The question for Australia's future economy isn't so much about where we are going, but how do we get there, and how do we take people with us?

Whether we are ready or not, our economy is transitioning away from its reliance on mining and traditional manufacturing, into a technology and innovation driven future focused on services and high-tech industries. In the five years from 2006 to 2011, firms less than three years old created 1.4 million jobs while employment in mature businesses dropped by 400,000.

The future, as they say, is already here.

To transition successfully Australia needs to take a logical and urgent look at how our tertiary education institutions collaborate, and consider transforming public TAFEs into what Europe calls Universities of Applied Sciences.

TAFEs are already at the centre of where skill development meets industry needs, but they are hampered by the reluctance of policy makers to capitalise on and fund their latent capacity to provide research and development and problem-solving solutions for the small and medium enterprises (SMEs) that dominate our economy.

Connecting Skills to Innovation

TAFEs are also hamstrung by having to follow training packages. Training packages are too cumbersome and narrowly focused on specific vocations as opposed to broad vocational fields. TAFEs need the flexibility of being self-accrediting for their courses, equivalent to universities.

What we need are new institutions to connect skills and industry to the applied research and innovation on which Australia's future depends.

Government funding shortfalls have driven our higher education and vocational education institutions to become transactional commercial providers of education to international and domestic students. In contrast, other countries have focused on the contribution their integrated systems make to knowledge generation, innovation, application, and national and regional productivity.

In a rapidly transforming global economy, innovation is now best described as a network, that recognises and values the role and contribution of both higher education and higher vocational education.

Recent missions to Canada and the Netherlands have allowed senior education and government leaders from Australia to see first-hand how tertiary education institutions have created real economic growth.

In Europe, new networks like Novel-T and Brainport in the Netherlands and Polihub in Italy, capitalise on pure and applied research. They use the talent of staff and students to form cross-disciplinary research groups in open innovation models with spin-offs, start-ups and established businesses. Brainport is now considered the third pillar of the Dutch economy, equally as important as the international shipping port at Rotterdam and the international airport at Amsterdam.

The dynamic collaboration between these parties is driving the creation and timely commercial application of intellectual property. Novel-T has fostered and supported at last count 380 innovative companies, which remain connected within the immediate innovation district. The social and economic growth of these regions is obvious as is the ongoing commitment to these models.

National governments in Canada and the Netherlands have recognised the need to involve higher vocational education institutions in innovation systems to better involve SMEs; an approach that suits Australia's economy.

Focus on small-to-medium business

Of the 2,171,197 businesses in Australia, only 3,774 are categorised as large businesses. The remaining SMEs need to be better engaged in the innovation system to make the long-heralded transition in our economy.

Internationally, the stand out example is the Netherlands, which has taken a pragmatic national approach to its tertiary education sector, particularly in relation to higher vocational education.

Firstly, it has brought together a disparate group of higher vocational institutions into a more streamlined group of 37 Universities of Applied Sciences (UAS). This group was supported to build their applied research capacity by the creation of a new type of researcher, known as a lector, who combine both research and industry expertise. A separate independent foundation manages a grants process to support applied research projects, and a network of strategic Centres of Expertise has also been created.

To do the same in Australia would mean creating of a new category of higher education and vocational education provider available only to comprehensive, mature, not-for-profit providers i.e. public TAFEs (and arguably some smaller teaching focussed universities).

These providers would focus on higher vocational qualifications like diplomas, niche vocational bachelor and master degrees, and applied research. They would not only address the real skills shortages now evident in a rapidly transforming economy buffeted by digital disruption, but also the significant rorting of public subsidies by corporate private providers most evident recently in the VET FEE HELP debacle.

Most importantly, it would re-establish a central role for TAFE as an institution equal in esteem to research universities, but with a different, complementary mission. This new type of provider would be an integral partner in regional innovation networks, linking pure research to commercialisation.

The overseas experience is that dynamic innovation ecosystems are not created overnight. They require vision, planning, careful implementation and the availability of targeted resources – human, as well as financial capital. It is hard work, but the results speak for themselves and Australia doesn't have time to waste.

Associate Professor Schubert and Professor Leo Goedegebuure, Diretor of the LH Martin Institute at the University of Melbourne, are the co-authors of a new report 'Bridge to Opportunity: TAFE as Key Partners in Innovation Ecosystems', based on the European experience in vocational education and applied research.

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