United States
One of the most consistent findings in macroeconomics is that innovation drives economic growth. The fundamental role that innovation plays in compelling economic growth is renowned due to the infamous work of Robert Solow (Nobel Prize Laureate in Economics in 1987). In his seminal 1957 paper, Technical Change and the Aggregate Production Function, one of the core findings of his work (and of its subsequent developments) is that a huge portion of economic growth is driven by technological advance. Indeed, in the 21st Century the economy is becoming more digitally focused and technology is reshaping established fields of medicine, manufacturing, energy and business services.
Recently in the news, the Australian government has voiced a desire to shift the Australian culture to be more entrepreneurial in our increasingly technological economy. One key agenda that has been focused on is the funding of start-ups and crowdfunding to boost innovation. However, is this solely where the government should be concentrating its efforts?
In particular, one topic that should be considered is boosting innovation in established businesses. Cochlear, the $4.8 billion world leader in hearing implants, is a prime example of an Australian innovation that has successfully transitioned to a global advanced manufacturing success story and resulted in long-term economic growth. Recently, Rio Tinto has been harnessing innovation through implementing driver-less mining trucks. Posing the question, how can Australia continue to produce new similar success stories whilst ensuring that companies like Cochlear continue to be Australian based?
For instance, one way to upsurge innovation with established businesses would be for the government to increase incentives in R&D. Rick Holliday-Smith, Cochlear chairman, states his opinion that, “”we would recommend the government to reward appropriately defined innovative companies for their incremental R&D spend by increasing the concession for additional R&D expenditure.” Certainly, introducing further incentives and lifting the cap on research and development concessions would most likely encourage companies to continue to keep their innovative activities in Australia.
Nevertheless, it is imperative that Australia acknowledges the importance of R&D on a country’s competitive edge and long-term growth. Cross-country evaluations show that growths in private, public and foreign R&D all contribute to increases in multi-factor productivity. Furthermore, previous empirical research confirms that R&D does increase long-term growth (OECD, 2001). Thus, for leaders, companies, and Australia as a entity, to remain competitive in a rapidly intensifying digital market, they should invest in research and development to drive innovation.
If you have invested in R&D within your company, you can still receive generous incentives from the government. Have a chat with us today to find out if your eligible.
References:
OECD (2001), The New Economy: Beyond the Hype – The OECD Growth Project.
