By Professor G.Q. Max Lu AO, Vice-Chancellor and President, University of Wollongong
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.
As a chemical engineer, materials scientist, and university leader for over three decades working in Singapore, Australia and UK, I've seen firsthand how 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 boost.
The Federal Government's upcoming Economic Reform Roundtable provides a rare and timely opportunity to reframe the conversation. If we are serious about reigniting the engine of productivity, we must invest boldly in research, innovation, and talent – and place universities at the heart of Australia's productivity strategy.
Innovation, not just inputs, drives growth
In the United States, around 85% 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% of GDP, it has hit a two-decade low – far below the OECD average of 2.7%. The consequences? A $24 billion annual productivity gap, a slide in business innovation, and a risk of falling behind in frontier technologies like AI.
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 this 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 don't need to mimic Silicon Valley. Like India with mobile banking or Estonia with e-government, Australia can leapfrog – particularly in AI, clean energy, mining, agriculture and healthcare – by playing to its strengths.
To seize the opportunity, I suggest we should:
- Triple the number of AI-skilled graduates by 2030
- Embed AI literacy across all disciplines and all levels of education
- Reskill the workforce through microcredentials and lifelong learning
- Strengthen partnerships across universities, TAFEs, industry, and government
We also need to scale up industry-linked PhDs, which are powerful conduits for innovation and knowledge transfer. Perhaps this can 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 their 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.
At Wollongong, we're already making it real
At the University of Wollongong, our Centre for Artificial Intelligence exemplifies this vision. Our researchers are applying AI to real-world challenges: from assistive navigation for people with vision impairment to ocean monitoring via satellite, and predictive tools for infrastructure and maritime safety.
These aren't abstract exercises. They're practical, socially valuable innovations - grounded in local expertise and delivered through global collaboration.
The choice before us
Australia is rich in data, deep in domain knowledge, and home to globally respected universities. But if we do not act, we risk becoming an "AI colony" — dependent on imported technologies that are not built for our needs or values.
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.
