Submission to the Review of Research Policy and Funding Arrangements for Higher Education
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1 Submission to the Review of Research Policy and Funding Arrangements for Higher Education September 2015
2 This work is licensed under a Creative Commons Attribution 4.0 International Licence. Further inquiries should be made to the Chief Executive: GPO Box 1142 CANBERRA ACT 2601 Ph: Fax: contact@universitiesaustralia.edu.au Web: ABN:
3 Contents Executive Summary... 2 Improving Australia s innovation performance... 4 Dual funding system... 6 Funding pressures... 6 Research block grants... 8 Research training Competitive grants programmes Performance of the research system Submission to the Review of Research Policy and Funding Arrangements for Higher Education 1
4 Executive Summary Universities Australia is the national peak body representing Australia s universities in the public interest both nationally and internationally. Australia s universities are a critical part of our nation s economic and knowledge infrastructure and are the only institutions that link all elements of advanced scholarship, skills creation, research, innovation and development. They are key contributors to Australia s economic future, providing the building blocks for our transition to a productive and internationally competitive knowledge economy. Through universities, Australia is able to access, adapt and adopt research and innovation from the leading researchers, industries and economies around the world. Australia secures access to important international research and development only by conducting high-level research itself. A broad base of research and innovation capability also ensures we can address our unique national challenges. Australia is at a critical point and the decisions made now will have a profound influence on our future standard of living. Rapid technological change and increasing global competition will continue to present significant challenges for our economy. Countries around the world are responding to these challenges by investing significantly in research and innovation, as they recognise their crucial role in driving social and economic prosperity. We need to bolster the foundations of our system and provide stable, planned investment in the ideas and discoveries that will create a prosperous future. A long-term plan with clear resourcing commitments will help us to address national priorities, increase the return on investment and grow our international reputation for research excellence. The Australian Government s Review of Research Policy and Funding Arrangements for Higher Education is an important part of ensuring Australia has the research capability it needs to succeed. Universities Australia supports the goal of improving the translation of Australia s excellent research into benefits for the Australian economy and society. In this submission Universities Australia highlights the need for integrated initiatives as part of an overarching strategy. The university sector alone cannot address this long-term structural issue for Australia s innovation system. Increasing industry recognition of the benefits from research and innovation and galvanising businesses to become active partners is crucial. Leadership and support from governments at all levels can provide the necessary catalyst for change. Universities Australia welcomes the opportunity to contribute to this review, as its recommendations have the potential to reshape how university research is funded in Australia. As the process continues, the sector would appreciate additional opportunities for discussion once possible options for reform are developed. There are also a range of other policy processes and consultations that are interrelated, including the ACOLA Review of the Research Training System, the implementation of the Medical Research Future Fund and discussions on support for the higher education system more generally. The interactions will need to be carefully considered so that the ultimate policy outcomes strengthen the research and innovation system. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 2
5 Universities Australia recommends that: Australia puts in place a long-term, integrated strategy with clear resourcing commitments that addresses the funding pressures in the research system, increases industry demand for research and innovation and supports deep and productive engagement between universities, industry, governments and communities. stability and reliability become the norm for Australian Government support for research and innovation as these are critical to creating sustained cultural change and ensuring Australia is able to transition to a high-tech, knowledge-driven economy. the risks to Australia s ability to produce excellent research are recognised, along with the inextricable link between Australia s research reputation and our international education industry. the dual funding system for research is continued and the imbalance between direct and indirect funding is addressed. The critical role of block grants is being compromised by this imbalance. the range of activities that the block grants are expected to support are not expanded without commensurate funding increases. One option would be to introduce a new stream of block funding that directly supports the sector s research and innovation engagement activities, possibly based on the UK Higher Education Innovation Fund (HEIF). any changes to reward engagement should not compromise our existing strengths and must be part of a broader strategy that seeks to increase demand from industry. Incentives structures must be robust, fit-for-purpose and balanced to encourage deep and productive