Office of the Chief ScientistTHE IMPORTANCE OFADVANCED PHYSICAL,MATHEMATICAL ANDBIOLOGICAL SCIENCES TOTHE AUSTRALIAN ECONOMYJANUARY 2016Prepared for the Office of the Chief Scientist and theAustralian Academy of Science by theCentre for International Economics

Australian Academy of Science 2016This work is copyright. The Australian Academy of Science grantsthe Commonwealth a worldwide, royalty-free, non-exclusive licenceto use, reproduce, adapt, modify and communicate the material inthis report.DisclaimerThis report has been prepared by the Centre for InternationalEconomics using multiple sources of data. The analysis and findingspresented here are subject to limitations of the data used. While theCentre for International Economics endeavours to provide reliableanalysis and believes the material it presents is accurate (given datalimitations), it will not be liable for any party acting on this material.Suggested citation“The importance of advanced physical, mathematical and biologicalsciences to the Australian economy”, Australian Academy ofScience, 2016This document is available online at editing by James Dixon and Ed HighleyDesign and Layout by GrathX graphicsPrinted and bound by CanprintiiTHE IMPORTANCE OF ADVANCED PHYSICAL, MATHEMATICAL AND BIOLOGICAL SCIENCES TO THE AUSTRALIAN ECONOMY

Office of the Chief ScientistFOREWORDThe Office of the Australian Chief Scientist commissionedthe Australian Academy of Science to develop twocomplementary reports on the importance of recentadvances in a selection of the sciences in the knowledge thatthe economy is not an end in itself but a means by which werealise our many goals. The Academy contracted the Centrefor International Economics to do this work.We now have, for the first time, two reports that estimatethe extent to which our economy, our health and ourenvironment are based on global advances in specific fieldsof knowledge over the past 20 to 30 years.While further analysis and projections may follow, thereports aid policy making and public discussion based onrigorous estimates of the current contribution of the coresciences.The contribution is substantial—and consistent withestimates for the same sciences made using differentmethods in other countries.It is estimated that if advances in the physical, mathematicaland biological sciences over the past 20 to 30 years had notoccurred, and those advances had not been incorporatedinto a range of products and services, our economy would bebetween 20% and 30% smaller than it is today.above left:Australia’s Chief Scientist,Professor Ian Chubb ACabove right:Professor Andrew Holmes AM PresAA FRS FTSEPresidentAustralian Academy of ScienceFurther, it is estimated that if advances in the biologicalsciences over the past 30 years had not occurred, and thenew medical products and practices underpinned by thoseadvances had not been created, the burden of disease inAustralia would be 18% to 34% higher than it is today.These reports do not attempt to make a case for morescience funding by speculating on future returns oninvestment; nor do they seek to quantify how much of oureconomic value can be attributed to scientific knowledgefirst acquired in Australia compared to knowledgeuncovered in other parts of the world.Much of the impact of new knowledge on the economy isincremental, but the cumulative effect of these changes isundoubtedly substantial. Science is now, and will continueto be, important to the economy and therefore important toall Australians.iii


CONTENTSFOREWORDIIIADVANCED PHYSICAL, MATHEMATICAL AND BIOLOGICAL SCIENCESBENEFIT THE ECONOMY1How the estimates were derived1The impact on the economy2Health benefits of recent advances in the biological sciences2Environmental benefits of recent advances in the biological sciences4The importance of Australian science4ABBREVIATIONS AND ACRONYMS4v

