In Era of Resource Scarcity, National Governments Rebalancing Investments in Innovation

Recent national strategies for innovation investment have been publicized by the governing parties in Brazil and Australia, highlighting both a growing global focus on national innovation as well as a growing global divide over how public investments are paid for.

Brazil is launching a public investment initiative aimed at modernizing the country's economy and paying for it, in part, with revenues generated from nationalized industries. However, across the Pacific, Australia is proposing to pay for new investments in the country's innovation infrastructure by eliminating R&D tax breaks for some of the country's largest companies. This contrast highlights a growing divide between the ability of developed and developing states to pay for large investments in national innovation.

The government of Brazil has launched a R$32.9 billion (US$16.42 billion) public investment plan aimed at boosting tech innovation across various sectors of the economy. The Inova Empresa Plan will be dispersed through 2013-14 and focus on tech investments in research, development, and innovation that increase production capacity and productivity across the Brazilian economy. The Brazilian national government is touting the Plan as a major policy initiative aimed at integrating science, technology, and innovation as a key pillar of the Brazilian economy. And while the country's economy has slowed down recently under the leadership of President Dilma Rousseff, funding for the Inova Impresa Plan will come, in part, from revenues generated by the country's partly nationalized energy sector.

Meanwhile, the Labor government of Australia has proposed an AUD$1 billion (US$1.02 billion) investment in their country's innovation infrastructure. The Labor Party's Plan for Australian Jobs includes enhanced government services that promote SME development, the streamlining of the country's venture capital taxation system, and provides a fresh round of public funding for Australian startup companies. A core component of the SME development package is the creation of 10 "Industry Innovation Precincts," strikingly similar in design to the "Innovation Institutes" proposed by the Obama administration, that will be established to foster cluster development and collaboration between academic, government, and industry partners and increase the commercialization of Australian research.

But the plan comes with shifts in public investment that could have far-reaching implications for some of the country's largest firms. AUD$1 billion in research and development tax breaks that have supported Australian mining conglomerates will be cut to pay for the plan. The move is being touted by the Labor Party as an investment in small business competitiveness but also reflects the rebalancing of investment priorities for a national government concerned about remaining globally competitive in an era shrinking public revenues.

This cut and invest strategy is being employed broadly across the developed world, as evidenced by the recent self-inflicted budget sequestration authorized by the U.S. government and by austerity measures gripping the Eurozone. Meanwhile, developing economies like Brazil and China are re-investing revenues from partly nationalized industries to pay for large economic modernization programs aimed at boosting home-grown innovation and national economic competitiveness. The "Rise of the Rest" continues.