engagement. efforts to increase opportunities for research training students to work with industry and other end-users of research are provided specific support. mechanisms to target research training funding and places recognise the challenges in predicting skills shortages and the risks associated with the inappropriate use of assessment processes that are not fit-for-purpose, such as Excellence in Research Australia (ERA). any initiatives to increase commercialisation and foster new high-tech industries take account of the need for specialist technological and market knowledge in the funding body. Innovate UK provides an example of a successful approach that recognises the different maturity stages of different sectors and provides flexible and tailored support. Universities Australia is committed to working with the Australian Government in the next stage of this vital process to ensure university research in Australia continues to deliver the skills, ideas and discoveries needed for our future prosperity. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 3
6 Improving Australia s innovation performance The need for an integrated national strategy to improve our innovation performance has been highlighted consistently by Universities Australia over many years. The policy paper released by Universities Australia in December 2014, University research: policy considerations to drive Australia s competitiveness, provides a detailed and wide-ranging exploration of the issues, along with highlighting the approaches being put in place by comparator countries. The university sector is concerned that the focus of the current review primarily relates to university funding and policy mechanisms and that there is limited consideration of industry and their role in collaboration. If Australia is to address this issue in the long-term, we need to make a substantial commitment with integrated initiatives that tackle the critical issues for all sectors in the innovation system. A broad focus on increasing knowledge exchange is needed, with appropriate support. Fostering research engagement and translational activities beyond commercialisation is important in order to deliver the best returns on Australia s investment. In medical research, for example, the primary benefit comes from changes in clinical practice and improvements in the health outcomes. There has been considerable discussion on where Australia ranks in the OECD in terms of businesses collaborating with higher education and public research institutions on innovation. A statistic that has received less attention, however, is Australia s ranking in terms of the percentage of the firms that undertake research and development. In manufacturing, Australia ranks 26 out of 26 OECD countries in the most recent Science, Technology and Industry Scoreboard, and 24 out of 26 for services (Figure 1). Figure 1 Research and development active firms, manufacturing and services ( ) Source: OECD (2013), OECD Science, Technology and Industry Scoreboard, OECD publishing. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 4
7 There are a range of other indicators that highlight the low-levels of cutting-edge innovation in Australian industry. As discussed in the 2014 Australian Innovation System Report, despite the clear evidence of the benefits, Australian businesses tend to downgrade innovation as a priority and there is a relatively poor culture of innovation in Australian industry. 1 This is despite considerable investment by the Australian Government. The R&D Tax Incentive has experienced the greatest increases in expenditure compared to other types of Australian Government support for science, research and innovation (SR&I). The incentive has grown from around 15 per cent of total SR&I spending in to almost 30 per cent in Universities Australia welcomes the review of the R&D Tax Incentive to ensure this significant and growing expenditure is meeting its policy objectives. In submissions to the Re:think Tax discussion paper, universities and other organisations have recommended the introduction of a premium rebate for research conducted with a university, other public research institutions and/or utilising publicly funded research infrastructure. Direct support for industry research and development remains at low levels. For example, the level of public sector assistance to innovating firms between 2008 and 2010 was the lowest in the OECD 2. There are very limited funding sources for commercialisation activities in Australia and access to venture capital remains a major issue. In addition key collaborative research programmes, such as the Cooperative Research Centres, have suffered significant cuts. Other initiatives to build business skills and foster research connections, such as the Entrepreneurs Programme, have difficulty in gaining traction with industry, due to the lack of longevity and reliability for these kinds of programmes. A long-term approach, with stability and reliability, is needed to create cultural change. Australia has a poor track record in this area, with very few innovation programmes surviving with the same name and same criteria beyond one or two budget cycles. If the Industry Growth Centres prove to be effective at starting the process of strengthening these key sectors, they should be continued and even expanded. Similar programmes internationally are providing long-term support, because it is recognised that change takes time and only government can provide the stability needed for all parties to engage. Improving Australia s innovation performance requires strong commitment from industry, government and universities. No one sector can achieve this alone. Australia s universities understand that there is more that needs to be done to