ADVANCED PHYSICAL,MATHEMATICAL AND BIOLOGICALSCIENCES*—underpinning Australian economic activityand worth 330 billion each yearPhysical,mathematical andbiological scienceshelp to support ournational wealth.We need to continueour nationalcommitment to theadvanced physical,mathematical andbiological sciences ifwe are to recogniseopportunities andcapture the rewards.It is of substantialeconomic benefit.14%14% of Australian economicactivity relies directly onadvances in the physical,mathematical and biologicalsciences26%The total direct and flow-onimpact of advances in thephysical, mathematical andbiological sciences amountsto 26% of Australianeconomic activity or about 330 billion per year. 185bThe direct contribution ofadvances in the physical,mathematical and biologicalsciences to the economy isaround 185 billion per year 84bOffice of the Chief ScientistPrepared for the Office of theChief Scientist and theAustralian Academy of Scienceby the Centre for InternationalEconomics*Advanced means science undertaken andapplied in the past 30 years for the biologicalsciences and 20 years for the physical sciences.Exports associated withadvances in the physical,mathematical and biologicalsciences are worth around 84 billion a year. This is 32%of Australia’s goods exportsand equivalent to 25% of totalAustralian exports of goodsand services.1.172m10% of total Australianemployment (about 1.172million jobs) is directly relatedto advances in the physical,mathematical and biologicalsciences

ADVANCED PHYSICAL, MATHEMATICAL AND BIOLOGICAL SCIENCES BENEFIT THE ECONOMYAdvances in the physical, mathematical and biologicalsciences are sources of new and useful knowledge, whichcreates net benefits for the Australian economy. Theapplication of this new knowledge has, among otherbenefits: expanded the economy by making it more productive improved health through better medical products andpractices provided a knowledge base for improved environmentaland natural resource management.The Australian Academy of Science and the Office of theAustralian Chief Scientist commissioned the Centre forInternational Economics (CIE) to research and developestimates of the economic—and, to a limited extent, thehealth and environmental—benefits of recent advances inphysical, mathematical and biological sciences.The research to produce these estimates took place in twoparts, published as two related reports. The importance of advanced physical and mathematicalsciences to the Australian economy (Report 1), publishedin March 2015, looked at the impact in Australia ofworldwide advances over the past 20 years in basicphysics, mathematics, chemistry and the earth sciences(the ‘physical and mathematical sciences’) The importance of advanced biological sciences to theAustralian economy (Report 2), published in January2016, looked at the impact of worldwide advances overthe past 30 years in the basic disciplines of biology,including cell biology, genetics, microbiology, anatomy,physiology and ecology.Both reports are available at time frames chosen for these reports—20 years for thephysical and mathematical sciences and 30 years for thebiological sciences—reflect the time it takes to develop andapply new knowledge in each of the fields.1HOW THE ESTIMATES WERE DERIVEDWe derived the estimates of direct economic impacts inthese reports through a two-stage ‘bottom-up’ process.First, groups of eminent scientific experts established byconsensus the extent to which the productive output of eachof Australia’s 506 industry classes was dependent on recentadvances in scientific knowledge generally and in broaddisciplines within the physical, mathematical and biologicalsciences. Those estimates were then validated or moderatedby an iterative review in consultation with industryrepresentatives and other experts.We estimated flow-on impacts by applying the final‘direct impact’ estimates to a general equilibrium modelof the Australian economy.1 Total economic impacts wereestablished by combining direct and flow-on impacts.Because of the uncertainty associated with estimates, theanalysis also determined a range of scenarios for eachestimate. We selected a ‘middle’ scenario as the figure mostlikely to be the truest reflection of the impact.Case studies in both reports also illustrated the importanceof science. We established health impacts using a similarmethodology, but one in which experts estimated the extentto which underpinning biological sciences were related toimprovements in treatment for the 23 most prevalent typesof diseases affecting Australians. The resulting estimateswere then validated or moderated by consulting withleading clinicians. To reflect uncertainty, we estimated upperand lower impacts.We attempted to use a similar approach to estimateenvironmental impacts. However, it became clear duringthe consultation that there was not enough informationto derive comprehensive national estimates. Therefore,the analysis of environmental impacts was limited to casestudies.The two reports give further information on the method, aliterature review of other relevant research and references tosources of material in this synthesis report.Our estimate for the total economic impact of recentadvances in the mathematical, physical and biologicalsciences over the past 20–30 years broadly aligns withestimates that can be derived from a ProductivityCommission study published in 2007 (PC 2007).This model was developed by the CIE based on publicly available economic data and a widely accepted economic model developed by the Centre forPolicy Studies and the Productivity Commission in 2006.1

