Innovation is at the heart of a strong economy, it keeps us competitive, creates jobs and maintains a high standard of living. It’s not just about new frameworks, ideas and products but also the maximisation of human capital resources.
These were the main drivers behind the National Innovation and Science agenda released in December 2015, with the government announcing a $1.1 Billion innovation package. This stimulus package aims to target innovation by supporting local business and entrepreneurs, giving them the resources to contribute to workforce participation and production in the long run.
A key vision behind this agenda is the goal to change our national economic culture, transitioning from a focus on the supply-side and commodity production to a demand-side and innovative focus. This mirrors the targets of the recently published Intergenerational Report, offering insights into how Australia will change over the next 40 years in order to translate future population growth to increased workplace participation and productivity.
Global Ranking
The Global Innovation Index is a ranking of 140 countries by their levels of “innovation” through aggregating 79 indicators. In 2015 Australia was ranked 17th globally. Australia appears to be competitive within the region as we are above Malaysia (32th) or Indonesia (97th) but lagging behind South Korea (14th) and Hong Kong (11th). A careless reader seeing this would then conclude that Australia is among the world leaders in innovation.
While this statement might be true, this view obscures an inconvenient truth, the aforementioned rank is an aggregate one, combining areas where Australia excels at and others where the need for improvement is alarming. Australia may be in the elite group, but it is not very competitive within this group.
Australia performs quite well in terms of research output, thanks to its host of outstanding universities. Australia has 22 institutions in the Times Higher Education World Rankings Top 400 Universities, making it the 7th most represented country in the ranking. Considering the fact that Australia only has 43 universities this result is even more impressive. The US may dominate the top of the university ranking but it also contains countless mediocre institutions. There is much less disparity in quality between Australia’s highest and lowest ranked universities, which shows the quality tertiary education students have access to in Australia.
However, Australia lags behind in connecting the research world with the commercial one. Although Australia’s research outputs may be good, turning them into commercial outcomes is a different story. In both large firms and smaller enterprises it is observed that Australia is significantly behind the OECD average in collaboration with researchers. Therefore, it would seem sensible to address this sizeable gap, as at this point it would seem even when new ideas are conceived of, the lack of collaboration causes them to lack commercial viability and rewards for the overall economy. Investment to encourage new business start-ups, innovative business research, and providing financial incentives for businesses to invest in innovation and develop Australia’s future workforce could yield highly beneficial results in the long run. A more innovative workforce may also assist with the problem of the ageing population, ensuring the future of Australia’s workforce remains innovative and progressive.
Australia ranks 72nd on the GII worldwide ranking for “innovation efficiency.” In particular, Australia’s attempt to pivot its economy towards the digital realm seems to have stalled. The Digital Evolution Index published by Tuft University puts Australia among “Stall Out” countries. These are economies that are losing momentum in digitalizing their economies.
Focusing on the firms highlights the troubled spot Australia is in. According to a report by the Productivity Commission, only about 0.5% of the country’s newly formed businesses can be described as startups (innovative, ambitious and possessing high growth potential), and only 1-2% of existing ones can be described as innovating. This puts Australia on a par with Canada, but behind the UK and US. Entrepreneurs face problems in finding funds through a struggling venture capital market as well as burdensome regulations. Successful Australian tech startups such as Atlassian – a $5.6 billion tech firm recently listed in the US’s NASDAQ exchange – are rare. With this in mind, the government released the agenda to spur innovation.
Government’s plan
Malcolm Turnbull, when elected as the Prime Minister of Australia, preached that the next thing to hit the economy from the mining boom would be ‘The Ideas Boom.’ With the current goal of funding innovative projects that would assist Australia in developing itself to become a leading body for the rest of the world. The Turnbull government has a budget well into the future with funds going out towards institutions such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and The National Collaborative Research Infrastructure Scheme. With an ‘Innovation fund’ of $200 million, the CSIRO would in turn support spin-offs and start-up companies. As these smaller institutes sometimes bring unique ideas, the Turnbull government hopes to capitalize on this opportunity to bring about something new.
In addition to this, the Turnbull government is planning on supporting two major scientific projects for a predicted $800 million over the decade. The first project is the Australian Synchrotron in Melbourne, which consists of using light beams to analyse materials which could lead to ground-breaking discoveries. The second project that is being considered is the Square Kilometre Array, which is constructing the largest radio telescope.
The government has also been involved in appointing the new board for The National Innovation and Science Australia board (ISA). This is seen as a catalyst to help the Turnbull Government deliver their promised $1.1 billion for the National Innovation and Science Agenda. ISA is the factor advising the Government of future investments and potential strategies to becomes a more innovative and enterprising nation. One of the current strategies is the constant support brought for students and teachers to adopt programs for Science, Technology, Engineering and Maths (STEM). This will encourage young individuals to become innovative contributors by challenging their creativity influences and their approach to finding solutions to everyday problems.
Implications for Australia
There are several greater implications of this innovation boom upon Australia’s economy, and there are both potential benefits and risks resulting from these policies. Australian exports have been in steady decline since 2014, where they reached a peak of approximately 29.3 billion AUD. This is likely attributed to the end of the mining boom, and has resulted in a noticeable depreciation of the AUD against the USD since a peak in 2011 of 1.10 USD it is now at just 0.75 USD. Therefore, if the innovation boom were to successfully replace the mining boom, and Australia were able to create demand through innovation, this would likely lead to an increase in exports and an appreciation of currency. This is very much a long term plan, as in the short term it is unlikely that the gap created by the end of the mining boom will be replaced by the innovation boom.
An important aspect to note about this plan is that it is very much centered around not only boosting innovation, but also altering a cultural mindset for future innovation, namely the “fear of failure”. This is a long term plan, and could produce a future of innovative and productive workers who learn from their mistakes. Combined with the combination of research and business, in the long run this could lead to a boost in Australian exports as well as a stronger currency and more stable economy that is less reliant on mining and external demand for commodities.
However, it is also important to note the sizeable degree of spending that is being put into this area in these policies. The proposed agenda will cost $1.1 billion over four years, and may lead to a resulting budget deficit. This current and financial account deficit could potentially lead to a decrease in Australia’s international competitiveness and depreciation in currency if the policy fails to succeed the way Malcolm Turnbull hopes. Domestically, it could also lead to a decrease in consumer confidence due to the deficit and further depreciation of the dollar. Both consumer and business confidence may also decrease if many of these encouraged business start-ups fail. Nevertheless, it is imperative to continue to push the economy into new areas to maintain a prosperous economy, so in this scenario the risk is outweighed by the potential rewards of a more productive workforce in the long run.
For the last 40 years, macroeconomic growth in Australia has been highly supply driven, dominated by commodity production, agriculture and export sectors. However, with recent declines in our GDP growth rates and with the demand of raw materials decreasing, we need to focus more on generating demand rather than meeting it. Through ideas initially proposed in the 2015 Intergenerational Report and the Turnbull government’s recent innovation package, our economy is predicted to experience a major culture shift. With a greater focus on entrepreneurship and workplace productivity, our economy would be driven hugely by human capital. The collective intangible resources of our future population would keep the Australian economy competitive and sustainable for the long run, improving our future standard of living.
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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
