (to replace the Prime Minister’s Science, Engineering and Innovation Council) to act as central co‑ordinator of a natural innovation system;
• the Advocate for Government Innovation and Office of Innovation Assessment:
  - would be similar to Singapore’s Enterprise Challenge;
  - source of funds and expertise for conducting trials;
  - act as a forum for challenging government processes obstruct innovation;
  - provide project facilitation for obtaining relevant regulatory approvals;
  - reporting of knowledge;
  - establish national innovation awards;
  
• Research Co‑ordination Council made up of major statutory research bodies and other key public sector research bodies to provide advice to the NIC;
  
• Ministers for Innovation – Commonwealth and State levels;
  
• Innovation Australia to be a single agency responsible for delivering innovation support for private sector firms.

Challenges
The challenges that these recommendation will face, if implemented, will be to provide better, more efficient government support and co‑ordination for innovation, while preventing adding yet more layers of compliance and red‑tape. This will be a considerable challenge.