Vocational education and training, innovation and globalisation

• Australia has improved its innovative capacity, but performance is uneven and has still not kept pace with key international competitors. While Australia is ranked in the top six OECD countries for government expenditure on research and development, business investment in innovation is far below comparable OECD countries. Leaving innovation to market forces alone will not help Australia improve its performance. A whole-of-government approach supporting a national innovation system is needed. A key feature of such a system is active cooperation within and between levels of government.

• There is a danger in focusing only on those innovations concerned with a small number of high-technology sectors as contributors to economic growth. The benefits of innovation to the Australian economy also come from ensuring that new technologies and work processes are adapted widely throughout all sectors of the economy. The VET sector should have a more direct role in promoting and diffusing smaller scale innovations focused on processes and development rather than the sector seeking to engage in pure research. This would enable the VET sector to diffuse business innovation and enhance its links with business, particularly with small and medium-sized enterprises in general and especially those in regional areas. This requires appropriate funding support as part of a more diverse set of performance targets for VET providers.

Australia, over the past quarter century, has come from being a classical 'imitator' of others' innovations to a 'second-tier innovator economy' (Gans & Stern 2003, p.3). However, Australia's track record as an innovator is still uneven: 'while Australia has improved its innovative capacity over time, it has not done so as fast as key international competitors' (Gans & Stern 2003, p.3). Indeed, some countries, such as Finland and Singapore, have started from a lower base than Australia and leapfrogged ahead. International comparisons, therefore, offer the potential for major insights into what elements of the policy framework are missing or underemphasised in Australia.

The particular focus of this report is on the role the vocational education and training (VET) sector has played in economies with strong track records in innovation. The examples of Finland and Singapore, in particular, are drawn on to show the importance of the concept of a national innovation system as a framework for guiding public policy. This concept emphasises the importance of having a broader concept of what innovation involves-including diffusing new technologies, processes and products. It also supports the view that low and medium technology industries harness the research and development of others to support their own innovations.

The lesson for Australia is not only to expand its efforts to develop an effective pool of technical expertise in the form of tertiary-educated scientists and engineers. Attention has to be paid to the type of skills required at the para-professional level. The fostering of entrepreneurial skills both in work and in education at all levels is also important for encouraging innovation across the economy and society. This report highlights the value of using the concept of a national innovation system to give the VET sector a more direct role in promoting innovation.

From the perspective of innovation as a series of small changes diffused widely, vocational education and training has a much more definable role by supporting the diffusion of new technologies. However, in order to do this well, suitable performance indicators for technical and further education (TAFE) institutes are required to show that this is an important priority and to show what progress has been achieved.

TAFE institutes, like their Finnish counterparts, could be major diffusers of innovation in their regions; for example, by playing a major role in assessing the technology needs of small and medium-sized enterprises and helping them to develop appropriate solutions. However, this requires incentives in the form of specific funding to do this. One way to provide these incentives is to highlight innovation diffusion as an explicit objective in national policy, with corresponding funding allocated to support this direction. Then, in turn, federal and state governments could ask TAFE institutes, through their Performance Agreements, to meet certain performance targets,with funding allocated to help meet these targets.

A whole-of-government approach is needed to support a national innovation system. This requires new arrangements, such as pooling funds from relevant departments.

The whole-of-government approach refers to not merely coordinated action between departments at one level of government; it also refers to coordinated actions between levels of government at state and federal levels. The TAFE sector is a state government responsibility, with funding provided by the federal government as well. It is important that this division of responsibility not undermine TAFE institutes enhanced role as a supporter of innovation in industry. This applies particularly to its role of supporting small to medium-sized enterprises, which are at the crux of the innovation economy but which often have less training capacity than larger enterprises. It is this whole-of-government approach to the use of publicly funded resources such as the TAFE sector that is a defining feature of the Finnish and Singaporean innovation policies.