address barriers to collaboration and are undertaking substantial actions. University research expenditure sourced from industry has grown significantly, almost 300 per cent, from $135.8 million in 1998 to $398.2 million in Universities have increased their undertaking of research classified as applied or experimental development, from 41 per cent of expenditure in 1998 to 54 per cent in Universities Australia has been working with industry groups to reduce barriers to workintegrated learning. Individual universities are putting in place strategies and initiatives to increase 1 Department of Industry (2014), Australian Innovation System Report, Commonwealth of Australia, p System/Australian-Innovation-System-Report-2014.pdf 2 Ibid, p ABS (2014), Research and Experimental Development: higher education organisations, Australia, 2012, Cat. no , Australian Bureau of Statistics Submission to the Review of Research Policy and Funding Arrangements for Higher Education 5
8 engagement with industry. However, the impact of this work would be greater with Australian Government leadership and support. Dual funding system Universities Australia supports the continuation of the dual funding system for research. This is a model which is used extensively internationally and provides a range of benefits. Funding through competitive grants fosters excellence and provides the best mechanism to support researcher-led projects that expand the boundaries of our knowledge. The block grant funding provides the necessary flexibility for institutions to foster new areas of research, aggregate effort and make strategic investments. As highlighted in the 2007 Productivity Commission report, Public Sector Support for Science and Innovation: The conceptual arguments for dual streams of funding of higher education research are sound. They encourage researchers to compete on quality and impact (competitive grants), while providing institutions with a base research funding level intended to allow them to make their own strategic choices (block grants) with reduced transaction cost burdens compared with external grant applications. But changes to funding for higher education research have increasingly eroded the share of block grants. The Commission assesses that further shifts away from block grants would risk undermining their important role. 4 Since 2007, the share of block grants has been eroded even further and this is compromising the health and efficiency of the research system. Despite this issue, there is pressure on universities to increase support for research translation and engagement activities out of existing funding sources. Funding pressures The research system is under considerable strain. The strong reputation of Australia s university research has been made possible by the investments of successive governments. However, the system is suffering from stop-start funding arrangements and funding imbalances that put critical parts of the system at risk. The balance between competitive and block funding is a major issue and the gap has grown significantly. In the last major exercise to document the indirect costs of research in Australian universities, Allen Consulting estimated that the average indirect cost rate for the sector was 85 cents per dollar of competitive funding. 5 The introduction of the Sustainable Research Excellence (SRE) Scheme included the aspiration to raise the ratio to 50 cents per dollar, but subsequent cuts have seen this rate stay relatively static at approximately 23 cents. 4 Productivity Commission (2007), Public support for science and innovation, Research Report, Commonwealth of Australia, p. xxix. 5 Allen Consulting Group (2009), The indirect costs associated with research funded through Australian Competitive Grants, Allen Consulting Group, p. 54, July 2009 Submission to the Review of Research Policy and Funding Arrangements for Higher Education 6
9 The stability of this ratio masks the significant increases in the amount of additional income universities are having to find to fund research. To illustrate, the gap between funding the indirect costs at 23 cents as opposed to 50 cents was $460 million in 2013, up from $212 million in In addition, funding under the other block grants have only increased through indexation, despite increasing research outputs from universities. Institutions are having to fund research through other sources, primarily international and domestic student fees. This situation exposes our critical research effort to significant risks, particularly in relation to the international student market. Figure 2: Australian Competitive Grants compared to combined Research Infrastructure Block Grant (RIBG) and Sustainable Research Excellence (SRE) funding (in 2014 constant dollars) Source: Department of Education and Training, Higher Education Research Data Collection (HERDC) Research Income and Publications Data by Sub Category (various years); Research Block Grant (RBG) Allocation publications (various years); and UA analysis. Research reputation is the main input to international university ranking systems and it is these rankings that are used by international students in considering where to study. International education is Australia s third largest export industry and a major success story. The inextricable link between international education and research excellence needs to be recognised. The lack of a long-term funding commitment for national research infrastructure is another issue that is placing significant strain on the research system. Individual institutions are funding gaps 6 In 2014 constant dollars Submission to the Review of Research Policy and Funding Arrangements for Higher Education 7
