IBM – Melbourne Institute Innovation Index of Australian ... IBM is proud to present the third IBM–Melbourne Institute Innovation Index of Australian Industry. We continue to track

IBM® – Melbourne InstituteInnovation Index of Australian Industry 2009

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Contents

Foreword ................................................................................................................................................. 1

Executive Summary .................................................................................................................................... 2

Innovative Activity in Australian Industry Flattens ....................................................................................... 3

Components of the Index ............................................................................................................................ 4

Innovation Index: Breakdown by Industry ..................................................................................................... 5

Mining Industry Innovation ........................................................................................................ 6

Manufacturing Industry Innovation ........................................................................................... 7

Utilities Industry Innovation ....................................................................................................... 8

Construction Industry Innovation .............................................................................................10

Wholesale Trade Industry Innovation .......................................................................................11

Retail Trade Industry Innovation ..............................................................................................12

Transport and Storage Industry Innovation ..............................................................................13

Communication Services Industry Innovation ..........................................................................14

Finance and Insurance Industry Innovation .............................................................................15

Property and Business Services Industry Innovation ...............................................................17

Health and Community Services Industry Innovation ..............................................................18

Cultural and Recreational Services Industry Innovation .......................................................... 20

Personal and Other Services Industry Innovation ....................................................................21

Innovation and the Global Financial Crisis .................................................................................................. 22

Appendix 1: Construction of the IBM – Melbourne Institute Innovation Index of Australian Industry ................. 29

Appendix 2: Data Issues Relating to Analysis of Innovation by Business Size ................................................. 33

Appendix 3: Industrial Classifications and Definitions ................................................................................. 34

Melbourne Institute Economic and Social Indicators ................................................................................... 35

Third Edition

1

All improvements to productivity arise from either successful innovation or improved

worker skills. And while we know a lot about skills, we still know relatively little about

innovation. For example, how does innovation vary between industries, and how is it

affected by the business cycle? These are some of the issues at the centre of this, the

third IBM-Melbourne Institute Industry Innovation report.

And the Report makes sobering reading, with the level of innovative activity again failing

to grow for a third consecutive year. Such trends pose a challenge for a nation that

claims to be a knowledge-based economy.

Trends, however, vary widely across industries, with very large increases in innovation

activity taking place in Health and community services and in Personal and other services.

I commend this Report to all people interested and concerned with Australian

productivity, and especially the vital role that innovation plays.

Foreword

Mark WoodenActing DirectorMelbourne Institute of Applied Economic and Social ResearchDecember 2009

IBM is proud to present the third IBM–Melbourne Institute Innovation Index of

Australian Industry. We continue to track Australia’s innovation effort over time, using a

multi-indicator methodology to measure innovation effort across 13 industries.

We’ve certainly seen a lot of changes since last year’s Innovation Index. We find

ourselves in a very different environment, but we’re now looking forward with more

optimism in terms of how the Australian economy has performed.

Leaders of businesses and institutions everywhere are finding themselves compelled to

think deeply about changing the way the world works. I would argue that the events of the

past year demonstrate that innovation, more than ever, continues to be critical. So critical,

in fact, that this year IBM announced and launched its vision for a Smarter Planet.

Increasingly our planet is becoming more instrumented. We are seeing sensors

embedded into infrastructure, into appliances and devices we use each day, and

into our environment. We need to ensure that these instruments can interconnect

and share their information. Most importantly, we have an opportunity to use the

information flowing from these sensors to help us manage our systems, both man-

made and natural, more efficiently.

In April 2009, 40 of the nation’s senior public and private sector leaders met at the

IBM-sponsored Australian Leadership Forum to consider the systemic issues – in

telecommunications, transport, energy, water and health – that hamper Australia’s

productivity. The forum discussed the potential to address these problems and

concluded that digitally aware infrastructure will fundamentally improve the quality of

life for all Australians.

Business leaders are not the only ones who are thinking about change. Australia’s

political leaders are responding to the call as well. In the past 12 months we’ve seen

the release of two government reports: Powering Ideas: An Innovation Agenda for

the 21st Century from Senator Kim Carr, Minister for Innovation, Industry, Science

and Research; and Australia’s Digital Economy: Future Directions from Stephen

Conroy, Minister for Broadband, Communications and the Digital Economy. Both are

statements that emphasise the importance of technology and innovation.

We’re all connected like never before: economically, socially and technologically. This

challenge is also an opportunity. We believe that people around the world are ready for

change, and the key to achieving it is innovation.

Glen Boreham CEO and Managing DirectorIBM Australia, New Zealand

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Executive Summary

The IBM – Melbourne Institute Innovation Index of Australian Industry is a comprehensive, inter-industry, multi-

indicator approach to measuring the rate of innovative activity in Australia. It embraces six different dimensions

of innovation and then adjusts the measure for the level of economic activity. Accordingly, the Innovation Index

is a measure of the proportion of total activity that is taken up with innovative endeavours.

The main conclusions from the IBM – Melbourne Institute Innovation Index of Australian Industry 2009 are:

• There was no change in the rate of innovative activity in Australia between 2006 and 2007. This compares

with an average rate of increase in the period since 1990 of 2.0 per cent per annum.

• Most of the growth in the Innovation Index was due to an increase in design intensity, which is a notoriously

volatile component. However, there was also strong growth in the trademarking and R&D intensities.

• Organisational and managerial innovation continues to trend downwards–in 2007, the annual rate of

innovative activity fell by 1.0 per cent.

• Since the All Industry Innovation Index in 2007 is constant, but as each market sector industry index has

increased, we can conclude that non-market* sector innovation must have fallen.

• Health and Community Services, and Personal and Other Services recorded the strongest rises during 2007.

• 2007 was the peak of the economic business cycle. However, while R&D has not historically been cyclical,

patents and trademarks are known to be pro-cyclic.**

• Economic research indicates that attempts to commercialise inventions are also pro-cyclical. Accordingly,

we expect that the Global Financial Crisis will have delayed effects on innovative activities.

• It is too early to judge whether the sudden downturn in patenting will be sustained since much of the effect

of the Global Financial Crisis reflects the impact on confidence, and confidence can be especially fickle.

* Notes: The terms ‘market’ and ‘non-market’ are defined on page 29.

** Note: The term pro-cyclical refers to two data series moving together: when one goes up (or down), the other goes up (or down). In relation to the statement that trademarks and patents are pro-cyclical, we mean that they both move in tandem with the business cycle (i.e. when there is a recession, both patent and trade mark applications fall). In contrast, if two phenomena are counter-cyclical, one goes up when the other goes down.

3

Innovative Activity in Australian Industry Flattens

After rising fairly steadily from 1990 to 2004, the Australian Innovation Index was broadly unchanged through

to 2007 (see chart). Most of the increase in the Index from the mid-1990s came from increases in Personal

and Other Services and Health and Community Services, followed by the Wholesale Trade and Retail Trade

industries. While the overall Australian Innovation Index was steady at 139 in 2007, some of the individual

industry innovation indexes recorded strong gains. Notably, Health and Community Services recorded the

biggest rise of 108.5 per cent, although this sector’s index seems to be particularly volatile. The Personal and

Other Services index also rose strongly in 2007, by 71.6 per cent, although the results for this industry are also

volatile such that large year-to-year swings should be treated with caution.

Table 1 presents a breakdown of the Australian Innovation Index according to the six components. In

the year 2007 the strongest growth was recorded in design intensity (up by 23.3 per cent), followed by

trademark intensity and R&D intensity (up 4.4 and 2.9 per cent respectively). Meanwhile patent intensity

and organisational/managerial innovation fell by 29.1 and 1.0 per cent respectively in 2007, and overall

productivity was unchanged. Both R&D and trademark intensities have experienced the strongest trend rises

over time, while patent intensity has been more volatile and has fallen significantly by 41.0 per cent since

2004 and organisational/managerial innovation has trended downwards since 2004. All of these indicators

are normalised for growth in either employment or value added in the industry. So while this suggests that

Australia as a whole is putting more resources into innovative activity vis-à-vis direct production activity, this

effort has steadied in recent years.

IBM – Melbourne Institute Innovation Index of Australian Industry

Table 1. Innovation Index of Australian Industry and its components (five yearly intervals)

1990 1995 2000 2006 2007% change

2007 on 2006

Innovation Index 100 113 122 139 139 0.0

R&D intensity 100 128 121 171 176 2.9

Patent intensity 100 91 121 117 83 -29.1

Trademark intensity 100 143 157 206 215 4.4

Design intensity 100 96 83 60 74 23.3

Organisational/managerial innovation 100 100 100 96 95 -1.0

Productivity 100 107 122 129 129 0.0

Notes: Component weights and some ABS data have been revised since the 2007 report. See Appendix 1 for details.

4

Components of the Index

1 Submission to the Inquiry into Raising the Level of Productivity Growth in the Australian Economy, September 2009. All future references to the Productivity Commission relate to this report unless otherwise stated.

R&D Intensity

R&D intensity continued to rise for the eighth year in a

row in 2007. R&D intensity, which is an average of R&D

expenditure and R&D employment normalised for the

overall level of economic activity, appears to be strongly

correlated with the business cycle. During the 17-year

period shown in the chart, R&D intensity declined

in three years only (1997, 1998 and 1999) which

corresponded with a moderation in economic activity.

Patent, Trademark & Design Intensity

The intensity of trademark activity has continued to rise

strongly since its low in 1996, with the index reaching

215 in 2007. In contrast, design intensity trended

downwards during the period shown in the chart,

before rebounding quite strongly in 2007. The rate of

decline in patent intensity escalated in 2007, having

declined almost continuously from 2002 onwards. While

trademark intensity has more than doubled in the period

under review, design and patenting intensities are now

below their 1990 benchmarks.

Organisational/Managerial Innovation

As in previous years there was little change in the

organisational/managerial innovation component of

the Innovation Index. For Australian industry overall

there was a 1.0 per cent decline in 2007 from 2006.

