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VOICE BOX OPINIONS FROM ACROSS THE MANUFACTURING INDUSTRY
CSIRO: Every dollar invested in R&D creates $3.50 in benefits for Australia Each dollar invested in research & development (R&D) would earn an average of A$3.50 in economy-wide benefits for Australia, according to evidence compiled in a new report from CSIRO. By Katherine Wynn, Jasmine Cohen and Mingji Liu. Many Australians know research & development drives economic growth and improves our well-being and prosperity. However, few could describe the size of the relationship between Australia’s research & development spending and economic growth, or compare this to performance on other typical investment returns. Examples of future industries that could be unlocked by research & development in Australia include the quantum technology and hydrogen industries. Examples of emerging technologies that could change the way Australians work and live include artificial intelligence and robotics. This is significant, given that recent figures from the Australian Bureau of Statistics show that business spending on research & development as a proportion of GDP is just half the OECD average, and the lowest it has been since 2003. We hope our analysis will raise awareness of the value of this kind of spending, and its importance for Australia’s economic recovery and long-term resilience. Investing in innovation now is crucial for the future. In consultation with government and academic stakeholders, our team at CSIRO Futures, the strategic and economic advisory arm of Australia’s national science agency, used a new yet simple economic approach to quantify the return on investment in overall research & development spending for Australia. By adapting a method originally developed in the US, we calculated return on investment by defining the relationship between domestic gross spending on research & development, and the growth in per capita gross domestic product (GDP) that follows as a result. This method encompasses both successful and unsuccessful research & development investments, and quantifies only monetary benefits (excluding non-monetary social and environmental benefits). Our approach also accounts for delays between research & development investments and payoffs, and for the capital costs of integrating research & development into the economy. For example, an innovation of new computer software must be built into existing computer systems, and might therefore take a decade before its use becomes widespread. Overall, we calculate that one dollar of research & development investment creates an average of $3.50 in economy-wide benefits in today’s dollars, and a 10% average annual return for Australia. By removing the considerations of delays and capital costs, we can also calculate an upper boundary on our estimate – that is, the maximum theoretical return on investment barring any hurdles along the way. This unadjusted result, which does not account for the additional time and costs associated with integrating research & development into the economy, is estimated as creating $20.80 in economy-wide benefits, and a 104% average annual return for every dollar spent on research & development in Australia. Even with our conservative estimate of $3.50 return on the dollar, the expected benefits of investing in innovation are high compared with many other types of investments. For example, Australia’s 10year government bond returns have historically averaged around 7% per year. Private investments in the ASX200 stock index have typically yielded around 10% annually.
AMT FEB 2022
“We hope our analysis will raise awareness of the value of this kind of spending, and its importance for Australia’s economic recovery and long-term resilience. Investing in innovation now is crucial for the future.” Perhaps even more significantly, even our conservative estimate of $3.50 return on investment suggests research & development has a cost/benefit ratio well in excess of $1 to $1. This means there is a strong economic case for this kind of spending. But research & development investment is risky, right? This may be much less of a problem at a national level. While cost or time overruns are never favourable for any investment, building this uncertainty into our findings shows that research & development investment remains economically viable even if this happens. Results from sensitivity analysis demonstrate that if the costs of research & development spending or delays of payoffs increase by 20%, the most conservative (combined adjustment) results only fall to $3.30 return on investment, with annual yields of 9.5% (at lowest). These are still strong returns. Our findings imply that so far, Australian innovation investments – whether they be in new products and services or in creating new industries – have been well worthwhile, and that increasing future investment could capture substantial economy-wide returns. As our estimates only capture the economic benefits of innovation, actual returns are likely to be much higher when also considering the broader social and environmental benefits of Australian research & development. Dr Katherine Wynn is Lead Economist at CSIRO Futures, the strategic advisory arm of Australia's national science agency, CSIRO. Jasmine Cohen is an Economic Consultant at CSIRO Futures. Mingji Liu is a Senior Economic Consultant at CSIRO Futures. This article was originally published by The Conversation. www.theconversation.com www.csiro.au
Jasmine Cohen
Mingji Liu
