Implementing the Cutler Review recommendations in the current economic climate

In his blog of 12 September 2008, Joff Wild made reference to the report delivered by Terry Cutler, Venturous Australia – Building Strength in Innovation, and commissioned by the Federal Government of Australia earlier this year. Wild reported on two recommendations: the first (7.2) that Australian IP law should be reviewed to ensure that patents are granted only to technologies having a 'considerable" level of inventive step, and the second (7.2) that IP policy making should cease to be the domain only of professional practitioners and beneficiaries of the IP system and should form part of economic policy making. Wild found that there is much in the report that "other parts of the world could find attractive and persuasive".

The formation of economic policy has come into sharp relief in the week since Wild’s blog was published. The global financial markets have lurched from one crisis to the next. The Nasdaq, a technology indicator frequently reported in Australian business circles, has dropped approximately 20% in the last month. The Australian stock market, albeit buffered by a financial system more highly regulated than those in the US and Europe, has had a roller coaster ride mirroring rises and falls off- shore and seemingly totally at the mercy of the failings of economies completely outside its influence. The Australian dollar has dropped, at its worst, approximately 30%, from being in a position of near parity with the US dollar in May. The central bank, The Reserve Bank of Australia responded last week by dropping official interest rates by 1.0% taking the market, which was expecting a rate drop of half that, by storm. Yesterday, the Federal Government announced, in a further blow to Friedman’s economic theories, the pump priming of the Australian economy to the tune of A$10bill aimed squarely at those most likely to spend their windfall gain – pensioners and new home owners. This represents almost half the Government’s budgeted surplus for 2008-09.

Where does this leave the recommendations of the Cutler Review? Somewhat prophetically, in his letter to the Minister, Cutler wrote "We are entering an era when the global economy is being transformed before our eyes, with huge local implications". Cutler recommended in essence that the Australian innovation economy needs to “pump primed” in the same way as the Government is proposing to do to the general economy. Some amongst the very many recommendations include:

• (6.1) Adopting the principle of fully funding the costs of university research activities and implementing this through more block and competitive grant schemes so as to match like rates in leading OECD economies.
• (6.3) Urgent restoration of funding levels to publicly funded research agencies likewise so as to match like rates in leading OECD economies.
• (6.7) The opening of current innovation granting programs to international partners and participants.
• (6.8) The increase and lengthening of funding to postgraduate students.
• (6.14) An increase in research infrastructure funding to A$150-200 mill per annum.
• (8.2) The implementation of tax credits as an incentive to investment in research and development to replace the current tax concession system limited to 125% of expenditure for organizations returning a profit.
• (8.3) The introduction of new grants programs and the extension of existing programs to assist firms with limited access to capital in the high risk, proof-of-concept and development stages of innovation.
• (8.4) The establishment of new pre seed funds and the provision of grant assistance to angel investors

If one considers as an indicator of the potential economic strength of Australia’s global innovation that in the years 2004-2007, years in which Australia’s economy was booming, driven by minerals and energy demand from our North Asian neighbours, the number of PCT patent application filings by Australians in Australia increased by 11% whereas the number of PCT applications into Australia by US applicants increased 24%, by Koreans 57% and by Chinese 250%1, one starts to see the rationale for Cutler’s recommendations. It begs the question though, if in times of economic boom, Australians cannot increase their patent filing rates equivalent to their major trading partners, what effect will the current economic turmoil have on the capacity of the Government to adopt the Cutler recommendations, and if not, what fate the Australian innovation community? The economic philosophies of Friedman may yet prevail insofar as the innovation sector is concerned in Australia unless the Government adopts a long term view of this nation’s response to the impact of financial globalization.