Category: government

Innovation as a safe word

Australia’s political and economic leaders look to innovation as a safe word to avoid the pain of economic reform

After two complacent decades Australia’s pivot away from a mining and housing  based economy is promising to painful. In anticipation of the punishment to come, the nation’s political and business leaders have devised a safe word they hope will ease the pain — innovation.

That safe word was desperately repeated as a group of “innovation rock stars” gathered last week at Sydney’s Knowledge Nation summit, billed as bringing together the nation’s leaders to drive the implementation of the Australian Government’s National Innovation and Science Agenda.

Knowledge Nation showed that despite having a safe word Australia’s Anglo-Saxon, male dominated elites aren’t prepared for an economic pivot and true change in the nation will have to be a grass roots movement led by small business and community groups.

A lack of diversity

Notable in the selection of “key leaders from the innovation, science and technology ecosystem, including entrepreneurs, business leaders, investors, researchers and scientists, and policymakers” was the lack of diversity.

A look of the speaker list showed only four of the fifteen speakers being women and only one of the 15 not being from an Anglo-Saxon background.

One of the baffling things about modern Australian is the how few from non-Anglo groups feature among the ranks of the business, politics or media leaders. Yet Australia’s greatest success has been in integrating the successive immigration waves over the late Twentieth Century.

A visitor to Australia could be forgiven for not noticing the country’s diverse population as the media, politics and business is dominated by those of British heritage. For the country, this is a tragic wasted opportunity and was reflected in the line up of ‘innovation rockstars.’

Disjointed government

The political ‘leadership’ also reflected that lack of diversity with three Federal government ministers — all men and no opposition, state or local figures — lined up to recite the grab bag of thought bubbles that are what now passes as policy in Australian government.

Ministers offered succession of turgid recitals of disjointed programs which do little to address Australia’s structural barriers towards innovative businesses or the wholesale defunding of education institutions although the Innovation Minister’s snarling response to an academic’s question about R&D spending told much about their defensive posture.

The political ‘leaders’ illustrated a key problem in the nation’s pivot. The long term failure of consistent planning across portfolios means no Australian investor, entreprenuer or student can have any confidence in government policies over a five or ten year horizon when policies barely survive one ministerial thought bubble.

Overall though the biggest gap in the Knowledge Nation summit was its focus on government — the real weakness however lies in the corporate sector where inward facing service industries are distributing more on dividends than in research and development.

Inward focus

That inward focus, articulated well by Freelancer.com CEO Matt Barrie who described how almost all of the nation’s twenty biggest corporations are domestically focused service businesses, is the real problem facing Australia as it tries to pivot its economy away from being dependent on the fading Chinese commodities boom and domestic property speculation.

A lack of globally competitive businesses leaves the nation exposed as most employment is in organisations that are unable to survive outside a relatively protected domestic market. It also means these companies don’t see the need to invest in research and development as their fat profits are dependent upon market dominance rather than innovative products and services.

Barrie also had the only challenging idea in a day that promised many of them, the somewhat tired trope of abolishing Australian state governments.

Government focus

It’s quite touching that Barrie sees Australian Federal governments as being havens of intelligent, long term policy making when all the data indicates otherwise. The very idea of Canberra running education given its flip flopping on the Gonski reforms, confused policies on university funding and ideological obsession with funding elite private schools is, quite frankly, derisory.

That the most challenging idea out of the day was the old chestnut of flattening Australian government speaks volumes of the dearth of original thinking coming out of the nation’s business and political leadership.

In truth, Australian business needs to be snapped out of its inward rent seeking focus while the household sector needs to be weaned off speculating on residential property. These require real policy reform and cultural change.

Little leadership

Knowledge Nation showed there no understanding, let alone no appetite for that reform or change from Australia’s elites and as the Australian economy starts to feel the pain from twenty years of complacency we can expect the safe word of ‘innovation’ to be increasingly used by the nation’s elites.

The lesson from Knowledge Nation is Australia’s economic pivot will come from the grassroots. It will be startups, small businesses, community groups and local governments that will lead the change. Australians waiting for government support and corporate leadership will be waiting a long time.

In meantime, squealing ‘innovation’ at every sign of economic pain will be occupying much of the time of Australia’s comfortable Anglo elites.

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Government in a digital era

What is the future of governments in the digital world

Governments are struggling with the new channels of communication and the structures that will manage our societies are far from certain.

Last night the University of New South Wales’ School of Computer Science and Engineering in Sydney held a panel discussion about Digital citizens and the future of government. The group looked at how the open government movement is progressing and how public servants and politicians are dealing with a data driven world.

The panel featured Dominic Campbell, the founder of the UK’s FutureGov who are currently advising the Australian Digital Transformation office; Penny Webb-Smart, the Executive Director of Service Reform for the NSW Government’s clumsily named Department of Finance, Services and Innovation and Amelia Loye, a social scientist who worked on Australia’s first Action Plan for Open Government.

Centralising decision making

One key question for the panel was how governments use data which gives rise to two views. The prevalent view is information systems tend to centralise power – something that has been a feature of the last two centuries – while access to information is a democratising forces that hands control back to individuals and local communities.

