5 Year Productivity Inquiry: Innovation for the 98%

Innovation by the many, not just the few

With only between one and two per cent of Australian businesses producing new to the world innovation, consideration must be given to how to help the other 98 per cent adopt and adapt existing technologies and practices to improve performance and productivity.

“Policy has traditionally been focused on cutting edge invention, but there are likely to be bigger gains in encouraging everyday, incremental innovation across the vast majority of Australian businesses,” Productivity Commission Deputy Chair, Dr Alex Robson said today while launching the third interim report in the 5-Year Productivity Inquiry.

“There are worrying signs that the principal vehicles for acquiring and transferring knowledge – what we refer to as diffusion – have slowed or stalled. While previously we could have relied on labour mobility and investment in machinery, equipment and intangible capital to spread ideas, these have all been either stagnating or declining.

“Diffusion has the potential to lift the performance of over a million businesses.”

The drivers for diffusion are less about specific government funding programs than about getting broad market settings right to create a vibrant business environment. This includes a more open trade and investment regime and recognition of the value of skilled migration as a source of new ideas.

“At the individual business level, things like managers' ability to exploit existing innovation, increasing knowledge through recruitment decisions, leveraging industry bodies to connect firms with information about new and better ways of operating, and linkages with universities beyond direct commercialisation can all drive productivity and improve performance,” Dr Robson said.

“For example, information about advances and how businesses are tracking compared to industry best practice needs to be taken up more broadly. Many businesses undertake little or no assessment of their performance, even though this is a major motivator and route to improvement.

“When we think about innovation, the government sector is not the first thing that comes to mind. Yet innovation is becoming increasingly important in this growing and large part of the economy, particularly in areas like health and aged care.

“General government spending amounts to nearly $900 billion or over 40 per cent of GDP, with much of this – some $445 billion – spent on delivery of services to the Australian community.

“Innovation in government services is often slow, piecemeal, disorganised, and inconsistent across jurisdictions. Yet it is critical for the quality and value for money of services. Many of the ways we could achieve diffusion of new processes and approaches in government services are well‑known but underexploited. Even small gains from diffusion and adoption in the public sector will improve outcomes or realise billions of dollars in better services or cost savings.”

The Productivity Commission is now seeking input on the interim report 5-year Productivity Inquiry: Innovation for the 98%. Submissions can be made at www.pc.gov.au and close 21 October 2022.

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• Preliminaries: Cover, Copyright and publication detail, Opportunity for comment, Terms of reference, Acknowledgements, Contents and Foreword
• 1. The case for strengthening the diffusion of innovation
  • 1.1 A focus on diffusion
  • 1.2 How does Australia fare?
  • 1.3 The policy levers for diffusion are different from those for novel innovation
• 2. Enabling innovation diffusion in Australia
  • 2.1 An enabling environment for diffusion of new knowledge and technologies
  • 2.2 Facilitating the diffusion of innovations developed overseas
  • 2.3 Diffusion through human capital
  • 2.4 Collaboration and networks can catalyse innovation diffusion
• 3. Innovation and diffusion in government services
  • 3.1 There is abundant innovation and diffusion...
  • 3.2 ...but adopting best practice can be slow or weak in some important areas
  • 3.3 There are major obstacles to innovation and diffusion that need to be reformed or managed
  • 3.4 What is to be done?
• References