Australia’s productivity growth has stalled for many years and, with it, the prospect for long-term prosperity. While much of the national conversation focuses on industrial relations, tax reform or migration, a more powerful driver is being overlooked: innovation.

Research and talent can transform industries, economies and lives. Now, with the rise of artificial intelligence (AI), we stand at a once-in-a-generation inflection point. Australian universities have a critical role to play in powering a national leap forward in innovation and productivity.

While the Strategic Examination of Research and Development is ongoing through the Department of Industry, Science and Resources, if we are serious about reigniting the engine of productivity, we must invest boldly in research, innovation and talent as part of this process – and place universities at the heart of Australia’s productivity strategy.

Innovation, not just inputs, drives growth

In the United States, around 85 per cent of long-term productivity growth stems not from more labour or capital, but from technological innovation. Professor William Press put it best: “Technology produces wealth – and more technology, enabling a virtuous cycle of exponential growth.”

That virtuous cycle is exactly what Australia must now set in motion.

Yet our R&D investment tells a different story. At just 1.79 per cent of GDP, it has hit a two-decade low – far below the OECD average of 2.7 per cent. The consequences? A $24 billion annual productivity gap, a slide in business innovation and a risk of falling behind in frontier technologies such as AI. Moreover, we are not then able to pull in the same direction – utilising the power of innovative new technology and groundbreaking discoveries to address existential threats facing all of us, including climate change, food security and growing healthcare needs for a globally ageing population.

Despite having world-class universities and researchers, Australia has not yet connected the dots between innovation, productivity and national strategy. We have the ingredients for success – but we need the political will to act.

Universities: strategic assets for national resilience

Australian universities are not peripheral to the productivity challenge – they are central. They produce the talent and skills that drive industry, the knowledge that spurs innovation and the research that fuels economic resilience. We need to treat them as vital national assets and invest in them accordingly.

We do not need to mimic Silicon Valley. Like India with mobile banking or Estonia with e-government, Australia can leapfrog by playing to its strengths, particularly in AI, clean energy, mining, agriculture and healthcare.

To seize the opportunity, we should:

1) Triple the number of AI-skilled graduates by 2030. The CSIRO predicts that Australian industry will require over 160,000 new workers skilled in AI and emerging technologies by 2030, while other reports forecast that Australia could see a shortfall of more than 60,000 AI professionals by 2027, leaving a major gap in the number of qualified candidates. That is apart from demand in other sectors, including the public sector, where AI could help enable further productivity gains. Universities will play a crucial role in training the next generation of AI leaders – not just in the technical skills needed to succeed in these fields, but more broadly on the implications of such technology and the ethical considerations necessary to scale AI-enabled products in productive, equitable ways across a range of key industries. To do so, we need to make significant investments in training new graduates in frontier technologies to remain internationally competitive.

2) Embed AI literacy across all disciplines and all levels of education. We must learn from past experiences of technological innovation and embed AI literacy at all stages of education. As a reflection of this, the global value of the AI education market is expected to reach USD 6 billion this year, increasing to USD 32 billion in 2030. Australia has already set itself apart in providing guidance for schools on generative AI to empower its usage while setting out responsible and ethical principles for its use, but we must go one step further to consider how the curriculum across all domains will shift as AI becomes ever more prevalent. Education must not play catch-up, but instead seek to shape understanding of such technology at every level and age.

3) Reskill the workforce through microcredentials and lifelong learning. As the International Monetary Fund has found, 60 per cent of jobs in advanced economies are likely to be disrupted by this new technology. When taking into account other major disrupters, a perfect storm is brewing of major economic and social disruption that will require a “whole-of-education” approach. While new training pathways and apprenticeships can help to meet some of the increased demand, microcredentials and lifelong learning can be an important way to build skills and knowledge over time to reskill those whose industries are contracting, or for those who want to apply their skills and experiences to other sectors.

4) Strengthen partnerships across universities, TAFEs, industry and government. For us all to work in the same direction, it is essential to reinforce partnerships that will enable a more coherent education-to-innovation system. At the University of Wollongong, we have done this with industry and TAFE in numerous forms, including in engineering and cybersecurity. New opportunities to coordinate and collaborate, including TAFE Centres of Excellence, will help to spur momentum and propel productivity through education.

We also need to scale up industry-linked PhDs, which are powerful conduits for innovation and knowledge transfer. This could be done through creating an industry PhD scholarships scheme at scale (say, 10,000 per year) to be funded from the R&D tax credits. In such a way, government could catalyse a new era of collaboration between business and research. With more PhD-level talent working on industry-relevant research and innovation projects, and hopefully more employed by their sponsors, industry will enhance Australia’s innovation capacity.

The recent report commissioned by the Business Council of Australia, Cochlear and Atlassian makes the economic case clear: every $1 of government support for business R&D yields a $5 return economy-wide, while opening up new sectors and career pathways for Australian workers.

Practical, socially valuable innovations – grounded in local expertise and delivered through global collaboration – are essential to meet the moment before us.

The choice before us

Australia’s rich sovereign data, expertise and top universities offer valuable opportunities to develop applications that support our industry, public sectors and national needs.

The next industrial revolution is already underway. It will be trained on our data, developed in our labs and delivered by our graduates – but only if we invest now.

Universities are not a cost to contain. They are nation-building institutions – engines of innovation and opportunity. With the right investment and strategic alignment, they can power Australia’s next leap forward in productivity, prosperity and global competitiveness.

Professor G.Q. Max Lu AO is Vice-Chancellor and President of the University of Wollongong.

This article expands on an earlier piece published by the University of Wollongong.

Image credit: Nikita Sergey