Both reports compare our results with other results in theliterature.Report 1 identifies a number of ways in which our methodsimproved on those used in similar recent studies. Unlikeearlier researchers, we considered sciences as broad groupsand then added our results together. This approach wasnecessary to avoid double-counting the impact of thesciences in individual areas.Our estimates of the impact of science on measuredeconomic activity may understate the value of science, aseconomic statistics are unlikely to capture the full extent ofthat value. For example, new consumer technology productsthat embody advanced scientific knowledge can providemore value to consumers in enjoyment and quality of lifethan their prices imply. We dealt partially with this problemfor biological sciences by considering non-market impacts,but did not consider it for the physical and mathematicalsciences.THE IMPACT ON THE ECONOMYOver time, knowledge discovered in the mathematical,physical and biological sciences becomes embodied inthe inputs (the labour, capital, material and systems) thatbusinesses and governments use to produce goods andservices.The application of new knowledge makes labour, capital,materials or systems more productive, allowing the economyto expand in two broad ways.First, there is a direct gain in production because moreoutput is produced for every unit of input.By summing across industry classes, we estimate thataround 14.2% of production in the economy—or 185billion in gross value added (GVA) in 2012–13—usesinputs that embody knowledge discovered in recentadvances in the mathematical, physical and biologicalsciences (the ‘middle’ case). If those advances had notoccurred, that production would have been lost. While itis not possible to calculate this quantity precisely, using allinformation available to us we estimate that it is between12.7% and 16.4% of the economy (or from 164 billion to 213 billion GVA in 2012–13).222Second, this direct gain in production causes the pricesof goods and services in the economy to fall. The flow-onimpact of those price falls is a reallocation of resourcesacross the economy, allowing it to expand further. Weestimate the flow-on impact to be a further 11.2% ofeconomic expansion in the middle case (or a further 146billion GVA). The range of the flow-on effect is 7.4% to15.3% of the economy (or 96 billion to 199 billion GVA).Overall, in the middle case, we estimate that recentadvances in the mathematical, physical and biologicalsciences have resulted in the Australian economy beingbigger by 25.5% (or by 330 billion GVA in 2012–13) thanit would have been without this knowledge. This estimatelies in a range of 20.5% to 30.6%. Figure 1 summarisesthese results.HEALTH BENEFITS OF RECENT ADVANCES IN THEBIOLOGICAL SCIENCESOur analysis of biological sciences also looked at the nonmarket impacts of advanced knowledge on Australians’health and environment.One way of assessing population health is ‘burden of disease’analysis, which compares the observed state of health witha hypothetical state of health in which everybody lives to anadvanced age free of disability and disease. The differencebetween these two states is measured in disability adjustedlife years (DALYs) lost to disease and disability. The mostrecent study in Australia by the Australian Institute ofHealth and Welfare, based on data from 2003, estimatedthat disease and disability in Australia accounted for2.633 million DALYs across the population (Begg et al.2007).Report 2 on the biological sciences considered the impactof recent advances in biological sciences for 23 diseasegroups. It estimated the reduction in DALYs resulting fromimprovements in medicines and healthcare approachesbased on new biological knowledge. The estimates suggestthat if recent advances in the biological sciences had notoccurred, and the new medical products and proceduresthat have resulted from those advances had been lost, theDALYs lost to disease and disability would have been 18%to 34% higher than they are.The impact is calculated as a share of total economic output, measured as economy-wide value added. The measure of total value added used here( 1 297 billion) excludes the Ownership of dwellings industry (which makes up 9% of the total reported by the Australian Bureau of Statistics).THE IMPORTANCE OF ADVANCED PHYSICAL, MATHEMATICAL AND BIOLOGICAL SCIENCES TO THE AUSTRALIAN ECONOMY