10 created by the stop-start funding arrangements, placing further pressure on already constrained budgets. As highlighted in the Universities Australia submission to the ACOLA Review of the Research Training System, the funding to support the training of Australia s future researchers has declined in real terms by over 29 per cent from around $36,000 to less than $26,000 per student. 7 However, the number of RTS students has remained constant as a share of the working age population just over 200 per 100,000 population aged 25 to 64 years. 8 The 10 per cent reduction in Research Training Scheme funding and the fees for HDRs announced in the Budget will place the system under additional strain. While acknowledging the current pressures on the Australian budget, it is false economy to under-invest in the engines of current and future economic growth. Australia s approach to investment in science, research and innovation is at odds with the rest of the world. Our competitors are putting in place strategic and long-term commitments that have cross-party support. Government investment in research and development as a proportion of GDP is 0.45 per cent, well below the OECD average of 0.79 per cent, ranking us at 27 out of 33 countries. 9 With Australia s current budget rules, new investments must come at the expense of existing spending within the same portfolio area. The cutting of the Sustainable Research Excellence scheme to fund national research infrastructure for only two additional years is an object lesson in the difficulties created by this approach. The creation of SRE funding was intended to help address the ongoing issue of indirect costs, but with the unfunded gap continuing to increase, we have simply swapped one crisis point in funding for another. Research block grants The current allocation methodology for the research block grants, aside from the Sustainable Research Excellence Scheme, is a formula based approach that is relatively simple and transparent. While there may be questions around whether the inputs are fit-for-purpose and incentivise desired behaviours in institutions, there is no clear policy imperative to simplify this process even further. The data inputs collected for the funding formula are generally key statistics needed by institutions themselves and do not represent a significant additional reporting burden. One simplification that has been suggested is combining the Research Infrastructure Block Grants and the Sustainable Research Excellence Scheme, with the level of competitive grant income as the only funding driver. In 2010, the Institutional Grants Scheme was changed to the Joint Research Engagement Scheme, but with only one change to the allocation methodology and a continuing focus on providing base level support for research and research training activities in universities. There is 7 UA analysis based on Department of Education and Training: RBG Allocation publications and Student Statistics. 8 UA analysis, based on Department of Education and Training Student Statistics; Australian Historical Population Statistics, 2014 (ABS Cat. No ) and Australian Demographic Statistics, September 2014 (ABS Cat. No ). 9 OECD (2013), OECD Science, Technology and Industry Scoreboard, p. 153, OECD publishing. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 8
11 concern that the name change has undermined recognition of the importance of this foundational investment and its role in the research system. If changes are to be made to the block grant funding arrangements, there must be a clear policy rationale and an acknowledgement that reallocating existing money in a system already under significant strain may have limited impact on improving engagement. In addition, any changes to reward engagement should not compromise our existing strengths and must be part of a broader strategy that seeks to increase demand from industry. In considering options to reward engagement, Universities Australia believes that the following principles should be adopted in developing and implementing any new metrics or indicators: The incentives and indicators need to be robust, fit-for-purpose and balanced. A suite of indicators is likely to be more effective than one indicator: a suite is unlikely to create perverse incentives and can be customised to different discipline areas. There should be a trial period to test the robustness of the indicators before they are applied to funding. The administrative burden must be minimised. Determining robust and fit-for-purpose indicators is not a simple process and we need to guard against taking a quick fix approach that will not achieve the desired outcomes. For example, using commercial income as a sole indicator of research translation could undermine universities non-commercial interactions with industry and with other end-users of research. These interactions are often the basis of long-term and productive relationships. Universities Australia supports an approach that incentivises engagement with end-users of research more broadly. The report by New South Innovations on engagement metrics provides one option for collecting audited data on engagement income. There are a range of other metrics that could be considered for inclusion in the suite of indicators, such as co-publications, patent citations and professional development courses, but each will need to be tested for its robustness. Another option would be to introduce a new stream of block funding that directly supports the sector s research and innovation engagement activities, possibly based on the UK Higher Education Innovation Fund (HEIF). The HEIF is only a small proportion of the UK Government s investment in university research ( 160 million for ) but is clearly helping universities to embed changes and increase the focus on linking with