Goran Roos, Adjunct professor at University of Technology Sydney, explains why advanced manufacturing is an essential feature of ‘economic complexity’ and that “a nation’s potential to create prosperity is a direct function of its economic complexity.”
Australia’s economic complexity has declined over the last 25 years, to the point where it ranked 53 among all countries in 2012. The top three were Japan, Switzerland and Sweden. Losing the car industry is likely to lower Australia’s economic complexity by a further 5-15%. The share of manufacturing in Australia’s economy is likely to be below 5%, compared to Switzerland’s 20%.
Turnbull has tasked new Innovation, Industry and Science Minister Christopher Pyne with making Australia’s economy more innovative, with a statement on innovation to be produced in December. You may recall that not so long ago Pyne threatened to dump funding for the National Collaborative Research Infrastructure Scheme, which employed 1700 scientists and technicians in research labs around the country.
Pyne has now been given a different song sheet.
A first step has been to appoint veteran venture capitalist Bill Ferris to spearhead the Turnbull government’s sweeping innovation agenda. He will:
- advise Prime Minister Malcolm Turnbull, Treasurer Scott Morrison and Industry, Innovation and Science Minister Christopher Pyne on how to make technology, innovation and start-ups a new pillar of the economy.
Pyne has described three pillars to the innovation agenda.
First there will be a broad review of the taxation system, not just a tweaking.
- Changes to research and development tax concessions, relaxing capital-raising rules to allow “crowdfunding” from retail investors via the internet, expanding tax breaks for “angel investors” in new start-ups, and copying hi-tech leaders such as Israel and Singapore that subsidise employment in innovation, are all on the table.
Second, there will be a new role for the CSIRO:
- The agenda would also include a bigger role for CSIRO in forging closer ties between researchers and business and in funding commercialisation and start-ups, a direction in which chief executive and former entrepreneur Larry Marshall is already taking the agency.
Third there would be:
- a change in the way universities and academics are funded to make part of their funding dependent on engaging with industry and successfully creating start-ups from their research.
Given the state of our budget, the transformation of Australian industry is to be accomplished, I gather, without spending net dollars, a task which Bill Ferris himself has described as “very challenging”.
Nevertheless there is a bit of money around, it’s a matter of harnessing and directing it. One barrier is to get ideas commercialised at all. Another is to turn $5 million companies into $500 million companies, what the Germans call their Mittelstand. Ferris says there are thousands of companies out there who can do a lot better.
It turns out that the CSIRO has $100 million left from the $450 million it got out of protracted patent litigation over its invention of Wi-Fi. With other venture capital funds there could be a billion dollars available by the middle of next year. When you think of ARENA with funding of $9 billion, a mere billion doesn’t seem a lot. We haven’t heard anything about the $20 billion Medical Research Future Fund recently.
Nevertheless, potentially there is any amount of funding available from the two trillion dollar superannuation and managed funds industry. Confidence needs to be established, with mentoring an essential feature. People with bright ideas typically lack the necessary business and entrepreneurial skills to make a company fly.
One of our problems is that our investment in basic research is inadequate. The grant system is such that researchers struggle to live a normal life, where you get married, have kids and a mortgage. As a result many of our best go overseas for more stable jobs. Funding a new innovation agenda without more money may lead to distortions which make the situation worse.
I have to say, however, that Turnbull is showing an appetite for policy bravery. It remains to be seen whether he can lead us to the promised land.