The Political Corrosion of the CSIRO

On April 5, 2012, Quadrant Online ran a critique of the CSIRO–Bureau of Meteorology pamphlet State of the Climate 2012, titled “What’s Wrong with the Science?” by Bob Carter, David Evans, Stewart Franks and William Kininmonth. The Australian published a summary of the critique, “Government Should Re-examine the Climate Data”, on April 18.

This last article provoked the CSIRO high command to respond in The Australian the next day with a letter on “peer-reviewed data”. The letter displayed a certain nervousness about State of the Climate 2012.

And well might they be nervous. The CSIRO is now a $1 billion cost to Australia. Its external revenue has grown from $200 million in 1995 to $450 million in 2011. This growth has come on the back of promoting climate problems, while Australian industry has deserted the CSIRO, putting only 0.4 per cent of its $17 billion expenditure on research and development (R&D) directly with the CSIRO but some 2 per cent with universities.

In fact private-sector funding of the CSIRO has remained essentially unchanged for the last fifteen years at an average of $70 million a year. For quasi-government creations the story is the same: co-operative research centres contributed an average of $34 million, and rural industry R&D corporations $40 million.

The three revenue streams that relate to Australian industry show no growth—and a 35 per cent decline in real terms. Yet the CSIRO has celebrated its “rebirth” with the publication of a book, Icon in Crisis: The Reinvention of CSIRO. But what is the source of the growth in funding of which the CSIRO is so proud?

The answer is that the increased funding largely comes from federal, state and local government agencies and has risen from $50 million in 1998 to $200 million in 2011 with a policy of pursuing climate issues. This has helped fund computer-model projections of droughts, heat waves and sea level rises of biblical proportions, which in turn have served to encourage continual funding. Work directly related to agriculture such as breeding programs has been dropped in favour of expenditure on drought research and methane-free cattle.

The CSIRO looks to have reached a point of irrelevance for Australian industry. Its support of the federal government’s carbon tax and the likely damage from the carbon tax to Australian industry may make it difficult to rekindle interest from the private sector.

So what is the role of the CSIRO? As stated in the last annual report it is, amongst other things: 

to carry out scientific research for any of the following purposes:

—assisting Australian industry

(but there is not much evidence that industry values this assistance)

—furthering the interests of the Australian community

(many organisations do this)

—contributing to the achievement of Australian national objectives or the performance of the national and international responsibilities of the Commonwealth

(some objectives are politically determined, such as climate issues that work against the community where energy exports are concerned)

—any other purpose determined by the Minister to encourage or facilitate the application or utilisation of the results of such research

The CSIRO does not have as a first priority supporting Australian industry but rather pursuing the political objectives of the federal government.

The CSIRO has a staff of over 6500, with 57 sites throughout Australia and overseas. It is one of the largest and most diverse scientific organisations in the world. The research interests range from the smallest viruses to the edge of the universe. The applied targets span the needs of the country from health to wealth, covering public and private good. Can it make an effective contribution to so many different endeavours?

Who else favours such a diverse organisational structure? The French have the largest such organisation in Europe, with the Centre National de la Recherche Scientifique (CNRS) with a permanent staff of 26,000 and 6000 temporary staff. In the UK there is no such diverse organisation but rather institutes related to ministries or to specific scientific disciplines. A comparison with the National Research Council of Canada, another large and diverse research organisation, shows a similar revenue pattern to that of the CSIRO, with little direct industrial funding. However the Council runs a number of facilities where visitors from universities and industry are supported. The Council also administers a support scheme to fund small and medium-sized businesses with innovation programs, a role kept inside a federal ministry in Australia.

The problem with centralised management is: How do you interpret your role for the many and diverse parts of your organisation when headquarters is remote from markets and customers but has to allocate resources? This issue has been discussed at length in an elegant article in the Australian Financial Review (October 19), “Has the CSIRO Lost Its Way?” by Garth Paltridge, a sometime Chief Research Scientist. It seems that the CSIRO has entered a management maze from which there may be no escape.

The most obvious beginning for reformers is to see the CSIRO for what it is: a leftover from the mid-twentieth century that evokes a regulated, paternalist, protected Australia where markets are misunderstood and distrusted. The CSIRO’s great days were in providing technical solutions for Australia’s farm sector, where small-scale producers were unable to fund innovation or capture its fruits. At that time, Australia’s universities were unable to undertake the public-good research and a specialist institution was established.

Those days are now decades gone, but the institution remains like a dead weight on the Australian economy and its contributing scientific base, providing mediocre public-sector careers for scientists who are insulated from the increasingly globalised Australian economy. The extension of the CSIRO’s role beyond agriculture was based on the misunderstanding that businesses were co-operative rather than competitive and industrial innovations could be effortlessly created and transferred from a research bench to a business.