However, caution should be used when interpreting

these data because the time series is too short to

discern a significant trend.

Productivity

Productivity is a good overall indicator of past successful

innovation since it captures the effects of both product

and process innovation in the operations of a business.

Measured in terms of value added per person, this

indicator was steady in 2007 at a level 29 per cent above

the 1990 benchmark level. Since 2003–04 productivity

growth in Australia has slowed markedly. Interestingly the

Productivity Commission1 has recently estimated that

70.0 per cent of the decline in multi-factor productivity

growth since 2003–04 has been due to declines in just

three industry sectors: Mining, Utilities and Agriculture. The

declines in the last two are due primarily to the drought.

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Innovation Index: breakdown by industry

The disaggregation of the Industry Index presented in Table 2 below shows that increases were recorded

across all industries in 2007. The Health and Community Services sector was the outstanding performer,

with its index rising by 108.5 per cent in 2007 from 2006, to a level around 270 per cent above its 1990

base-year level. The Personal and Other Services industry recorded the second biggest rise in 2007, up by

71.6 per cent. Meanwhile seven industries recorded significant index rises of around 30 per cent in 2007:

Construction; Wholesale Trade; Retail Trade; Transport and Storage; Communication Services; Property

and Business Services; and Cultural and Recreational Services. The Manufacturing and Utilities industries

recorded growth of more than 16 per cent in 2007, while the innovation indexes of the two remaining

industries, Mining and Finance and Insurance, grew only marginally by around 1 per cent. Looking at index

movements over the period since 1990, the innovation indexes of four of the 13 industries have roughly

tripled; another six industries have recorded (in the vicinity of) a doubling in their innovation indexes; while

three industries have recorded increases of just 34 to 52 per cent.

The results for 2007 contrast with those for 2006, when nine of the 13 industries recorded a fall in their rate

of innovative activity. The renewed growth in the rate of innovation in 2007 is interesting in that it occurred

against a backdrop of growing unease in world financial markets from around mid-2007 (with this unease

escalating into a full-on global recession during 2008–09). Having said this, the economic situation in

Australia in 2007 was fairly buoyant, such that the Reserve Bank of Australia (RBA) engaged in a series of

official interest rate increases during the year due to its concerns about a build-up in inflationary pressures.

Meanwhile the domestic stockmarket peaked in November 2007. Thus, when considered against the

backdrop of strong economic growth (of 4.75 per cent in year-on-year terms), a buoyant stockmarket and

strong corporate profitability, the rebound in the rate of innovation across the 13 industry sectors in Table 2 is

less surprising.

Table 2. Innovation Index by Industry (five yearly intervals)

1990 1995 2000 2006 2007% change

2007 on 2006

Mining 100 161 158 185 187 1.1

Manufacturing 100 124 137 156 182 16.7

Utilities 100 180 210 160 186 16.3

Construction 100 79 81 102 137 34.3

Wholesale Trade 100 143 203 233 303 30.0

Retail Trade 100 122 134 153 210 37.3

Transport and Storage 100 123 129 155 202 30.3

Communication Services 100 118 222 256 339 32.4

Finance and Insurance 100 135 182 231 233 0.9

Property and Business Services 100 104 103 119 152 27.7

Health and Community Services 100 106 123 130 271 108.5

Cultural and Recreational Services 100 102 123 102 134 31.4

Personal and Other Services 100 130 167 176 302 71.6

All Industry Innovation Index 100 113 122 139 139 0.0

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Mining Industry Innovation

The Mining industry has undergone a resurgence in recent years, with

the RBA non-rural US$ commodity price index rising by around 145 per

cent from January 2000 to end-2007, while the share of mining output

in GDP increased to 8.5 per cent in 2006–07. Ongoing activity has been

underpinned by strong demand from emerging markets, in particular

China and India. The Mining Innovation Index rose only marginally by 1.1

per cent in 2007, following strong rises in the preceding two years of a

cumulative 27.0 per cent. The modest 2007 outcome reflected a five-fold increase in patenting intensity during

the year, along with a smaller increase in trademark activity and organisational/managerial innovation. From

the chart below it can be seen that the Mining Innovation Index trended higher from 1990 until around 2001

before falling and then rising again in the past three years. Much of the observed decline in innovative activity

in 2003– and 2004 was related to a decline in patent and design intensity, and weakness in these areas has

extended to weakness in trademarks more recently, while R&D intensity has grown very strongly.

Mining productivity (on various measures) has fallen back from its peak in 2001 to be more in line with the all-

industry average. This decline can be explained by strong growth in labour and capital investment, in response

to strong demand and prices, which are yet to be reflected by rises in output volumes, as well as the mining

of more marginal deposits and bottlenecks in infrastructure and labour supplies. Given an average lag of three

years in the feed-through of investment to increased production, ‘payback’ in the form of higher output should

enhance multifactor productivity in the coming years, all else being equal. While the mining of more marginal

deposits may act as a dampener on productivity growth going forward, analysts believe that discoveries

and improvements in technology and production practices (i.e. innovation) will largely offset the effects on

productivity of resources depletion. (For a full discussion see Productivity Commission, Productivity in the

Mining Industry, December 2008.)

60

100

140

180

220

260

300

1990 1992 1994 1996 1998 2000 2002 2004 2006

1990=100

Mining Innovation IndexAll Industry Innovation Index

1990 1995 2000 2006 2007% change

2007 on 2006

Mining Innovation Index 100 161 158 185 187 1.1

R&D intensity 100 240 217 460 451 -2

Patent intensity 100 182 123 12 60 400


Design intensity 100 224 77 140 0 -100

Organisational/managerial innovation 100 100 100 86 99 15.1

Productivity 100 141 183 134 142 6

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Manufacturing Industry Innovation

The sharp increase in the Manufacturing Innovation Index since 1990

can be partially attributed to the opening of the industry to increased

competition from abroad in recent decades through successive cuts in

government assistance and general microeconomic reform, which in turn

contributed to the production of more highly value-added products over

time. As the Productivity Commission points out, market competition is

imperative in “encouraging cost reductions and product and process

improvement, including through higher rates of innovation and diffusion”.

After a 4.3 per cent fall in the two years to 2006, the Manufacturing Innovation Index rose sharply by 16.7

per cent in 2007. Four of the five innovation component indexes rose in 2007, with the design and trademark

intensity indexes recording the biggest rises (of 121.3 and 65.6 per cent respectively), followed by patent

intensity and R&D intensity (with rises of 11.7 and 2.8 per cent respectively). Meanwhile organisational/

managerial innovation fell slightly by 1.0 per cent and productivity edged marginally higher.

Manufacturing was one of the few sectors to record significant increases in average productivity growth from

1998–99 to 2003–04. Meanwhile the stalling in productivity growth in manufacturing and more broadly since

then can in part be attributed to the exhaustion of the scope for such gains from earlier economic reforms.

More recently the sharp increase in the value of the Australian dollar (of around 35 per cent in TWI terms

and 75 per cent against the US dollar from early 2002 to end-September 2009), which largely reflects an

improvement in the terms of trade, has further added to competitive pressures and contributed to a downturn

in investment in the sector since 2005.

1990 1995 2000 2006 2007% change

2007 on 2006

Manufacturing Innovation Index 100 124 137 156 182 16.7

R&D intensity 100 141 133 177 182 2.8

Patent intensity 100 118 180 197 220 11.7




Productivity 100 109 119 136 137 0.7

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Utilities Industry Innovation

Developments in the utilities sector in the first half of the period under

review were significantly influenced by the beneficial impact of the

widespread economic reforms of the 1980s and 1990s. More recently

the influence of these factors on productivity has waned and been offset

by population growth and associated increasing energy demand, as well

as the decade-long drought in much of Australia. The drought has put

downward pressure on water consumption (through conservation and

demand management measures), and driven up costs in the electricity sector. Utilities was the only industry

sector to record a fall in real value added in 2007 (of 2.7 per cent) even though overall GDP (measured in terms

of production) grew by 4.0 per cent.

In contrast to the above picture, innovation in the electricity, gas and water industries in Australia, as reflected

in the Utilities Innovation Index, rose strongly by 16.3 per cent in 2007, following a cumulative decline of 20.0

per cent during the previous four years. Patent and R&D intensity were responsible for this rise, up by 39.0

and 187.5 per cent respectively in 2007; trademark intensity and the organisational/managerial measure of

innovation actually fell in 2007. It seems likely that the above-mentioned pressures are driving the overall

growth in innovation in this sector.

The impact of the reforms of the 1980s and 1990s is evident in the strong productivity performance of the

Utilities sector up until 1998–99; output grew strongly while excess capacity in terms of labour and capital was

‘worked off’. Since then productivity (both multi-factor and labour) has slumped as capital spending and labour

inputs have grown in response to increasing energy demand and the drought-induced pressures mentioned

above. In 2007 labour productivity in the utilities sector fell by 1.3 per cent.

1990 1995 2000 2006 2007% change

2007 on 2006

Utilities Innovation Index 100 180 210 160 186 16.3

R&D intensity 100 273 160 249 346 39.0


Trademark intensity 100 173 608 243 172 -29.2

Design intensity 100 0 224 0 0 0


Productivity 100 139 195 154 152 -1.3

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The type of innovation in the energy sector is shifting,

from the commercial to the technology-driven. This

is reflected in the sharp increase in patent and R&D

intensity in the latest results.

We are now starting to see investments peak in

commercial innovation, such as changes to business

models, outsourcing and green energy retailing. These

have peaked and we’re now starting to see the benefits

come through. These changes have resulted in significant

savings and it is expected that operational, managerial

and productivity innovations will plateau or decline.

We now see smart grids, smart metering and other

technological innovations leading the way. Smart grids

deliver energy to and from consumers using digital

technology, controlling appliances to save energy, reduce

costs and increase reliability and transparency. By

embedding devices that allow networks to be observed

and controlled, and cleverly constructing the back-end

analytics and applications, we’ll be able to make them

work more efficiently.