end-users of research both locally and internationally. Funding is awarded based on a suite of metrics, but institutions are also required to submit a strategy on how they will foster greater knowledge exchange. The HEIF is only one of the range of programmes and initiatives with significant additional funding put in place by successive governments in the UK to improve their innovation performance. The growing momentum in the UK cannot be attributed to any one programme or initiative, but there are clear lessons to be learnt from the long-term and cross-party commitment to increasing engagement. If changes are made to the allocation formulae for block grants, it will be important to consider whether the current categories of income are fit for purpose. As the categories currently stand, end-user focused research income is spread across multiple categories. For example, Category 1 income includes a range of competitive grant programmes that primarily fund end-user focused Submission to the Review of Research Policy and Funding Arrangements for Higher Education 9
12 research such as the programmes administered by the Rural Research and Development Corporations. The research block grants perform a critical role in supporting the health and agility of the research system. There are significant risks if the proportion of funding provided through the block grants is further eroded, or the range of activities they are expected to support are expanded without commensurate funding increases. Research training Research training, like other areas in the research system, is experiencing considerable strain. Employers and students are seeking a broader range of skills and experiences from research training. However, incorporating these additional requirements under the current policy and funding arrangements is challenging. Increasing the flexibility in the system is vital. Different locations, institutions and disciplines have different requirements for success in research training, and this needs to be taken into account in considering the future. Students entering into research training come from a wide variety of backgrounds and life stages. The policy and funding structures need to enable individual institutions to tailor their offerings to provide the expanding skill set required of our research graduates without compromising on the essential element of significant and original research. The distribution of the research workforce in Australia has been consistently highlighted as an issue for the absorptive capacity of industry and a barrier to research industry collaboration. Unlike many other nations, the majority of Australia s researchers are employed in the higher education sector. There is no simple answer to addressing this long-term structural issue in Australia s innovation system. As with the broader problem of collaboration between research and industry, Australia needs to put in place a long-term, integrated strategy with clear resourcing commitments that increases industry demand for research skills and supports deep and productive relationships at all levels. The recruitment of skilled graduates represents one of the most important mechanisms through which industry derives economic benefits from publicly funded research. However, there is a lack of recognition of the skills provided through research training and their applicability to a broad range of employment areas. HDRs provide candidates with critical analysis, strategic thinking and communication skills, along with the ability to synthesise knowledge to achieve an outcome. Diversifying and strengthening the career pathways of research graduates is vital if Australia is to shift to an advanced knowledge-based, research-driven and adaptable economy. It is also important that Australia s research students are equipped to exploit all of the new methods of research, particularly those that rely on a range of information and communication technology and data analysis. This is an area that has not received enough focus in Australia and we are at risk of not having the skills to be at the forefront of research discoveries. In considering the future direction of Australia s research training system, we need to build recognition of the benefits of research trained staff and to increase the opportunities for research students to work with industry and other end-users of research. This could be assisted through some form of incentive for employers to provide work-placements for students and to encourage their staff to undertake research training. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 10
13 Australia has had a number of small schemes in this area, which have been successful, but not transformative. It is critical that support for industry-linked research training is embedded in the system and has the longevity and scale required to achieve strong industry buy-in. Any programmes and incentives also need to be tailored to Australia s industrial structure, which has a high proportion of small to medium enterprises. Engaging with SMEs requires considerable support and an ongoing commitment. There have also been some suggestions that funding for research training should only be allocated to disciplines that have received a rating of three or above at a two digit Field of Research level in the Excellence for Research in Australia (ERA) exercise. While superficially this may seem like a reasonable approach, it has a range of fundamental issues and would be detrimental to Australia s research training system. This issue is discussed further in the Universities Australia submission to the ACOLA Review of the Research Training System but some of the key issues include: Universities would not be able to build capacity in new areas of