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Executive summary

  • Innovation is critical to Australia's future. The economic and technological realities of an increasingly innovative world economy will inevitably catch up to Australia — and Australia needs to be ready. The Global Innovation Index (GII), the world's leading measurement of innovation across more than 80 indicators, shows Australia is simply not innovating enough.
  • Australia ranks 23rd in the world and the GII makes it clear Australia is an inefficient innovator. Australia puts considerable effort into the elements that foster innovation — ranking 12th in the world on inputs — but has yet to see the results, ranking 30th on outputs of innovative activities. Ultimately this considerable discrepancy leaves Australia ranked 76th in the world in innovation efficiency.
  • There is no doubt the United States, currently ranked fourth in the GII, is a world-class innovator — attracting much of the world's innovation output, including Australia's. As a close US ally in economic, military, intelligence, and diplomatic spheres, it makes sense to examine what Australia could learn from the United States.
  • From a policy perspective, Australia would benefit from: incentivising foreign venture capital firms to be based in Australia, fostering an environment that welcomes both skilled immigrants and anchor firms, increased domestic awareness of the skills shortage in the existing and future workforce, and an international campaign that raises awareness of the role Australia can play in a global innovation ecosystem.

Australia’s world ranking in innovation is falling

Ranked as high as the 17th most innovative country in the world by the Global Innovation Index (GII) in 2015, Australia fell to 19th the following year. In 2017, Australia comes in at 23rd — overtaken by China and behind New Zealand.

Meanwhile, the US ranking in the GII’s assessment of innovative performance keeps improving. Currently ranked behind Switzerland, Sweden and the Netherlands as the fourth most innovative country in the world, the United States has never ranked lower than 11th since the GII began in 2007 and has either maintained or improved its ranking since 2010.

Source: Global Innovation Index

Why is innovation relevant in Australia?

Why is innovation relevant in a country like Australia, which has enjoyed an unprecedented quarter century of uninterrupted economic growth? Does our natural resource endowment mean we can afford to be less innovative?

Ultimately, innovation will determine Australia’s future. Innovation drives business competitiveness, new business growth, new jobs and is a key driver of economic growth. Defined by the OECD as “the implementation of a new or significantly improved product (good or service), process, new marketing method or a new organisational method in business practices, workplace organisation or external relations”, the OECD attributes approximately 50 per cent of member countries’ long-term economic growth to innovation. These economic and technological realities will ultimately catch up with Australia.

In order to maintain its productivity and lifestyle Australia has no choice but to embrace innovation.

Benefiting from more than a quarter century of continued economic growth, following deregulation in the 1980s and 1990s and a mining boom through much of the 2000s and 2010s, Australia now enjoys high wages and standards of living, as well as a strong social safety net. In order to maintain its productivity and lifestyle, however, Australia has no choice but to embrace innovation.

The importance of innovation is not lost on Prime Minister Malcolm Turnbull, who embraced innovation as a major early agenda item. In December 2015, less than three months after Turnbull became prime minister, the Australian government released its National Innovation and Science Agenda. Focusing on growing the innovation climate through improvements in capital, collaboration, talent and skills and the role government plays as an exemplar, Turnbull said this innovation agenda would “help create the modern, dynamic 21st century economy Australia needs”.

Why is the United States relevant?

One might argue that the United States has simply been “doing” innovation for longer than Australia, but a deeper dive into the data shows that the United States has certain characteristics that make it fundamentally better positioned for innovative growth. That is not to say that Australia lacks the ability to be more innovative. Analysing the 81 indicators of the GII provide a better explanation of these issues (as provided below).

Another question is why it's relevant to compare the United States to Australia when the United States has an economy 15 times larger and a population 13 times larger. The United States may be ranked as the fourth most innovative country in the world, but it remains a top destination for much of the output of Australia’s innovation — and much of the world’s, for that matter. The obituary for the loss of America’s innovative supremacy has been written many times, but this GII data — along with other research — make it clear such sentiment is still premature. Although many have proclaimed this to be the Asian Century, the United States still attracts the best and brightest minds for innovation, from Australia and the rest of the world.

As a close ally in economic, military, intelligence, and diplomatic spheres, it makes sense to examine what Australia does well compared to the United States and what Australia could learn from the United States. Examining how we differ on the indicators making up the GII is a good starting point.

What is the Global Innovation Index?

Produced jointly by Cornell University, INSEAD business school and the World Intellectual Property Organization, the Global Innovation Index assesses the innovation performance of 127 countries and economies around the world, based on 81 indicators. It is the most authoritative and comprehensive resource for quantifying innovation amongst nations. It also clearly articulates what Australia does well and what Australia could do better in when it comes to innovation.

The Global Innovation Index is the most authoritative and comprehensive resource for quantifying innovation amongst nations.

There has been a considerable debate in Australia (and elsewhere) as to the validity of the GII. Some have asked how you can quantify the impact of Australia’s popularisation of avocado on toast? Cafes around the world have now adopted the healthy Australian snack, which innovated a new way to use an avocado, but how is that innovation quantified in the GII measurements? The simplest answer is that avocado on toast is not quantified in the GII. But at the same time, neither is Japanese sushi or Korean Bibimbap or Scotland’s deep fried Mars bars. Ultimately, more comprehensive innovation measures should be sought after, but even then it would be unlikely improved measures would show Australia innovates more than countries ranked higher than it on the GII. Furthermore, while Australia's fondness for smashed avocado has seen Australian avocado production growth year on year for decades, it is simply not as impactful of an innovation as other Australian examples, such as Wi-Fi.

Measuring innovation is a difficult and imprecise process. The GII is by no means the only measure of innovation available. Other organisations, particularly the OECD and World Economic Forum, also analyse innovation using various data. Yet the GII has the most indicators spanning the breadth of the many components of innovation.

How the Global Innovation Index works

The overall ranking of each country in the GII is essentially done by averaging the scores of each country based on 81 indicators – with most scores ranging from 0 to 100. In 2017, the top composite score of 67.69 belongs to Switzerland, while the US score is 61.40 and the Australian score is 51.83.

Pillars of the Global Innovation Index
Source: Global Innovation Index

More specifically, the 81 indicators are all located within either innovation input (which tries to capture the elements that enable innovative activities) or innovation output (which tries to capture the results of innovative activities). Within these two components are multiple pillars. There are five pillars within innovation input: institutions, human capital and research, infrastructure, market sophistication, and business sophistication. There are two pillars within innovation output: creative outputs, and knowledge and technology outputs. Each pillar is divided into three sub-pillars and each sub-pillar is comprised of a varying number of indicators.

It should be noted that the indicators and number of countries included in the GII can vary from year to year.

Interactive: Australia and US Global Innovation Index comparison

Sorting the indicators of the Global Innovation Index by score differential shows where the biggest differences are between the United States and Australia, and where the two countries are similar.

This interactive graphic can also be sorted by Australia’s maximum and minimum scored indicators and by the maximum and minimum scored indicators for the United States.

Hover over the data points to see the individual Australia and United States scores and differential for that indicator. Hover over the indicator name for the definition and data source.