Given the regulated structure of the energy industry, such

technological innovations typically require government

encouragement. In Victoria, we already see this happening

with a mandate for the statewide rollout of smart meters,

covering 2.2 million homes and 300,000 businesses.

In May 2009, the Australian Government committed

up to $100 million to develop the Smart Grid, Smart

City demonstration project in partnership with the

energy sector. According to the Government, some of

the smart grid technologies and applications expected

to be demonstrated in this project include customer

applications; active voltage support and power factor

correction; distributed storage; fault detection, isolation

and restoration; electric vehicle support; substation and

feeder monitoring; and wide-area management and

distributed generation.

Shalome DoranSenior Managing Consultant

Energy & Utilities

IBM Australia/New Zealand

A key driver of energy sector innovation over the next

decade will – no pun intended – be electric vehicles.

Electric vehicles will have a surprisingly small impact on

the total amount of energy that needs to be generated,

but they will create new challenges around distributed

generation, storage and balancing network loads.

The carbon economy will also continue to drive

innovation into the next decade. Carbon capture

technology and renewable energy sources such as

wind, solar and wave will continue to be explored and

are already impacting the Australian economy. The

Government’s Carbon Pollution Reduction Scheme

will initiate a new surge of commercial innovation in

the trade of carbon credits and their arbitrage with

wholesale energy.

Unlike the energy sector, the water industry has not

been challenged by the same commercial or technology-

driven reform and mandates. Given the precious nature

of this commodity, innovation in the water industry has

tended to focus on the processing of salt water into fresh

water through energy intensive desalination plants, and

improved agricultural irrigation practices with crop-

specific, soil moisture-based water practices.

However, significant investments in smart grid

infrastructure, advanced communications platforms and

efficient business processes have provided the water

sector with the opportunity to use these new networks for

the benefit of their own industry and consumers.

Increasing numbers of consumers and businesses are

demanding tools to actively manage their water usage.

Water utilities are closely monitoring energy companies

and their successful use of smart metering infrastructure,

which may lead to water utilities increasing their

investment in smart metering in the next five years.

Steve HoyAssociate Partner

Energy & Utilities


IBM Innovation Index Viewpoint – Energy and Water Utilities

10

Construction Industry Innovation

Developments in the Construction Industry have been dominated by the

strength of the business investment cycle in recent years. In particular,

strong growth in engineering construction and non-residential building

associated with the resources boom and a pick-up in public sector

construction have been important. While the business investment cycle

is now decelerating, ongoing strong demand from mining-related sectors

and public sector infrastructure spending should underpin activity in the

construction sector in the coming years.

Following a strong increase in the Construction Innovation Index over the period 2001–2005, the Index fell

by 16.4 per cent in 2006 before picking up again in 2007 to be in line with the overall Innovation Index for

Australia. The main contributors to the recorded rise in 2007 were a sharp recovery in trademark and design

intensity, up by around 230.6 and 124.6 per cent respectively. The R&D and patent intensity indexes also rose

in 2007, while the organisational/managerial measure of innovation declined by 4.0 per cent.

Average productivity growth in the Construction Industry rose by 4.2 per cent in 2007, having been reasonably

steady during the previous four years. In the period under review, productivity in the Construction Industry

has underperformed slightly relative to the average of Australian Industry as a whole. This poor relative

performance most likely reflects in part the intrinsic nature of the industry, being relatively less exposed to

foreign competition and with perhaps less gains to be achieved from the application of new information and

communication technologies (ICT) and R&D than other industries.

1990 1995 2000 2006 2007% change

2007 on 2006

Construction Innovation Index 100 79 81 102 137 34.3

R&D intensity 100 21 37 107 121 13.1





Productivity 100 100 116 119 124 4.2

11

Wholesale Trade Industry Innovation

Although real value-added growth in the Wholesale Trade Industry of

2.7 per cent in 2007 was below overall GDP growth, this sector makes

an important contribution to the broader economy and thus the strong

growth in innovation and productivity in this sector in the period under

review is to be welcomed. In particular, increased competition has been

the catalyst for rationalisation in the industry, through mergers and firm

closures, as well as outsourcing of non-core functions. In addition, the

widespread adoption of productivity-enhancing technologies has moved the sector from a storage-based

system to a fast-flow distribution network. The industry has also benefited strongly from the spread of ICT in

the past 15 years, meanwhile as an intermediate industry, activity in the wholesale trade sector remains highly

dependent on demand from industries such as Manufacturing and Retail Trade.

The Wholesale Trade Innovation Index grew strongly by 30.0 per cent in 2007, having been broadly steady

during the previous five years. This sharp increase in innovative activity is largely attributable to marked

increases in design intensity (up by 113.4 per cent), trademark intensity (52.8 per cent), and patent intensity

(41.6 per cent). Meanwhile, R&D intensity grew more modestly by 5.0 per cent and the organisational/

managerial measure of innovation fell by 6.1 per cent.

The fall of 3.1 per cent in productivity growth in the wholesale trade sector in 2006, was more than offset in

2007, as shown in the table below. Productivity in this sector has strongly outperformed overall productivity

growth in Australia during the period under review. Productivity-enhancing technologies such as barcoding,

paperless pick systems and automatic re-ordering processes have been critical to this growth.

1990 1995 2000 2006 2007% change

2007 on 2006

Wholesale Trade Innovation Index 100 143 203 233 303 30.0

R&D intensity 100 109 176 261 274 5.0





Productivity 100 110 160 187 194 3.7

12

Retail Trade Industry Innovation

The Retail Trade Industry makes an important contribution to Australian

GDP. Its performance has benefited in recent years from strong consumer

demand and rationalisation in the sector, resulting from increased

competition and the widespread adoption of labour-saving technologies.

Changes in legislation relating to trading hours and industrial relations

reform which increased the focus on enterprise-based work conditions

also helped improve productivity in this labour-intensive industry. Real

gross value added in the sector grew strongly by 5.1 per cent in 2007, thus exceeding overall GDP growth of

4.0 per cent.

The Retail Trade Innovation Index rose sharply by 37.3 per cent in 2007 to a level significantly above the

index for Australia overall, having moved broadly in line with that index over time. Prior to the 2007 jump, this

index had been fairly steady for three years. All component indexes rose during the year, in particular design

intensity (156.7 per cent), trademark intensity (68.0 per cent), R&D intensity (36.8 per cent), and patent

intensity (17.6 per cent).

While productivity growth in the retail sector had slightly underperformed that of the overall economy over

much of the period under review, in 2007 this situation was reversed, with retail sector productivity growth

of 2.6 per cent recorded compared with no growth in overall Australian productivity. Thus productivity

improvements in the retail sector (due to the sorts of factors mentioned in the first paragraph above) made a

positive contribution to the Innovation Index in 2007.

1990 1995 2000 2006 2007% change

2007 on 2006

Retail Trade Innovation Index 100 122 134 153 210 37.3

R&D intensity 100 17 46 228 312 36.8





Productivity 100 104 118 129 131 1.6

13

Transport and Storage Industry Innovation

Much of this sector’s activity is dealing with businesses (i.e. carrying

freight) rather than passenger services. The major sources of demand

come from physical production sectors such as Agriculture, Mining,

Manufacturing and Construction, as well as Wholesale and Retail Trade.

Thus given the strength of activity in many of these areas in 2007, the

Transport and Storage Industry recorded real value-added growth of 6.2

per cent, outstripping growth in real GDP during the year of 4.0 per cent.

The Transport Innovation Index also grew strongly in 2007 following a small decline in the previous year. The

improvement in innovation in the latest year can be attributed to a sharp rise in design intensity (up 495.0 per

cent) and trademark intensity (up by 75.7 per cent). These gains in innovation were only partially offset by falls

in patent intensity (–18.0 per cent), R&D intensity (–3.2 per cent), and organisational/managerial innovation

(–21.3 per cent). As shown in the chart below, the Transport Innovation Index has moved fairly much in line with

overall innovation in Australia during the period since 1990, with the exception of 2001 and 2007. Clearly there

is a significant degree of volatility in the Innovation Index and its components.

The productivity component of the Innovation Index also grew modestly by 0.7 per cent in 2007. As with

Australian productivity growth overall, productivity growth in the transport and storage sector has slowed

since 2003–04, albeit by much less than overall productivity growth in Australia. During the period since 1990

productivity growth in the transport sector has outstripped all-industry productivity growth.

1990 1995 2000 2006 2007% change

2007 on 2006

Transport and Storage Innovation Index 100 123 129 155 202 30.3

R&D intensity 100 70 63 218 211 -3.2





Productivity 100 114 130 150 151 0.7

14

Communication Services Industry Innovation

In 2006 and 2007 the Communication Services Industry recorded strong

growth in real value added of 8.7 and 9.3 per cent respectively, significantly

exceeding overall economic growth in Australia in those years. As a

result of this strong performance the industry has roughly doubled its

share of Australian GDP in the period under review, while its share of total

employment has fallen over time reflecting rapid innovation and widespread

application of new technologies. The Communication Services Industry has

typically experienced growth spurts following the introduction of significant new technologies and services, and

the proposed development of high-speed internet broadband services across Australia in the coming years will

arguably have such an impact.

The Communication Innovation Index rose sharply in both 2006 and 2007, by 36.8 and 32.4 per cent

respectively, such that the gap between innovation in this sector and the overall innovation measure for

Australia has widened sharply. Rises were recorded in all but one of the component indexes in 2007, with

design intensity recording a massive gain of 730.6 per cent. The measure of patent innovation also rose

strongly by 155.4 per cent, while trademark and R&D intensity rose more modestly by 36.8 and 3.1 per cent

respectively. In contrast to these performances, the organisational/managerial component of the Innovation

Index fell by 11.3 per cent in 2007.

Productivity in the Communication Services Industry increased by 3.4 per cent in 2007 and remains sharply

higher than the comparable measure for Australia. According to the Productivity Commission, productivity

growth in this sector was significantly above average in the decade to 1998-99, fell behind average growth up

until 2003-04, but subsequently rebounded to be the highest rate of all industry sectors in the period to 2007–08.