Figure 1 The importance of advances in the physical, mathematical and biological sciences35%30.6%Share of economic 11.2%10%7.4%5%0%Direct impactFlow-on impactTotal impactHighMiddleLow396 billion in economy-wide value 00Direct impactFlow-on impactLowMiddleTotal impactHighData source: CIE estimates.3

ENVIRONMENTAL BENEFITS OF RECENTADVANCES IN THE BIOLOGICAL SCIENCESThe biological sciences are central to the managementof natural resource systems. They play an importantrole in our understanding of the ways in which naturalecosystems deliver services that support humans and in ourmanagement of those systems.Importantly, many of the impacts of natural systems onhuman outcomes are not directly priced in economictransactions, so the value of improved natural resourcemanagement (and therefore the value of biology) cannot bemeasured directly but must be inferred through a range ofindirect methods.Available estimates suggest that there is a lot at stake. Forexample: a 1% improvement in the ecosystem health of the GreatBarrier Reef is valued at between 434 million and 811million a 1% improvement in the health of the Coorong is valuedat around 5.8 billion.THE IMPORTANCE OF AUSTRALIAN SCIENCETogether, the two reports provide estimates of theimportance of recent global advances in science toAustralia’s health, environment and economy. WhileAustralia’s contribution to those advances is relativelysmall in absolute terms (Australian-based researchersproduce around 3% of the world’s scientific publications),this does not mean that 97% of the economic, health andenvironmental benefits described in the reports could beobtained purely by relying on international scientific efforts.Australian science is crucial to Australia, just as it is crucialto Australia’s access to the science conducted in other partsof the world.Scientific research is an international endeavour; no nationhas the people or the resources on its own to do all thatcould be done. If every country relied on the efforts ofothers, no research would be conducted and every globalcitizen would feel the effects.4Because Australian science is integrated within a muchlarger global scientific enterprise, our scientists are oneof the primary channels through which the nation gainsaccess to the vast global pool of advanced scientificknowledge. While overseas scientific knowledge flows intoAustralia via other channels (including through importsthat embody that knowledge), the channel that Australianscientists provide is essential because not all problems canbe solved with ‘off the shelf ’ science. In practice, solvingmany problems in Australia requires Australian scientistsand other professionals to evaluate, select, adapt andcomplement advanced scientific knowledge from elsewherebefore it can be applied here.Further, Australian science underpins our ability toprovide high-quality domestic education and training inscience at university level. That education and training isessential to ensure a necessary supply of workers who arehighly educated in science, technology, engineering andmathematics.REFERENCESAustralian Academy of Science (AAS) 2015. The importanceof advanced physical and mathematical sciences to the Australianeconomy, AAS, Canberra.—— 2016. The importance of advanced biological sciences to theAustralian economy, AAS, Canberra.Begg S, Vos T, Barker B, Stevenson C, Stanley L, LopezAD 2007. The burden of disease and injury in Australia2003, cat. no. PHE 82, Australian Institute of Health andWelfare, Canberra.PC (Productivity Commission) 2007. Public support forscience and innovation, research report, PC, Canberra.ABBREVIATIONS AND ACRONYMSCIECentre for International EconomicsDALYsdisability adjusted life yearsGVAgross value addedTHE IMPORTANCE OF ADVANCED PHYSICAL, MATHEMATICAL AND BIOLOGICAL SCIENCES TO THE AUSTRALIAN ECONOMY

mathematical and biological sciences are worth around 84 billion a year. This is 32% of Australia s goods exports and equivalent to 25% of total Australian exports of goods and services. 14% 26% 84b 10% of total Australian employment (about 1.172 million jobs) is directly related to advances in the physical, mathematical and biological .