Research and development: the private sector fails people and nature

Research and development essential and urgent for a democratic, green transition

The previous post used the profit lens to provide information and some analysis about Australia's decline in productive capital investment over the past 20 years. That has serious implications for the possibilities of a programme for a rapid transition away from fossil fuels with an effective strategy to make it happen. Why that decline has been happening was not completely explored. That is still to come.

Research and development (R&D) is another gap in that story and is the focus of this post. Each year the impacts of global heating from fossil fuel expansion are worsening for nature and most of humanity. The situation requires a dramatic effort to increase research and development, as an element of new productive investment, that tackles both dimensions interactively.

We can fill that gap using the same ABS (Australian Bureau of Statistics) source. (More precise data from the ABS will refine the story, but not change the main messages.)

The private sector’s R&D performance

The first graph tells its own story: it’s a shocker.

New R&D investment has collapsed, during a period when, for the sake of the planet it should have been going the other way. The R&D collapse fits within the overall sluggishness of capitalist economies, including Australia, since the 2008-9 recession, bumped along by the pandemic downturn.

The graph shows the fall as an annual change relative to the profits available to fund R&D.

Note how it gets extra bad after the LNP governments of Abbott-Hockey and their successors. (Yet another LNP time bomb for any alternative government.)

Employers are now in a worried state

Lo and behold, one of Australia’s most influential employer organizations, the AiG (Australian Industry Group) has recently, confirmed this sorry tale, and registered its “worry” about it.

Their first graph (below) says the following:

-       The decline is serious and has been getting worse for just over ten years.

-       The decline started and got worse under the supervision of the Abbott-Hockey LNP (Liberal National Party coalition) government, and its successors.

The AiG uses a different measure of business commitment to R&D to what you see above: R&D relative to, in turn, GDP (gross domestic product) and gross value added.

This approach is used by all mainstream economic commentators – academics, journalists, and the major banks’ highly paid hired guns who construct public messaging that protects their system. And, as do Australia’s labour-aligned economists. The GDP method is not dismissed but, it assumes that R&D performance should include the contribution that total wages make to that. Really? When workers and their unions have no role at all in the investment decision?

Workers’ contribution is entirely indirect through their income tax contribution going out as public dollars for investment subsidies (and so on). Later in their report, the AiG establishes that the private sector fall coincides with increased government support for research and development through subsidies and incentives.

The AiG is worried, concerned even, and so they should be. Except, as we see in their next graph, they are a part of the problem.  

First, this graph uses “GDP” R&D. Possibly, this means the total each year for private and public expenditure, its unclear. If so, it’s not an exact comparison and may muddies the water a bit. However, it doesn’t change the story in any significant way. (Public expenditure on R&D is different to public dollars to private employers through subsidies and incentives.)

Second, the Australian trajectory is down and heading in that direction over the whole 13 years shown, generally and compared with other similar countries.

Thus, during a period when climate heating has gotten worse, with all its impacts, as tipping points get closer, when productive investment and associated research and development are critical to slowing and reversing that disastrous trend …

1.    Australia’s employers have been lost in action, failed, on strike, etc.

2.    The AiG, perhaps their most influential organization – with their great influence through lobbying power, and, public boards of management,  in official and semi-official tripartite consultation – has just recently worked out there is a problem, even from their point of view. No agitation, no mobilization, no pleading. Now, it’s “worried”.

3.    Public sector “support” has not fallen, probably just not supervised, because LNP governments (and Labor?) believe they can be trusted. What have the employers been doing with that support?

4.    Workers still have no labour law rights to put the investment decision on the bargaining table, so that it can be democratically supervised and bargained over.

5.    The mainstream argument that supply and demand in the market, that employers and “society” do not need (should not rely on) public investment and control, is a nonsense.

Why has R&D investment collapsed?

Looking through the dynamics of the system and how employers make investment decisions through that, there seem to be 3 possibilities, almost the same as the problem of inadequate productive investment in general.

1.    The mass of profits available is not enough. We know that is not true, although it might turn that way for brief periods occasionally.

2.    Not enough profit is being made relative to existing investment in productive capital and wages. The mass of productive capital has been rising (although at a slower rate) and wages are still too high relative to prices for their liking, even though they still lag on the cost of living, together holding back this rate of profit. There is a conceptual logic to this but in Australia, no one has produced adequate data so far to confirm it.

3.    More new wealth can be accumulated by investment in non-productive activity – share trading and money-market gambling (perhaps throwing in some more extravagant personal and family living.)

Completing the tawdry story

Three general points jump out.

First, the AiG, in a separate report says that the Australian economy is deep in a “contracting period”, thus backing up some mainstream speculation that the economy is at least stagnant and maybe heading for worse.

In a capitalist society, that is not ideal for an urgent and rapid lift in productive and R&D investment that slows, reverses, and stops carbon pollution.

Second, no one can justify the claim that the private sector can lead the way. Government must intervene but as necessary as that is, the people must through their movements, their unions, and their communities, establish their greater control over investment planning. The green transition must have a democratic imperative. The Labor government can choose to enhance that new capacity or have it forced upon them.

Almost certainly the relatively recent Reserve Bank interest rates policy makes it harder for smaller companies to find the dollars for their R&D, with bigger returns going back to the banks when they do. This is a good example of how managing this system to solve one problem always generates another one, each solution having in common that it is a crappy deal for people and nature. However, keep in mind there was, to the great benefit of employers, a long period of low interest rates coinciding with their great failure.

The democratic alternative with socialist characteristics   

The inadequacy of parliamentary democracy as we know it has been on display, reinforced by what we now know about green new productive investment and associated research and development. And, it makes sense that more and more people are frustrated with it. The answer does not lie in a turn to a messianic “anti-government”, Trumpian hero. That dystopia is a real possibility, but it must be defeated.

The real answer lies in the fusion of green transition demands with simultaneous advances in equality, with a more powerful democratic drive of the people, and public ownership. All future government subsidies and incentives to employers must be conditional on such. Environmental and labour movement activists must build a more powerful alliance on this foundation.