1990 1995 2000 2006 2007% change

2007 on 2006

Communication Services Innovation Index 100 118 222 256 339 32.4

R&D intensity 100 88 14 127 131 3.1





Productivity 100 155 205 263 272 3.4

15

Finance and Insurance Industry Innovation

Innovation in the Finance and Insurance Industry has generally outpaced

overall innovation amongst Australian industries in the period since 1990.

This outperformance can be traced to the significant financial deregulation

which occurred during the 1980s in Australia, along with the application

and diffusion of substantial innovations in ICT within this industry from the

1990s into the 2000s. Productivity growth in the sector has also been

enhanced by these developments, similarly outperforming Australian

average productivity growth. Real value added in the finance and insurance sector accounts for more than 7.0

per cent of GDP, and grew by a substantial 10.3 per cent in 2007, following growth of 6.5 per cent in 2006,

substantially outperforming overall GDP growth and consistent with buoyant world financial markets at that time.

The Finance and Insurance Innovation Index has more than doubled since 1990 and grew by 0.9 per cent in

2007, following growth of 6.5 per cent the previous year. The design and trademark intensity components both

rose in 2007, by 55.6 per cent and 10.0 per cent respectively, while patent intensity, R&D intensity and the

organisational/managerial measure of innovation all fell. The productivity component of the Innovation Index

was unchanged in 2007.

Productivity growth in the finance sector has performed strongly in recent years (growth in multi-factor

productivity averaged 2.2 per cent from 2003–04 to 2007–08, second only to growth in the Communications

Industry, and well ahead of total market sector productivity growth of –0.2 per cent). This sector has been a

major investor in ICT over recent years, which has contributed to the acceleration of financial intermediation

and boosted productivity. Strong growth in R&D expenditure has played an important role in this process.

1990 1995 2000 2006 2007% change

2007 on 2006

Finance and Insurance Innovation Index 100 135 182 231 233 0.9

R&D intensity 100 179 177 415 360 -13.3





Productivity 100 125 152 163 163 0.0

16

It should come as no surprise that the financial services

sector is a leader in the Innovation Index, having doubled

its innovation level since transitioning through the exciting

period of deregulation in the 1990s.

Technology innovations such as online and mobile

applications are leading the push toward greater customer

intimacy as the banking industry strives to regain

trust lost during the global financial crisis (GFC). Retail

transformations designed to build a better customer

experience are therefore now a major focus for banks.

Australia was not immune to the GFC but we held up

reasonably well, due in part to our regulatory systems that

have become the envy of some other markets around the

world. The instability caused stakeholders in the financial

services industry, including banks, governments and

regulators, to think very carefully about what must be

done to build a far more transparent, end-to-end view of

risk and ‘what if’ scenarios into their businesses.

The outcome of this careful consideration has a

‘dark side’ and a ‘light side’. The former is a much

stronger focus on risk and compliance, or the ‘must

dos’ – improving data analytics to create a better

understanding of the business, new incentive

frameworks, capital buffers and smarter regulation. The

effort stakeholders put into the ‘must dos’ will create a

‘light side’ – the opportunity to grow and innovate.

The positive outcomes include innovative new business

models in banking and insurance. In the past 12 months

we’ve seen many banks and insurers transform their

front-of-house client experience, including new strategies

for online, channels, front-of-house, branch networks

and mobile delivery. Examples in banking include the

Commonwealth Bank’s online portal NetBank, which has

been awarded several national and international awards

for its design, and ANZ’s mobile iPhone interface.

Insurance businesses are also rapidly transforming, with

a plethora of new business models launched in the past

year. For example, web-based insurance models with

very limited human intervention and pay-as-you-drive car

insurance are two new business models that represent

the next wave of innovation and productivity gains. We’ve

also seen the emergence of new players, such as Virgin,

Australia Post and Woolworths, which has created a

competitive force that is driving innovation even further.

This can be compared to the wave of change created by

the post-deregulation period in the telecommunications

industry in the late 1990s.

In pursuit of improved customer service to regain trust,

differentiate services and grow, major banks are returning

to community-based retail banking models. It is not clear

whether the change was sparked in part by competitive

tension with second-tier banks, and certainly the GFC

played a role, but whatever the cause, it is apparent that

the majors are transforming their retail models to build

customer intimacy and loyalty.

Looking ahead, serious changes will have to be made

in the financial services sector, but while they are

being made, we must take the opportunity to innovate.

Rebuilding trust and stability will require a shared

approach from all industry stakeholders to address the

‘must dos’, while at the same time being careful not to

stifle innovation.

Owen RaymentGeneral Manager

Financial Services Sector


IBM Innovation Index Viewpoint – Finance and Insurance

17

Property and Business Services Industry Innovation

The Property and Business Services Industry has grown strongly in

significance in recent decades and is currently Australia’s largest industry

grouping, accounting for around 12 per cent GDP. This sector recorded

real value added growth of 3.0 per cent in 2007, slightly below overall GDP

growth. Most of the businesses covered by this sector provide services

to other businesses, although some also provide services to private

individuals. By its very nature this sector is a large employer, second only to the Retail Trade Industry, thus

providing less scope for productivity gains due to the application of ICT and other technologies reflecting

major innovation.

Having underperformed the All Industry Innovation Index since 1990, the Property and Business Services

Innovation Index rose strongly by 27.7 per cent in 2007 and now exceeds the overall index, as shown in the

chart below. Design and trademark intensity recorded the biggest gains in 2007, up by 150.0 and 71.3 per cent

respectively. More modest increases were recorded in the organisational/managerial component and R&D

intensity, while patent intensity fell by 7.4 per cent.

Consistent with the moderate growth in innovation in this industry over time, productivity growth has also

kept more or less in line with productivity growth in the overall economy, growing by 2.0 per cent in 2007.

The Productivity Commission has acknowledged that information about productivity trends in this sector is

relatively difficult to amass.

1990 1995 2000 2006 2007% change

2007 on 2006

Property and Business Services Innovation Index 100 104 103 119 152 27.7

R&D intensity 100 195 179 245 259 5.7





Productivity 100 91 93 99 101 2.0

18

Health and Community Services Industry Innovation

The Health and Community Services Industry is dominated by the public

sector, with governments responsible for around two-thirds of national

health expenditure. This sector accounts for a significant 6.0 per cent of

GDP, although this figure understates the sector’s importance in terms

of expenditure and employment. Both state and federal governments

have attempted to reign in spending in recent years. But the Australian

Institute of Health and Welfare (AIHW) has estimated that expenditure will increase from its current share of

around 9 per cent of GDP to more than 12 per cent of GDP by 2030 due to population growth and the aging

of the population.

The Health and Community Services Innovation Index has slightly underperformed the All Industry Innovation

Index for most of the period since 1990, but has increased in volatility in the past three years. In 2007 the

Innovation Index more than doubled, rising by 18.5 per cent. This was largely due to increases in trademark

and design intensity of 250.4 and 178.6 per cent respectively, with smaller increases recorded for the R&D and

organisational/managerial measures of innovation and no recorded change in productivity.

Productivity in this industry, as with some other industries in the services sector, has underperformed the

national average since 1990. In some senses the health sector fits the pattern of other service industries

where the individual human input cannot easily be replicated or automated (e.g. for employees such as nurses,

doctors and social workers). Having said this, innovation also plays an important role in this sector (for example

in terms of the application of ICT in certain areas, high tech automation and the development of new drugs) so

there will also be scope for further productivity growth.

1990 1995 2000 2006 2007% change

2007 on 2006

Health & Community Services Innovation Index 100 106 123 130 271 108.5

R&D intensity 100 22 28 119 120 0.8





Productivity 100 106 112 116 116 0.0

19

Healthcare in Australia is moving towards major reform

to meet the challenges of our aging population, the rising

incidence of chronic disease and increasing delivery

costs. We believe information communications technology

(ICT) is one of the major cornerstones to innovation that

will help achieve the necessary reforms.

The latest Innovation Index results reflect a peak in

innovation activity within the Health and Community

Services Industry, the likes of which we haven’t seen

since 2005. This latest rise may be the start of an upward

trend for the industry in technology innovation, which

will be vital for the future of the industry and Australian’s

prosperity in general.

There is clearly considerable potential to harness

technology further to improve efficiencies and take the

pressure off an already overwhelmed and inefficient

sector. In the coming years, we expect industry

stakeholders will focus on ways to make better use of

limited health resources, empowering patients to take

greater responsibility for their own health and ensuring

everyone benefits from global health research.

In recent years, Health and Community Services has

seen significant improvements in the use of technology,

predominately in the area of diagnostic imaging and

telemedicine. The next step is to use technology to

transform the way we deliver healthcare services –

through electronic health records, personalised medicine

and interactive patient care technology.

To date, these advances have been limited due to the lack

of coordinated funding, the complexity of clinical care

models and an inability to access and share information.

These programs have extended implementation periods,

but funding is being diverted to fix short-term problems.

The healthcare system needs support to become more

interconnected to allow better information sharing for

faster and more detailed analysis. Innovation through ICT

will help underpin and support these necessary changes.

For example, IBM is currently working with Precedence

Health Care, an Australian organisation responsible for

the creation of the Chronic Disease Management Network

(CDM-Net). Using Precedence CDM-Net online, healthcare

providers will find it easier to manage and track patients

with chronic diseases such as diabetes and heart failure.

They will also be able to collaborate with other healthcare

providers and be alerted to serious changes in a patient’s

condition. Importantly, the system is encrypted and

secured, with patient information portioned out and visible

only to those providers whose input is deemed necessary.

All parties in the Healthcare Industry need to play a role

to revolutionise the manner in which technology is used to

improve health outcomes for Australians. This will require

a collective effort – no one company or area of healthcare

can do it by themselves.

The better use of technology will help transform the

delivery of healthcare and community services, but

innovation will only flourish if all stakeholders accept

shared responsibility and shared leadership.