It is worth looking at the pathway for innovations. There is much complexity in innovation and there could be few better illustrations of this than the invention of WiFi by radio astronomers from the CSIRO. Whether politicians and policy-makers will take notice is another matter.

On the April 14, 2012, the Australian ran an article, “CSIRO’s $220m WiFi Deal Trumped by an App, which discussed the CSIRO’s success in extracting royalties for the development of WiFi through the Wireless Local Area Network (WLAN) patents of the CSIRO. These patents will expire in 2013 but the CSIRO will harvest over $400 million in royalties. This was contrasted with an acquisition by Facebook of a phone app, Instagram, for US$1 billion from a start-up business. The article also listed the top five royalty earners for the CSIRO, of which the WLAN technology was top and the influenza drug Relenza was third.

WiFi, or WLAN, was created by radio astronomers who had a problem to solve for the radio telescopes they were building. This was research arising in response to a defined National Need! Although the CSIRO patented the invention it was a non-exclusive licence to two Macquarie University professors and their company Radiata that gave rise to the first WiFi chips and the sale of Radiata for around $600 million to Cisco Systems in 2000. This sale brought in more revenue than the CSIRO revenue from all their subsequent licensing and legal successes in enforcing their patents.

Relenza was not developed by the CSIRO but rather by a small Australian biotechnology company, Biota. The CSIRO Division of Protein Chemistry, through an x-ray crystallographer, Peter Colman, provided the essential data for the creation of the drug. This occurred at the Victorian College of Pharmacy, and the final Relenza molecule was created by a Biota scientist, with the patents the property of Biota; some 10 per cent of the Biota royalties and payments from GlaxoSmithKline went to the CSIRO before a buyout of the future CSIRO royalty stream in 2007. Biota royalties from Relenza were over $180 million by the end of 2011. Biota has gone on, independently from the CSIRO, to create new influenza and other drugs that are in various stages of development.

These two examples show the complex path that gives rise to innovation. It is arguably a random walk. The original developers of the technology may have had little idea or interest in the potential uses of their work. Further, the path to a marketable product shows how the rewards go to those taking commercial risks.

The CSIRO does not make a living from royalties any more than the universities do. Surveys by the Australian Bureau of Statistics show that in 2006–07 only 2.6 per cent of ideas for innovation were sourced from universities and 4.1 per cent from government agencies. This result is not unique to Australia. The situation has been neatly summarised in a report to the regents of the University of California on technology transfer and inventions:

The revenue from licensing programs is dominated by a very small fraction of inventions with less than 0.2 per cent of all inventions making up more than 80 per cent of the total revenue.

No one knows how to predict which inventions will result in very significant revenue.

It generally takes ten or more years from the time of patent disclosure to realize significant income from an invention; many of the most successful inventions began generating revenue 15 to 20 years after the inventors first disclosed their idea to the University.

The rarity and unpredictability of very successful inventions, combined with the very long time-scale, pose challenges to consistently returning significant income on licences.

In 2008–09 the total Australian spending from all sources on R&D was $28 billion with $17 billion from business and the balance for universities and government institutions. But look at the evidence. Government institutions and universities don’t give much bang for the buck: 38 per cent of Australia’s R&D expenditure generates only 6.7 per cent of the ideas. Universities of course play a key role in educating scientists, engineers, accountants and many others who do make the innovations in the companies where they work and may have even founded. The universities also publish results and hold conferences so that research information enters the public domain.

The CSIRO does not fill the vital education role of universities. It is, by its very nature, an erratic supplier of innovation and it will seldom do much more than non-competitive industrial research. As the CSIRO has apparently changed the focus of its diverse mission away from industry it should be broken up so that its separate parts can operate effectively. The present impossible mission of combating or stopping global warming (not the ever-present climate change) should be the last throw of the dice.

Centrally planned science does not fit with either the nature of innovation or the pluralist character of modern Australia industry. This is not to destroy some of the crown jewels of Australian science but rather to ensure they survive in organisational forms that fit better with contemporary Australia. The divisions should be found “foster parents”. National facilities and activities devoted to the public good should be tied to the appropriate government departments, and academic activities should go to universities as institutes. Activities that deal with non-competitive agricultural, food and industrial development should be in free-standing institutions with a mix of government and private sector support. If Australia is to be a major supplier of food to those to our north then there may well be an important role for the CSIRO. It would be a return to its roots, in a manner of speaking.

The lesson that emerges from the break-up of large public-sector bodies is the release of “binding energy”. There is no more central management or central planning. Management and staff have more freedom to act, their boards take more interest in them, and their customers are closer to them. They can, in short, flourish.

Tom Quirk was deputy chairman of the Victorian Energy Networks Corporation, and is a frequent contributor to Quadrant and Quadrant Online.

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