Australia’s lagging R&D incentives pose challenges to national security

While the global and regional period of strategic competition between the US and China is starting to enter a new phase, Australia is just beginning to grasp the importance of its role within both the broader 'rules-based' order established and led by the US since the end of the Second World War and increasingly within the prism of the Indo-Pacific's rapidly evolving balance of power.

The traditional methods of nations exercising their 'hard' and 'soft' power is one that has been heavily focused on and will continue to play an important role in understanding what many around the region and indeed the world are beginning to recognise as a potential second Cold War.

However, the advent of 'grey zone' tactics and asymmetric security challenges, particularly those leveraged by totalitarian governments in Russia and China, have emerged as an area of challenge for Australia. 

This unconventional approach to statecraft and the increasing politicisation of warfare and strategic competition has been recognised as one of the great tactical and strategic challenges of the modern era, with Chief of Defence, General Angus Campbell, in particular highlighting the importance of responding to such security challenges.  

The adversaries against Australia and its broader Western allies enjoy a number of advantages, namely the consistency of political leadership, long-term national ambition and a commitment to establish themselves as world leaders.

Recognising this, many potential adversaries have sought to leverage political warfare as a potent form of coercion and influence peddling to limit the effectiveness of allied response. 

Australia's universities and centres of higher learning have emerged as a key flashpoint in this ongoing global and regional period of strategic competition – widely recognised around the world as leaders in the research and development, commercialisation and knowledge sharing capability, which has drawn the interest of foreign students and commercial entities. 

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Enter the national security lens, as both the Australian government and US counterparts have recognised the potential and inherent vulnerability of Australia's centres of higher learning to foreign espionage and influence as a result of the increasing recognition and globalisation of the higher education sector.

Further to this is the Australian government's continued downward pressure on financial incentives and policy support for locally-driven research and development across a range of industries and high-technology sectors – resulting in the steady decline of Australia's long-term economic, industrial and national security competitiveness in an increasingly competitive period of global history. 

Defence industry as a catalyst and early role model

While Australia’s defence industry has gone from strength to strength in a short period of time, relying solely on domestic consumption is a fateful trap that has previously hindered the sustainable development of Australia’s broader manufacturing industries.

Avoiding this pitfall requires a dramatically different approach to the policies that have been used in the past, paired with a growing focus on leveraging the nation’s key economic and strategic partnerships.

This plan sets out a comprehensive plan for Australia’s defence industry. The government is investing in Australia’s defence industry and ensuring that it is positioned to support delivery of the Integrated Investment Program over the next decade.

The plan acknowledges that as Australia builds its Defence capability, it must also grow its defence industrial capability. By 2028, Australia will require a larger, more capable and prepared Australian defence industry that has the resident skills, expertise, technology, intellectual property and infrastructure to:

• Enable the conduct of ADF operations today;
• Support the acquisition, operation and sustainment of future defence capability; and
• Provide the national support base for Defence to meet current needs and to surge if Australia’s strategic circumstances require it.

Recognising the importance of the export market, the government established the Defence Export Strategy, which identifies that "Australian industry cannot sustain itself on the needs of the Australian Defence Force alone. New markets and opportunities to diversify are required to help unlock the full potential of Australian defence industry to grow, innovate and support Defence’s future needs".

Despite the government's focus on developing a globally competitive defence industry through the Defence Industry Capability Plan, Integrated Investment Program and supporting Naval Shipbuilding Plan and Defence Export Plans, the broader economy and research and development sectors of the Australian economy seem to have been left behind in favour of focusing on quick-fix solutions to stimulate economic growth and development.

Developing a culture of innovation

The government's approach to igniting the fires of innovation within the broader Australian economy begins at a cultural level, this is something that CEO of Quickstep Holdings, Mark Burgess, articulated to Defence Connect, saying, "Research and development (R&D) spending as a percentage of GDP in Australia is comparatively low by international standards. It is below the OECD average and noticeably low when compared with other smaller OECD nations like Israel and the Netherlands (source: World Bank website).

"Almost one-third of government R&D spending is through tax incentives. This is a relatively blunt instrument and may be more likely to benefit larger businesses rather than smaller ones (The Sydney Morning Herald – July 2018). There are myriad grant schemes offered by government, many of which really represent small business welfare – just enough to live on, not enough to prosper from.

"The emphasis and focus of government policy changes, with regular changes at ministerial level, politically motivated initiatives and a perpetual fragmentation between states and between the state and federal governments," Burgess stated in an opinion piece titled: 'Helping the tall poppies grow – Supporting the growth of Australia’s defence SMEs'.

Australia's universities as a fundamental input to capability 

Federal Education Minister Dan Tehan has initiated the consultation with Australia's universities amid growing government and public concern about the vulnerability of Australia's academic and research and development apparatus to foreign influence, foreign interference, espionage and, increasingly, concerns around how financial dependence influences all of the above-mentioned factors. 