Annette HicksLead Software Solutions

Healthcare Sector


Megan Kennedy

Marketing Manager

Healthcare Sector


IBM Healthcare focuses on Healthcare from both the Government (Federal & State Health Departments, Area Health Services & individual hospitals), Private Health sectors (Private Hospital organisations, individual hospitals and healthcare funds) & aged care services. We do not focus on childcare.

IBM Innovation Index Viewpoint – Health and Community Services

20

Cultural and Recreational Services Industry Innovation

Cultural and Recreational Services account for just 1.5 per cent of GDP

and around 2.5 per cent of employment, but real value added in this

sector grew strongly by 7.7 per cent in 2007—above the rate of overall

economic growth of 4.0 per cent. Spending on Cultural and Recreational

Services is relatively high but non-essential, so that it tends to suffer in

times of economic downturn, although the sector as a whole has rarely

recorded negative growth over recent decades. International tourist arrivals also provide additional revenue for

many operators in this sector.

Innovation in the Cultural and Recreational Services Industry has barely kept pace with innovation in Australian

Industry overall for much of the period under review. Having said that, the Cultural and Recreational Services

Innovation Index rose by 31.4 per cent in 2007 to be almost in line with the All Industry Innovation Index.

Significant gains were recorded in design and trademark intensity (up by 153.8 and 74.4 per cent respectively),

with smaller gains in patent intensity and organisational/managerial innovation; falls were recorded in R&D

intensity (–16.5 per cent) and productivity (–1.1 per cent).

Average productivity growth in the Cultural and Recreational Services Industry has seriously lagged growth

in overall productivity during the period since 1990. As with some other service industries, such as Property

Services, the relatively limited scope for this industry to benefit from some of the key drivers of productivity

growth elsewhere in the past 15 years probably accounts for this relatively poor performance. Specifically, a

number of services are not easily automated or significantly amenable technological improvement.

1990 1995 2000 2006 2007% change

2007 on 2006

Cultural and Recreational Services Innovation Index 100 102 123 102 134 31.4

R&D intensity 100 100 172 85 71 -16.5





Productivity 100 88 87 91 90 -1.1

21

Personal and Other Services Industry Innovation

The Personal and Other Services Industry is made up of a particularly

diverse range of occupations and businesses, but with two fairly distinct

streams: services to individuals and businesses, and government-funded

essential services. Whereas spending on the former is discretionary

and fluctuates with the economic cycle (e.g. domestic cleaners and

hairdressers), spending on essential services (e.g. policing and waste

disposal) is more stable. This sector recorded growth in real value added of 3.8 per cent in 2007, broadly in line

with overall economic activity.

The Personal and Other Services Innovation Index has outperformed that of the All Industry Innovation Index

in recent years. In particular, it rose strongly by 71.6 per cent in 2007, reflecting strong increases in trademark

intensity (up by 126.9 per cent) and design intensity (up by 82.5 per cent). The three other measures of

innovation intensity fell in 2007, while productivity grew by 2.7 per cent.

Productivity in this sector has underperformed compared with the national average since 1990. As with some

other service industries, the intrinsic nature of this sector makes it highly labour intensive and less amenable to

automation and the application of labour-substituting technologies. As a result there is less scope for increases

in productivity due to ICT-related and other capital-deepening and efficiency gains.

1990 1995 2000 2006 2007% change

2007 on 2006

Personal and Other Services Innovation Index 100 130 167 176 302 71.6

R&D intensity 100 33 128 193 170 -11.9





Productivity 100 97 107 110 113 2.7

22

Innovation and the Global Financial Crisis

Introduction

The global financial crisis (GFC) has had an impact on the Australian economy, including on innovation. This

article considers how and to what extent the crisis is having an impact on innovation in Australia: what has

already happened and is there more to come? To answer these questions, we first review the source of the

crisis and its implications. Subsequently we review some evidence relating to innovation and the business

cycle, before considering the current situation.

The Global Financial Crisis

The GFC began with an asset price bubble in the US housing sector, which had been overheating for several

years1. Factors contributing to the housing price bubble include access to cheap money associated with

low interest rates2 in the United States and capital inflows from East Asia and oil-exporting countries; lax

lending standards; inadequate financial regulation; financial innovation; and a general sentiment of ‘irrational

exuberance’, all of which contributed to the growth in sub-prime or non-conforming loans. In time such asset

price bubbles always burst and, when they do, the consequences depend on the extent of the price inflation,

the sectors affected, the state of financial and capital market institutions, and policy responses. Rarely has

the puncturing of an asset bubble caused such widespread mayhem as the 2008 GFC; by comparison, the

bursting of the dot.com bubble in 2000 caused only a minor downturn in the United States.

Several factors are recognised as having contributed to the severity of the global crisis. One is that the bubble

directly and significantly affected US consumers, who had been contributing disproportionately to global

aggregate demand in the years leading up to the crisis. The housing bubble supported aggregate demand

as US home owners borrowed against their mortgages to finance consumer goods and other purchases.

(For instance it has been estimated that about half of GDP growth in the first half of 2005 was housing related

and equity withdrawals reached a trillion dollars in 2006.) Another important factor was that the securitisation

of sub-prime mortgages into complex collatoralised debt obligations (CDOs) and their subsequent sale

throughout global financial markets spread exposure to the non-performing US loans. Meanwhile the failure of

ratings agencies to adequately assess the risks associated with these CDOs facilitated and compounded the

problems. It is also generally believed that the financial system was over-leveraged, in that many investment

firms did not have sufficient capital reserves to meet the demand for liquidity. In part this was because of the

“dramatic growth in the share of assets outside the traditional banking system” (Geithner 2008)—described by

some as the “shadow banking” system (see Krugman 2008). High rates of leveraging mean that relatively minor

movements in asset prices can lead to insolvency.

The ‘official’ start of the GFC was 9 August 2007, when French investment bank BNP Paribas suspended

funds worth 2 billion euros, citing problems with US mortgage-backed securities. In response to this, short-

term credit markets (inter-bank lending) froze. Financial institutions realised that mortgaged-backed assets

were worth considerably less than their book value. Equally important, because of the way assets backed

by non-performing loans were embedded in a range of complex financial products across markets, market

participants were unable assess the value of these products or the exposure to them of other market

participants, making financial institutions reluctant to lend.

1 In 2005 Nouriel Roubini predicted a housing led recession in the following year; on December 10, 2005 The Economist published an article on the global housing bubble; see also Krugman, (2006).

2 After the dot.com bubble and the events of September 11, 2001, US interest rates were lowered to 1 per cent and maintained at that level until June 2004. Many economists such as John Taylor of Stanford believe that this was considerably lower than was justified on the basis of the output gap and inflation.

23

The crisis at this point has been described as a ‘non-bank bank run’. Institutions holding short-term liabilities

on long-term or illiquid assets that found themselves unable to access finance were forced to sell assets —

further driving down asset prices. The crisis reached its zenith on 15 September, 2008 following the collapse of

Lehman Bros, the 150-year-old US investment bank.

For a time, even as late as 2008, it was believed that the global impact of the crisis would be contained to

financial markets, however this proved to be optimistic. The immediate consequences of the GFC included

a huge contraction in liquidity, i.e. a sharp increase in the cost of borrowing and an inability to raise capital.

Without access to credit the real economy falters, since businesses need credit in order to pay suppliers,

order intermediate goods, pay employees and trade in general. Additionally, as a result of the GFC and the

associated collapse in global equity markets (precipitated by the fall of Lehman Bros), business confidence

plummeted; expectations of future aggregate demand were revised downwards; and firms reduced inventories

and stopped investing, further detracting from demand. Despite widespread government efforts to counter

some of these developments, recession and sharply rising unemployment soon followed in many countries.

Overall Australia has fared much better than other OECD countries—a technical recession has been avoided,

unemployment has increased by much less than was originally feared, and no major financial institutions or

companies have failed. Having said that, by March 2009 the ASX All Ordinaries share price index had fallen

by more than 50 per cent from its November 2007 peak (but by early November 2009 it had recovered more

than 40 per cent of that loss) and manufacturing output, a key contributor to R&D and patenting activity, has

contracted by more than during the downturns of 1973–74, 1982–83 and 1988–90.

A number of factors contributed to Australia’s ability to weather the GFC. Australian banking regulation is

acknowledged to be more comprehensive than that of the United States, having been bolstered by the APRA

Reform Act of 2003 (following the collapse of HIH and the Royal Commission that followed). The sharp increase

in Australia’s terms of trade and ongoing strong demand for resources from Asia, particularly China, have

provided an important stimulus to economic activity and government revenues in recent years. The Australian

economy was operating near capacity in the period immediately prior to the crisis, such that the Reserve Bank

of Australia acted to dampen demand with a series of interest rate increases throughout 2007. Finally, the policy

response to the GFC in Australia has been both swift and substantial—as a percentage of GDP the Australian

Government’s stimulus spending measures are amongst the highest in the OECD (OECD 2009).

An Economic View of Innovation and the Business Cycle

The GFC is likely to affect innovative activity in two ways: first through the dramatic contraction in global

liquidity and increased cost of capital and, second, through lowered expectations regarding future demand

and business conditions. The former essentially affects the cost of innovation, while the latter (demand) affects

the anticipated benefits or return from innovative endeavours.

Analysis of the links between demand conditions and innovation represents one of the earliest contributions to

the economics of innovation. Schmookler (1966) and later Scherer (1982) have observed positive relationships

between patenting and investment in new capital goods at the industrial sector level. More recently, Jensen

and Webster (2009) have found that commercialisation of inventions is greater when GDP growth is strongest.

The immediate consequences of the GFC included a sharp increase in the cost of borrowing and a

re-valuation of risk. Firms had greater difficulty raising capital through borrowing, venture capital or even share

offerings as investors fled to the security of low-risk investments such as bank deposits and government

bonds. Two factors make innovation high risk: first, the inherent uncertainty in new technology; and, second,

24

the low salvage value or little collateral inherent in new technologies because they usually cannot be traded

separately from the firm, individual or machine in which they are embodied. A higher cost and greater scarcity

of external capital implies that some investments in innovation become financially unviable.