research. Research students are an essential part of the research activity in universities and limiting funding directly on ERA ratings for specific disciplines will hamper the development of new areas of expertise and innovation, particularly as ERA assessments only take place every three years and cover up to six years of activity. ERA is an assessment of research quality, not of research training quality, and it was not designed to be used for funding allocations for programmes such as the RTS. The risks associated with inappropriate use of assessment processes have been consistently highlighted by the university sector. Competitive grants programmes The competitive grants programmes administered by the ARC and the NHMRC are underpinned by robust processes that drive the pursuit of excellent research. Each of the schemes administered by the ARC and NHMRC fulfil different roles. In considering ways to improve collaboration with end-users and increase commercialisation, it will be important to ensure that an appropriate balance is maintained and that there is still sufficient support for fundamental research. Schemes such as Discovery Projects already have very low success rates and the high levels of competition are a contributing factor to the difficulty in rewarding alternate career experience. In submissions to the Senate inquiry into the Medical Research Future Fund legislation, it was highlighted that broadening the role of the NHMRC to include actively supporting research translation and commercialisation activities would require significant work to ensure appropriate expertise in the organisation. The same holds true for the ARC. In the UK, this issue was addressed by creating a new body, the Technology Strategy Board (now Innovate UK) at arm s length from government, with staff drawn mainly from business to ensure high levels of specialist technological and market knowledge. Innovate UK works with people, companies and partner organisations to find and drive the science and technology innovations that will grow the UK economy. Its flexible approaches to supporting different technology sectors, including actively nurturing small high-growth potential firms, is a model that Australia should consider. This support goes well beyond just providing grants for commercialisation and recognises the different maturity stages of different sectors and the need for tailored approaches, informed by substantial expertise. There is also a tolerance for Submission to the Review of Research Policy and Funding Arrangements for Higher Education 11
14 risk and an understanding that not all investments will lead to substantial returns, but that a portfolio approach is the most effective. In terms of the programmes specifically designed to support collaboration, increasing end-user representation on selection processes and conducting funding rounds more often are good options to improve their effectiveness. However, Universities Australia acknowledges that increasing the frequency of selection processes will have administrative cost implications for the ARC and NHMRC. Performance of the research system Universities Australia welcomes efforts to improve the assessment of the benefits from investment in research in industry and the public sector. The most recent comprehensive assessment of public support for science and innovation by the Productivity Commission concluded that: There are widespread and important economic, social and environmental benefits generated by Australia s $6 billion public funding support of science and innovation Multiple strands of evidence establish that the benefits of public spending exceed its costs. 10 This report also acknowledged the difficulty in measuring the outcomes from research. The development of metrics is a complex area that requires significant testing and consultation. The fundamental question of what we are trying to measure or assess and why needs to be answered to inform the design of the methodology. Capturing the full range of benefits from investment in research, from improved environmental management, more efficient services, to better health outcomes, should be the goal. An approach that only considers benefits that can be monetised will exclude key benefits from investment in research and limit our ability to respond to new and emerging challenges. Impact assessment through case studies has been considered in Australia, but there are reservations about the significant costs, the robustness of the methodology and the ability to attribute credit to individual institutions. Drawing from the successes of the UK HEIF, there could be benefit from an alternate approach where the engagement strategies and activities of universities are evaluated, using both qualitative and quantitative information. This may provide a more direct link to incentivising behaviours that promote active engagement with the end-users of research. In terms of intellectual property arrangements, Universities Australia welcomes initiatives by the Department of Industry and Science and IP Australia to support more effective IP processes. The release of the IP Toolkit and the development of the Source IP website are both important initiatives and universities are actively engaging with them. In terms of the relationship between intellectual property and increasing engagement, it is important that incentive structures do not encourage universities to hold on to intellectual property that they do not have the capacity to commercialise. 10 Productivity Commission 2007, Public support for science and innovation, Research Report, Commonwealth of Australia, p. xvi. Submission to the Review of Research Policy and Funding Arrangements for Higher Education 12
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