///Innovation the answer in tough times

Innovation the answer in tough times

Professor Roy Green.

This article appeared in The Australian, July 19 2016.

Is innovation part of the problem rather than the solution to Australia’s productivity slowdown? While it is tempting to draw this conclusion from the reaction in marginal electorates to Prime Minister Malcolm Turnbull’s “ideas boom”, and some have done so, it would be wrong.

This is because the central message of the Pre-election Economic and Fiscal Outlook has been lost in the debate on budget repair. The message was that in Australia’s post-mining boom economy, the medium-term outlook “shows the crucial importance of increasing productivity. This will require renewed vigour in encouraging and delivering structural reform across all parts of the economy”.AAMC-News-02

The OECD has likewise argued that monetary easing has reached its limits and that productivity-enhancing structural reform will require a more co-ordinated approach to technological change and innovation, including policies to boost R&D. It also makes the point that this is not just about start-ups but “scaling up” and broader industrial transformation to drive long-term growth and jobs.

This is the challenge for the re-elected Coalition government, and in meeting it they will now have to address the concern that globalisation and technological “disruption” means rewarding jobs for the few, not the many. As Labor’s candidate for the Queensland seat of Capricornia, Leisa Neaton, put it: “I don’t think people saw much difference between the two major parties, who were talking about the importance of jobs of the future. People’s frustration in this part of the world was what are the jobs now.”

Clearly, the emerging consensus on the contribution of science, research and innovation to Australia’s future productivity is welcome. But there is much more to be done to design and implement a policy framework that enables individuals and organisations to adapt successfully to a competitive and dynamic, knowledge-based economy.

Last year’s National Innovation and Science Agenda was a significant turning point for public policy in this area, following a period of neglect and even hostility. After $3 billion in funding cuts under former Prime Minister Tony Abbott, NISA restored $1.1bn to a range of innovation programs, including a new focus on entrepreneurship and business-university collaboration.

Earlier, the cross-party Senate Innovation System inquiry had identified these as longstanding weaknesses in Australia. It concluded that the problem is not just the amount we invest but how it is allocated. The $9.7bn annual funding for research and innovation is spread across 13 government portfolios and 150 budget line items, hampering coherence and effectiveness.

NISA was groundbreaking mainly for the signals it sent about the government’s new-found interest in “rebalancing” the economy, but it was only meant to be a first step. It provided new tax incentives for start-ups, encouragement for venture capital and crowd-funding, revised employee share schemes and greater funding certainty for national research infrastructure.

However, the problem with this approach was that the focus on start-ups could be seen as being at the expense of a broader strategy for the transformation of existing industries and preparation of workforces and managers for new ones. The government’s new “industry growth centres”, modelled loosely on the British Catapult Centres, were still at too early a stage of priority-setting to have much impact. By contrast, Labor’s approach was more comprehensive, with a strong commitment to revitalise and reposition Australian manufacturing, along with vocational education and training and a “digital workforce plan”. It recognised that, like other successful advanced economies, we must support not just high potential start-ups, but our emerging “micro-multinationals” in global markets and value chains.

The government is now well placed, with a strong prospect of Labor and minor party support, to pursue such a strategy in earnest. This should not require a return to traditional subsidies or protection, but would instead identify and build capability through “smart specialisation” in areas of current and future competitive advantage, particularly trade-exposed, non-mining activities.

However, there is also the awkward legacy of the 2014 budget, which lives on as a commitment to reducing public investment in higher education and the R&D Tax Incentive, just when this investment is most needed. Why not make any proposed corporate tax cuts conditional on research and training expenditures, including deeper engagement with universities?

Budget neutrality could be assured by modifying or abolishing the diesel fuel tax rebate, which costs taxpayers $5bn a year, more than half the annual outlays on research and innovation. As the Financial Times recently editorial­ised: “There are gains to be made from … switching money from wasteful subsidies on fuel or other goods to education and training.”

Australia is fortunate by comparison with most other countries, having enjoyed 25 years of uninterrupted growth. While we faltered in the wake of the mining boom, there is every chance of regaining momentum through a shared vision of the role of knowledge and creativity in our economic transition. The task of the new government will be to translate this vision into reality.

Professor Roy Green is Dean of UTS Business School, University of Technology Sydney, and expert adviser to last year’s Senate Innovation System inquiry.

2018-01-09T11:59:18+11:00 July 21st, 2016|