There exists a considerable literature on the role of the cost of capital on R&D investment. Results are mixed,

with some authors finding that the after-tax cost of capital is an important determinant of R&D investment while

others find otherwise (e.g. Hall 1992; Thomson 2009). The transmission between the cost of external finance

and R&D investment is not necessarily direct. Businesses rely mainly on internal sources of finance, such as

retained earnings, to finance R&D investment because they are cheaper than external finance. However, the

GFC will no doubt have affected the availability of internal finance, particularly for discretionary projects not

fundamental to immediate business survival. Given the uncertainty surrounding the GFC some businesses will

divert internal funds towards building up a ‘war chest’ to weather the uncertain economic times or cover other

liquidity requirements.

Historical Experience

Figure 1 presents patent applications in Australia and Australian GDP over the last century. Two distinct

features stand out: first, patenting exhibits much more variation than GDP and, second, over the long run,

patent applications have not increased as rapidly as GDP. This is in contrast to the experience of recent

decades when the rate of patenting has increased more rapidly than GDP. This pattern is also found in data for

United States and Canada.

Figure 1. Patent Applications and GDP, 1904–2006

Sources: WIPO; IP Australia; Maddison (2009)

25

Figure 2 depicts the year-on-year growth in GDP and patent filings. Note that where the red line falls below the

x-axis the economy is contracting. Periods of economic decline are marked in blue (except for the two world

wars). Comparing growth-on-growth reveals that patenting activity is strongly pro-cyclical, commonly shifting

downwards in times of economic contraction and slow growth.

Figure 2. Patent Applications at the Australian Patent Office (annual growth) and Australian GDP (annual growth)

As was noted above, since the GFC, Australia has fared better than other OECD economies. It is therefore

important to consider the composition of Australian patent applications by country of origin since only about

10 per cent of all patent applications in Australia originate domestically (see Figure 3). The United States is by

far the most important contributor to Australian patent filings (accounting for 42 per cent), with Australia (10 per

cent), Japan (6 per cent), Germany (6 per cent) and the United Kingdom (5 per cent) in the top five. It is therefore

relevant to consider the relationship between patenting activity in Australia and the US business cycle.

Figure 3. Australian Patent Applications by Country

26

Figure 4, which depicts growth in patent applications in Australia and US GDP, shows an obvious contemporaneous

correlation between US GDP and patent applications at the Australian patent office. For example, the bursting of the

dot.com bubble in 2000 resulted in a substantial economic slowdown in the United States, and this corresponded

to a considerable slowdown in patenting activity in Australia. Additionally, the major recession in the United States

associated with the 1907 Bankers’ Panic also corresponded to a substantial downturn in Australian patent activity.

Figure 4. US GDP (annual growth) and Patenting Applications at the Australian Patent Office (annual growth)

There is evidence that innovation in separate technology areas is driven by different technological, market and

macroeconomic conditions. For example, the growth of the internet as an economic phenomenon has reflected

a mix of technical innovation and responses to market opportunities based on new business models. This growth

was almost certainly accelerated by the very low cost of equity capital during the dot.com boom.

Figure 5 presents patent applications in major technology fields, and highlights the considerable variation that exists

across these fields. It shows that the pronounced downturn in patenting in the electronics/computing field around

2000 was not strongly reflected in other technology fields. Patents associated with physics and mechanics show

far less variation over the period than the other two fields, which might reflect the maturity of the technologies.

Nonetheless, a substantial downturn over the first half of 2009 is indicated for all three technology areas.

Figure 5. Patent Applications at the Australian Patent Office in Major Technology Fields, 1986–2009

(4-quarter moving average, quarterly data).

27

R&D investment data reveal a rather different situation.

Figure 6 depicts year-on-year changes in aggregate business investment in R&D in Australia from 1981–82

to 2006–07 (the latest year available3). In aggregate, R&D investment has varied considerably between years

and more so than GDP. However, the data do not show any obvious pro-cyclicality. Some commentators

have pointed to changes to the Australian R&D tax concession scheme in 1996 as underlying the downturn

in investment after 1996, though there is a strong case to be made that this was driven more by changes

in reporting than by the reduced incentive power of the modified concession scheme (see Thomson 2009;

Banks 1999).

Figure 6. Business Investment in R&D (annual growth) and GDP (annual growth)

Looking Ahead

The black line in Figure 7 depicts patent applications in Australia in each quarter from 1986 until the second

quarter of 2009. The red line overlaying this indicates a simple forecast of the number of applications. The

model explains growth in filing rates from two lags of both Australian and US GDP. Quarterly data were used,

as evidence suggests that quarterly data contribute to a more accurate forecast (see Adams et al. 1997).

This very simple, reduced form model fits the real data reasonably well, and this highlights the importance

of macroeconomic conditions for patent applications. The fitted line in red extends beyond the real data by

four quarters. Based on estimates of future GDP, the model predicts a continued fall in the number of patent

applications before a leveling off toward the middle of next year. The total fall from peak to trough is expected

to be about 22 per cent. At the same time, the considerable variation of the real series around the fitted series

highlights that this simple extrapolation should be treated as an indicative guide only. Further, the forecasts of

macroeconomic growth themselves may be subject to revision.

3 R&D data are collected from a firm survey and are therefore available only after substantial lag, unlike data on patenting which is administrative data and therefore available immediately.

28

Figure 7. Patenting Applications, Actual and Fitted, Based on GDP growth, 1986–2010 (quarterly data)

References

• Adams, K., Kim, D., Joutz F., Trost, R., Mastrogianis, G., (1997) ‘Modeling and Forecasting US Patent

Application Filings’, Journal of Policy Modeling.

• Geithner, T., Speech entitled ‘Reducing Systematic Risk in a Dynamic Financial System’ June 9, 2008.

• Jensen, P., Webster, E., (2009) ‘Macroeconomic Conditions and Successful Commercialization’, Intellectual

Property Research Institute of Australia Working Paper 04/2009.

• Krugman P., (2008) ‘The Return of Depression Economics’, Penguin, New York.

• Hall, B. H., (1992) ‘R&D Tax Policy During the Eighties: Success of Failure’ Cambridge MA, NBER. Working

Paper No. 4240.

• Maddison, A., 2009 Statistics on World Population, GDP and Per Capita GDP, 1–2006 AD, web resource

• OECD Economic Outlook No. 85 (2009) p.63.

http://www.ggdc.net/maddison/ (accessed August 2009)

• Scherer, F. M., (1982) ‘Demand-Pull and Technological Invention: Schmookler Revisited’, Journal of

Industrial Economics 30 (3).

• Schmookler, J., (1966) Invention and Economic Growth. Harvard University Press, MA.

• Thomson, R., (2009) ‘Tax Policy and R&D Investment by Australian Firms’, Melbourne Institute of Applied

Economic and Social Research Working Paper No. 10/2009, University of Melbourne.

29

Appendix 1: Construction of the IBM – Melbourne Institute Innovation Index of Australian Industry

Innovation—which is typically defined as the introduction of something ‘new and useful’—is widely regarded as

the wellspring of economic prosperity, since the introduction of new processes, techniques and products drive

productivity growth. However, innovation is much more than the introduction of new processes, techniques

and products, since it also relates to a wide range of activities such as how people organise themselves, how

businesses are structured, and how products are packaged.

Despite the fact that innovation is relatively easy to conceptualise, several variants of its meaning exist and

identifying what is ‘new’ is not unambiguous. For example, should something that is simply an imitation of

practices used by other companies be called an innovation? While such new-to-the-firm innovations are

clearly important, since they foster productivity growth within the firm, many people would not regard this

as innovation. Rather, they would think of innovation in a narrower (and grander) sense—that is, as involving

something which is ‘new to the world’, such as the creation of penicillin or the launch of the personal computer.

In trying to measure the extent of innovative activity, we also need to consider whether we should include the

many ‘useful’ new products which are abandoned because they do not find a niche market or the organisation

that created them goes out of business. Should such ‘innovations’ be counted in an exercise which is

designed to identify the level of innovative activity? Or are we really only interested in those innovations which

are successful, however this is measured?

For the purposes of this report we adopt a broad definition of ‘innovation’. We include innovations which are both

new to the world (such as patents) and those which may be simply ‘new to the firm’ (such as trademarks). We

also seek to include all innovative activities, not just the few that achieve success, which we do by including data

on R&D expenditure and employment since these data embody elements of both successful and unsuccessful

innovation (not all R&D projects end up in marketable products or new processes). And while relying heavily on

activities which create a paper trail, such as patent and trademark applications, we supplement this with survey

information on the R&D activities and organisational reforms of businesses. This provides us with the broadest

possible conception of all those activities which constitute innovation in Australian industry.

Even with a clear definition of ‘innovation’, a further problem lies in its measurement, since many innovative

activities are trade secrets or improvements in production processes which are not reported outside the

innovating organisation. As consumers we may see the effects of such innovations (in terms of better products

or lower prices), but it is less clear how to include the innovations in an index of innovative activity since they

are essentially unobservable. Here we measure these types of innovations indirectly, through the inclusion of

industry-by-industry productivity, since any internal process innovations should ultimately be reflected through

productivity improvements.

In terms of coverage, all one-digit Australian New Zealand Standard Industrial Classification (ANZSIC)

industries are included (see Appendix 3 for details) with the exception of non-market sector industries such as

government and defence, education, not-for-profit health services, as well as agriculture, forestry and fishing.

We provide discrete indexes for: Mining; Manufacturing; Construction; Utilities; Wholesale Trade; Retail Trade;

Transport and Storage; Communication Services; Finance and Insurance; Property and Business Services; the

for-profit part of Health and Community Services; Cultural and Recreational Services; and Personal and Other

Services. In general, we include government trading enterprises, but not the non-traded government sector

such as education. Nonetheless, the Innovation Index presented here is a comprehensive measure of the level

of activity in Australian industry since it covers the vast majority of businesses, industries and organisations

active in Australia.