Australia's rapidly developing defence industry and, more broadly, the Australian economy has an important role to play in supporting and nurturing the next generation of Australian research and development academics, while also ensuring that leading-edge capability developments, combined with expanded commercial opportunities and national security, remain paramount with a focus on keeping the capability local. 

Former Commander, Forces Command, Australian Army, turned Adjunct Professor for Monash University and director of L3 Technologies Australia, Gus McLachlan, told Defence Connect, "The feedback from industry around the defence industrial capability plan from industry has been well received and it has made a real difference, the next question is how do we create that same level of engagement into our research and development sector, some of that will be the vibrant start-up companies, but some of that is our vibrant university sector.

"At the moment it is still relatively transactional out there, you bid on a funding proposal through the research council or the next-gen tech fund, I think the next-step in the maturity around that relationship will be multi-year partnerships with deeper funding. That is going to be necessary because there are very real requirements around security.

"The simple reality is that if Defence puts money into the research sector, it expects that it is the beneficiary of that material, which means data is protected, there is access control and we know who has access and is only capable with closer relationships."

McLachlan poses an important question around attracting Australia's young academics, research and development experts and innovative leaders to the national security space and the importance such relationships will play in furthering the nation's national security and the importance industry, government and universities can play in the future direction and security of the nation.

Industry centres of excellence 

Developing centres of excellence supporting export growth in partnership with Australian and international primes can leverage the policy levers used to develop other national facilities and integration within global supply chains and programs to support the development and rehabilitation of local naval shipbuilding capabilities, with a focus on capitalising on the growing demand for warships in the Indo-Pacific and Middle East in particular.

Despite Australia’s widely recognised position as providing a world-leading research and development capacity – supported by both private and public sector research and development programs driven by organisations like the CSIRO – traditional areas of high wage costs and low productivity in Australia’s manufacturing industry, exemplified in the failure of Australia’s domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs, have characterised Australia’s reputation as a manufacturing economy.

This is done through a range of government-driven incentives for industry, including corporate tax incentives, employment incentives and payroll tax incentives. Australia’s now firm commitment to develop a robust domestic defence capability requires innovative and adaptive thinking in order to expand the capabilities and competitiveness of the domestic industry.

Unfortunately, the current paradigm of industry development policy is defined by the concept of "government shouldn’t be picking winners in industry", a concept that has a great deal of merit and should be supported to the fullest. However, supporting and incentivising industry to establish centres of excellence and manufacturing capabilities locally is more appropriately viewed through the lens of "picking the dog with the least fleas" and provides avenues to enhancing Australia’s industrial capacity.

While industry largely provides the technological expertise, government policy provides the certainty for investment – particularly when supported by elements of Australia’s innovation and science agenda, combined with grant allocation and targeted, contractual tax incentives linked to a combination of long-term, local job creation, foreign contract success, local industry content, and research and development programs, which are critical components that can be used to empower and enhance the overall competitiveness.

This is something that Mark Burgess focuses on, expanding on the idea, "The country needs to develop clusters or critical masses in given locations and specialisms, but few industries outside agribusiness and resources have sufficient scale to warrant this.

"The federal system disaggregates focus and effort down to a collection of New Zealand sized, semi-autonomous, state-based structures, often engaged in state versus state needless competition. Australia is not short of capital, but investor risk appetite and the associated risk capital is hard to access, and even harder to access on a transformational scale.

"There is a less aggressive private equity environment and an excessive investor focus on a small number of traditionally rewarding and lower risk sectors. This does not encourage or support innovation. The absence of competition and globally integrated markets is unhelpful."

Supporting the development of both Australia’s defence industrial base and the broader manufacturing economy also requires the legislative power of government to counterbalance industry development policies of allied yet still competitor nations like South Korea – which leverages the industrial development policies of export-oriented industrialisation to develop its economy into a major economic and modern, advanced manufacturing powerhouse.

Your thoughts

The nation's leading-edge universities and research and development capabilities will play a critically important role in the nation's enduring economic, political and strategic national security – they also support the development of Australia's sovereign industrial capability and the nation's capacity to embrace next-generation technologies ranging from advanced manufacturing, through to quantum computing. 

Accordingly, it is becoming increasingly important not only to help protect the nation's centres of higher learning and education, but also provide and nurture the links between Australia's academic institutions and the rapidly evolving and often world-leading industrial capabilities to ensure a qualitative edge for the Australian warfighter, with additional national security advantages.

Get involved with the discussion and let us know your thoughts on Australia's future role and position in the Indo-Pacific and what you would like to see from Australia's political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or at This email address is being protected from spambots. You need JavaScript enabled to view it..