30

Thus, the IBM – Melbourne Institute Innovation Index of Australian Industry tracks patterns in the rate of

innovative activity across a wide range of Australian businesses. The Innovation Index itself covers changes in

the rate (rather than the level) of innovative activity from 1990 to the present. It covers innovations relating to

goods and services, business processes, and organisational and managerial functions. These dimensions are

measured by six industry data series comprising:

• R&D intensity (measured by R&D expenditure as a per cent of total value added and R&D employment as a

per cent of total employment);

• Patent intensity (measured by the number of patent applications per person employed);

• Trademark intensity (measured by the number of trademark applications per person employed);

• Design intensity (measured by the number of design applications per person employed);

• Organisational/managerial innovation (measured by responses to questions in the Melbourne Institute

Management and Innovation Survey relating to such things as the extent of business resources devoted

to organisational change, e.g. restructuring and changes in work practices; managerial change, e.g. new

management techniques and enterprise bargaining; and the marketing of new products or processes); and

• Productivity (value added per person employed).

There are three main sources of data used to construct the Innovation Index. The Australian Bureau of

Statistics (ABS) supplied data on productivity, R&D employment, R&D expenditure employment and value

added by industry. We also used ABS data to construct the weights used to reflect the relative importance

of each component of overall business performance in the Innovation Index (using two recent ABS surveys

of innovation in Australia which reported results on the proportion of sales income that resulted from the

introduction of goods/services, processes and organisational/managerial innovations).

In addition, IP Australia supplied the data on patent, trademark and design applications. These are matched

to business listings from the Yellow Pages to produce industry series. The Melbourne Institute of Applied

Economic and Social Research supplied the data on organisational/managerial innovation through its annual

enterprise-level ‘Management and Innovation Survey’, which has been conducted every year since 2001.

The IBM – Melbourne Institute Innovation Index of Australian Industry is constructed using the following equation:

(1)

where λj denotes the intensity of the j-th measure of innovative activities—R&D intensity which is the mean of

R&D expenditure as a proportion of valued added, R&D employment and R&D research staff as a proportion

of total employment (RD); patent applications per person employed (Patents); trademark applications per

person employed (Trademarks); design applications per person employed (Designs); the mean of three survey

questions from the Melbourne Institute’s Management and Innovation Survey on the extent of business

resources devoted to organisational change (e.g. restructuring, changes in work practices), managerial change

(e.g. new management techniques, enterprise bargaining) and the marketing of new products or processes

(OrgMan); and value added per person employed (Productivity). Thus, there are six distinct components of the

Innovation Index. Each data component is disaggregated by one-digit ANZSIC industry and year.

By including numerous dimensions in our quantitative measure of innovation, we capture information about

the extent of innovative activity within an industry at different stages of the innovation pathway. Each of these

items captures different points in the innovation lifecycle. R&D data, for example, captures both the initial

investment made in conducting research about a potential innovation and the subsequent expenditure made

in conducting the trials necessary to ensure that the innovation actually works. Note that the R&D data relate to

31

internal expenditure on research and development and do not include expenditure (or employment) contracted

out to third parties. Intellectual property, such as patent, trademarks and designs, reflects the outputs of

innovative activity—these are typically observed after the R&D process has been completed and new products

(or modifications of existing products) are launched on the market. The effect of combining these dimensions

into an innovation index is to provide us with a much more comprehensive picture of the breadth and depth

of innovative activity across all stages of the innovation pathway. Note, however, that this implies that the

components of the Index are not mutually exclusive—some research expenditure no doubt results in patent

applications while spending on development is probably also captured in the productivity component.

To compute the Innovation Index, we need to know the importance of each individual component since the

components do not necessarily have equal importance. That is, we need to know the values of the weighting

factors (the λj s). To do this, we use estimates of enterprise expenditures on the development, introduction or

implementation of three types of innovation—new and significantly improved goods and services; operational

processes; and organisational/managerial processes from the ABS publication Innovation in Australian

Business (see Cat. no. 8158.0 2005, Table 2.14, column 4). The average responses to these questions have

been used to weight the components of the Innovation Index.

The main expenditure during 2004–05, was expenditure on goods and services innovations. This comprised

50 per cent (~1.8/3.7) of all business innovations. We use industry data on R&D, patents, trademarks and

registered designs to proxy for this type of innovation. Given that the propensity to conduct innovative activity

through formal R&D and the propensity to protect innovative assets through formal IP varies by industry, we

have given R&D a greater weight in the predominantly goods sectors (mining, manufacturing, utilities and

construction) and trademarks a slightly higher weight in the remaining services sectors. In the former we

allocate the sub-weights between R&D, patent, trademark and design intensities as 25, 10, 10 and 5 per cent.

In the services sector, these weights are 10, 10, 25 and 5 per cent respectively. The shape of the Innovation

Index is not sensitive to reasonable variation in these weights (see below). The weights for the whole of industry

are 20, 10, 15 and 5 per cent respectively.

The contribution to the Innovation Index from operational process innovations is 35 per cent (~1.3/3.7).

We apply this weight to our measure of Productivity. The contribution from organisational and managerial

innovations is 15 per cent (~0.6/3.7) and we apply this to the mean of the three survey questions used to

construct the variable OrgMan.

Since the data from the ABS publication Innovation in Australian Business is an average of the entire

population of Australian enterprises, we apply the weights equally across all industries in our Index. Ideally,

if more data were available, we would apply industry-specific weights since it is probable that the impact of

patents pharmaceuticals sector is quite different to that in the mining industry. Weights must be invariant with

respect to time so a change in the Index represents changes in the underlying fundamentals (i.e. types of

innovative activity) not changes in the weights per se. Using this approach, our final estimating equation for all

industries is:

For the predominantly goods-based industries of Mining, Manufacturing, Utilities and Construction:

32

For the predominantly services-based industries of Wholesale and Retail Trade; Transport and Storage;

Communications Services; Finance and Insurance; Property and Business Services; Health and Community

Services; Cultural and Recreational Services and Personal and Other Services:

To eliminate distortion caused by applying the same weights to all industries covered by the report, we forced

the Innovation Index to equal 100 in 1990. This means that the Index—in industries which report zero or very

low levels of some components — is not affected by the inclusion of the component. For example, utilities have

very few patents, but the variable ‘patents per person employed’ is so small in every year that it hardly affects

the height and rate of change of the Utilities Index.

In order to examine the robustness of our results, we conducted sensitivity analyses by applying different

weights to the R&D, patent, trademark and design components of the Innovation Index. Specifically, we

varied the R&D weight by ± 33 per cent (i.e. from 12 to 24); the patent and trademark weight by ±16 per cent

(i.e. from 10 to 14); and the design weight by ±33 per cent (i.e. from 4 to 10). The results of the sensitivity

analysis indicate that the overall shape of Innovation the Index is robust to different assumptions regarding

the weights—in fact, the correlations between the various estimations we conducted as part of the sensitivity

analysis ranged from 0.9269 to 0.9997. In other words, the overall pattern in the rate of innovative activity was

consistent across all estimations.

The latest historic ABS data on R&D, employment and value added by industry was used for this report

and accordingly some components will vary slightly from the earlier report. Revised historic R&D data by

industry were published on 21 August 2007. No R&D data are available for agriculture, forestry and fishing;

or accommodation, cafes and restaurants. Data on patent, trademark and design applications (from IP

Australia) were collated at the industry level by matching the name of the business to business listings in the

telephone book.

The survey data used to construct OrgMan were collected from the Melbourne Institute’s Management and

Innovation Survey, which has been conducted annually at the Melbourne Institute since 2001 and includes

about 200 valid responses a year (i.e. approximately 1000 observations in total). Firms included in the

Management and Innovation Survey are drawn from the largest 1500 firms in Australia across a wide range of

industries. Although there are no small firms in the sample frame, the survey is representative in terms of its

inter-industry composition (for more details on the survey and some analysis of the results, see Jensen and

Webster 2004).

References

• Bosworth, D. and Rogers, M. (2001), ‘Market value, R&D and intellectual property: An empirical analysis of

large Australian firms’, Economic Record 77, 323–337.

• Feeny, S. and Rogers, M. (2003), ‘Innovation and performance: Benchmarking Australian firms’, Australian

Economic Review, 36(3), 253–264.

• Jensen, P.H. and Webster, E. (2004), ‘Examining biases in measures of firm innovation’, Intellectual Property

Research Institute of Australia (IPRIA) Working Paper no. 05/04, University of Melbourne.

33

Appendix 2: Data Issues Relating to Analysis of Innovation by Business Size

The analysis of innovation across businesses of different size presented here relies on data collected by the

Australian Bureau of Statistics Innovation Surveys in 2003 and 2005.1 The method of data collection varied

between these two years and it is not possible to make an exact comparison. Our definition of business size

varies from the standard ABS definition and many of the reported figures had standard errors so high that they

are impossible to interpret. We deal with these three issues below.

Changes in the Surveys from Year-to-Year. Although the two ABS Innovation Survey years (2003 and 2005)

have much in common, there were also numerous changes made following the initial report. The two most

significant changes were: a move from a three-year reference period to a two-year reference period for

innovation activity; and a change in the scope of innovative activity (which was extended to include work that

started but was not yet complete or was abandoned during the reference period). Both of these changes

make it difficult to strictly compare across the reference periods. There were also some slight changes in the

way questions were asked. In order to maximise the comparability of the data, we have focused on questions

which were the same across the two reference periods. However, some caution must still be used in making

these comparisons.

Definitions of Business Size. The ABS Innovation Survey 2005 presented data by business size using the

following categories of employment: 10–49, 50–249, 250–499 and 500 or more persons employed. Our

definitions vary considerable from these: we define businesses as ‘small’ (10–249 persons employed),

‘medium’ (250–499 persons employed) and ‘large’ (500+ persons employed). Rather than taking a simple

average of the different business sizes presented by the ABS, we construct weighted averages using the

following formula:

where is the weighted average of the observations , and are the weights (the number of businesses in each

size category). A comparative method was used to calculate the 2003 responses using the employment

categories:10–19, 20–49, 50–99, 100–199, 200–249, 250–499, 500 or more persons.

Relative Standard Errors. Due to the small number of businesses surveyed, many of the cells have high standard

errors when the data are disaggregated. This means that little confidence can be placed in the accuracy

of these numbers. The ABS states that “Estimates with RSEs between 25 per cent and 50 per cent are

annotated with the symbol ‘*’, indicating that the estimates should be used with caution as they are subject

to sampling variability too high for most practical purposes”. The simple way to understand this is that an

estimate of 40 per cent with a relative standard error of 25–50 per cent means that the ‘true’ value of the

figure (i.e. the value of the figure that occurs if a full enumeration of the population had been surveyed) could

lie beyond the range 15–65 per cent. Obviously, this is a highly inaccurate estimate. In this report, we have

refrained from using some inaccurate estimates. In some instances, however, we have used figures where the

relative standard errors are between 10 and 25 per cent. These have been noted in the text and should be

treated with caution.

1 Innovation in Australian Business, Cat. no. 8158.0, December 2006.

34

Appendix 3: Industrial Classifications and Definitions

Business and production units generally typically undertake a range of activities which may include, for

example, manufacture, research, wholesaling and insurance. However, for the purposes of classification,

this report is based on data that assign businesses according to their sole primary activity. As such, the

classification of business units will depend on the level of aggregation of businesses within the economy. For

example, a research division located within a manufacturing enterprise will be included in the Manufacturing

Industry, while its stand alone counterpart will be included in the Property and Business Services Industry.

There will always be some ambiguity for businesses operating on the margins between industries and

businesses which alter the type of work they do over time. While every care, and in the case of the Australian

Taxation Office considerable expense, is taken over the classification of businesses, it is not possible to have the

exact same classifications across different business datasets. We use the ABS business R&D publication (Cat.

no. 8104.0) as our baseline classification to which other datasets should conform. Accordingly, the Innovation

Index for the most part excludes non-trading public sector organisations such as CSIRO, government research

bureaus and university research institutes. It was not possible however to exclude these organisations from the

productivity component of the Innovation Index. This incongruence will only distort the final Index to the extent

that the productivity change of the non-trading public sector varies from the industry average.

Definitions

R&D (research and development)

Creative work undertaken on a systematic basis, in order to increase the stock of knowledge, including the knowledge of people, culture and society, and the use of this stock of knowledge to devise new applications.

R&D employment R&D researchers, technicians and secretarial and clerical staff associated with the R&D activity measured in person years of effort.

R&D research employment

R&D personnel involved in the conception or development of new products/processes. Excludes executives concerned primarily with budgets and human resources measured in person years of effort.

Person employed Average number of persons employed by the industry over the year (derived from quarterly surveys).

Productivity Value added (adjusted for inflation) divided by persons employed.

Business All organisations whose primary activity is the production of goods and services for sale to the public at a price intended to at least cover costs. Includes private businesses and government trading or financial enterprises. Excludes government departments, CSIRO and the higher-education sector. Includes separately registered entities with their own ABN such as university spin-offs.

Patent applications

Number of filings by businesses with an Australian address of complete, standard patent applications. To be patentable, an invention must be novel, involve an inventive step; be useful and able to be manufactured.

Trademark applications

Number of filings by businesses with an Australian address of trademark applications. A trademark is a sign that is intended to be used to distinguish the goods or services of one trader from those of another. A trademark can be a word, name, number, aspect of packaging, shape, colour, sound or scent, or any combination of these.

Design applications

Number of filings by businesses with an Australian address of design applications. A registered design protects the visual appearance of a manufactured or hand-made product, such as shape, configuration, pattern or ornamentation, as opposed to the function of that product.

ANZSIC Australian and New Zealand Standard Industrial Classification. This system is the official classification system used for Australian (and New Zealand) industry for data collection purposes, and is aligned with the international system of industry classification.

35

Melbourne Institute Economic and Social Indicators

The Melbourne Institute monitors the Australian economy, forecasts key macroeconomic variables, and

conducts surveys of consumers’ perceptions and expectations. Most of these publications are available on a

subscription basis and can be downloaded from the Internet (password protected).

Westpac – Melbourne Institute Indexes of Economic Activity

Published monthly, this report presents and examines

movements in leading and coincident indicators of

economic activity in Australia, together with comparative

data from overseas. Indexes of economic activity are

designed to enhance the decision making process of

financial and business managers and policy makers by

anticipating and identifying turning points in the economy.

Each index blends several variables which reflect different

aspects of the economy; their combination is intended

to give a more representative picture than would any one

variable by itself.

Westpac – Melbourne Institute Survey of Consumer Sentiment

The Consumer Sentiment Index is an average of five

component indexes which reflect consumers’ evaluations

of their household financial situation over the past year and

the coming year, anticipated economic conditions over the

coming year and the next five years, and buying conditions

for major household items. This report is produced monthly.

Westpac – Melbourne Institute Survey of Consumer Sentiment:

NSW, Victoria, Queensland, Western Australia, South Australia

Each month we present the same consumer sentiment

data as above in relation to New South Wales, Victoria,

Queensland, Western Australia and South Australia.

Westpac – Melbourne Institute Survey of Consumer

Unemployment Expectations

This report is concerned with consumers’ views about

whether unemployment would be more, the same or less in

the coming twelve months. The Unemployment Expectations

Index was first compiled in September 1974, on a quarterly

basis. It became a monthly series in June 1993.

Melbourne Institute Survey of Consumer Inflationary

Expectations

The measure of consumer inflationary expectations

captures the average householder’s expected rate of

consumer price changes over the coming twelve months.

This survey produces a direct measure of inflationary

expectations as consumers are asked whether, and by how

much, they believe prices will go up or down. This report is

produced monthly.

Melbourne Institute Wages Report

The Melbourne Institute Wages Report records employees’

(self-reported) wage changes over the previous twelve-

month period and their expected wages in the year ahead. It

adds to our knowledge about wages and complements the

ABS labour cost index. This report is produced quarterly.

Melbourne Institute Household Saving and Investment Report

This survey-based report contains information about

households’ current and future saving behaviour, their

reasons for saving, and the structure of household assets

and debts. This report is produced quarterly.

The Global Proxy – Melbourne Institute Shareholder

Confidence Index™

The Global Proxy – Melbourne Institute Shareholder

Confidence IndexTM is a summary balance measure of

shareholders’ confidence in the Australian share market.

It is based on shareholders’ assessments of three factors:

returns, volatility and trading intentions (whether to buy or

sell). Information from these factors are summarised and

presented as component indices. The components are

then compiled into the Shareholder Confidence Index. The

first survey was conducted in March 2009. Each survey is

conducted over the telephone and the results are based

on 1600 respondents aged 18 years and over across

Australia who directly own shares in companies listed on the

Australian Stock Exchange. The report is published quarterly.

TD Securities – Melbourne Institute Monthly Inflation Gauge

Based on the ABS methodology for calculating the

quarterly consumer price index, this publication estimates

month-to-month price movements for a wide-ranging

basket of goods and services across the main capital cities

of Australia. This report is produced monthly.

Melbourne Institute Monthly Bulletin of Economic Trends

This report provides forecasts of the state of the Australian

economy. Variables forecasted include GDP growth,

consumption, the unemployment rate, inflation, the 90-day

bill rate and the exchange rate. The forecasts are generated

using econometric techniques which combine both

historical information and forward information contained

in, for example, consumer expectations, leading indexes

of economic activity, and financial futures. The monthly

updates of forecasts for the ensuing four quarters provide

information in advance of official quarterly data.

For further information please call Michelle Best on (03) 8344 2196 or email [email protected]

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Disclaimer: IBM, The University of Melbourne and the Melbourne Institute of Applied Economic and Social Research give no representation, make no warranty, nor take any responsibility as to the accuracy or completeness of any information contained herein and will not be liable in contract, tort, for negligence or otherwise for any loss or damage arising from reliance on any such information. The IBM – Melbourne Institute Innovation Index of Australian Industry report presents data collected from IP Australia and the Australian Bureau of Statistics, together with the professional analysis and views of the Melbourne Institute. The Melbourne Institute of Applied Economic and Social Research gratefully acknowledges the support of IP Australia and the Australian Bureau of Statistics in providing much of the data used to construct this Index. The views and findings expressed in this report do not necessarily coincide with those of IBM. For information on the data contained in the report contact the Melbourne Institute, University of Melbourne on (03) 8344 2117.

ISSN 1834-6243

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This report is protected by copyright. Apart from any fair dealing for the purposes of study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced without written permission.

Published by IBM Australia, New Zealand and the Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

IBM – Melbourne Institute Innovation Index of Australian Industry

The IBM – Melbourne Institute Innovation Index of Australian Industry tracks

patterns in the rate of innovative activity among Australian businesses (including

government trading enterprises but not the non-trading government sector such

as education) since 1990. Innovation is defined as the introduction of new and

improved ways of enhancing business productivity.

The Innovation Index is designed to record the intensity (i.e. rate of change) of

a wide range of industry innovation in relation to goods and services, technical

operations, and organisational, managerial and marketing functions. Six industry

level data series are included in the Index: research and development; patenting;

trademarking; design registration; productivity; and organisational, managerial

and marketing reforms. Each series is divided by a measure of economic

activity to give an intensity measure. Relative weights, which mimic each series’

respective contribution to overall innovation, are used to add the series together.

The resulting integrated index is a comprehensive summary of the rate of

innovative activity among businesses in Australian industry.

For further information please contact:

IBM Australia

Carla McMurray

+ 61 (02) 9463-5344

[email protected]

or Lyndall White on

(02) 9397-8517

[email protected]

Melbourne Institute

Paul H. Jensen on

+61 (03) 8344 2117

[email protected]

ibm.com/au/innovationindex

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