Amelia made the point in some respects we’re already at the point where individuals can take control, “the tools for participatory government are already available, we have to start looking at – and talking about – how to use them,” she said.

That conversation certainly isn’t happening at the moment despite the odd blurting of fine words from ministers and public servants and while in some areas government data is being freed up, in others it’s increasingly being hoarded for political purposes or due to ill thought out privatisations.

Commercial in confidence

Private sector data is another problem for the open data movement as many of the functions carried out by governments are outsourced to companies which generally reluctant to share information with the public. This leaves communities with an incomplete picture of the data affecting them.

The main unanswered question in the discussion was the relationship between local and central governments, the panel’s consensus was central government would become more dominant and in the Australian context the states would become irrelevant. This however may not be true.

Centralised government is by no means a given, as the prevailing corporatist ideologies of Western governments strive to cut services it’s likely communities are going to increasingly find ways of delivering those services independent of national bureaucracies and politicians in capital cities.

Cumbersome central governments

Another unspoken aspect was the increasing cumbersome nature of central government. In fast moving economies it’s hard for the decision making structures based in capital cities to quickly react to societal and political changes. National governments may simply be too big to manage the data flows coming into them.

The main conclusion out of the evening’s discussion is there is great uncertainty about the structure of government in the digital era.

Uncertainty over how governments will be shaped by today’s changes isn’t surprising, increased communications and the change in public finances radically altered the role of government last century – the wars and economic downturns of the first third of the century saw the introduction of central government income taxes which central power in capital cities.

Changing communications

Similarly mass media communications, the radio and television, dramatically changed the politician’s role and how citizens interacted with government.

One great mistake today is many of our political, public service and business leaders think the current models are inviolate and fixed when in actual fact they are dynamic systems which are evolving with technology.

Governments are a reflection of the societies and economies they lead. Just as both the economy and society are changing so too will the structures of the public service and politics. We may not recognise some of those changes until well after they’ve happened.

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Rebuilding America’s communities

The Atlantic’s James Fallows explores how America’s communities are adapting to a new economy

One of the features of the Twenty-first Century will be how communities take over providing their own services as cash strapped governments find it difficult to provide the services citizens expect.

In many respects the United States is ahead of the rest of the world in this as the decentralised nature of US government sees many functions being the responsibilities of local county and city agencies.

Following the 2008 financial crisis many smaller cities and rural counties found their revenues crunched, for many of them this compounded thirty years of economic decline as local industries folded or fled overseas.

James Fallows in the Atlantic recounts a trip with his wife across the United States where they visited communities rebuilding themselves in the face of economic adversity.

In his long piece detailing how those different communities are rebuilding, Fallows comes to the conclusion a new political consciousness is evolving among the groups working to change their cities. While early, the common objectives of these groups will evolve into a movement.

Fallows marks what will almost certainly be a defining feature of today’s first world nations as their politics evolve around these movements.

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Australia’s lost dreams of global champions

The tale of regulatory mis-steps and dashed political hopes of telecommunications policy illustrates the failure of Australia’s ‘go big, go global’ policies of the 1980s.

One the notable things about the Australian economy is how most sectors are dominated by a handful of corporations.

The concentration of Australia’s business power has its roots in the 1980s where the then Hawke Labor government decided the nation’s corporations couldn’t be globally competitive unless they had scale in the home markets, and so a wave of mergers and acquisitions started.

An industry that was particularly problematic was telecommunications. At the time Hawke came to power in 1983 there were three government owned telcos; Telecom Australia that operated the domestic network and the Overseas Telecommunication Corporation which handled the nation’s global links along with a small satellite provider, Aussat, intended for remote access and some defense functions.

David Havyatt at InnovationAus describes the late 1980s thinking that lead to Telecom and OTC being merged to become Telstra, the company that dominates the Australian telecommunications industry today.

The then political troika of Prime Minister Bob Hawke, Treasurer Paul Keating and communications minister Kim Beazley decided allowing OTC and Telstra to merge would give the company global scale, as Havyatt quotes from a policy discussion around 1990.

“A strong vertically integrated national carrier which is able to provide a one-stop-shop for Australia’s telecommunications services both domestically and internationally, providing economies of scale and scope and the prospect of a unified and enhanced international profile.”

Despite the lofty ambitions and a few half hearted attempts to grow global business operations, a quarter century on sees Telstra’s international returns at an almost derisory level.

Dodging global bullets

One could argue that Telstra’s shareholders dodged a bullet – Canada’s Nortel followed the same path and, after early successes, failed spectacularly in the early 2000s.

For Australians in general though, Telstra’s insular focus has been a disaster as maintenance and investments were deferred to make the company’s yields more attractive and the Howard government’s compounding the Labor party’s mistakes in fully privatising the business without breaking its monopoly power.

Which lead Australia into the folly of the National Broadband Network – while the original intention of investing in the telecommunication sector and breaking Telstra’s lock on the industry was a good idea and supported by this writer –  it quickly morphed into a massive waste of money and remains so today. If anything, the NBN will only increase Telstra’s market power while delivering more expensive services to the nation.

Missed opportunities

The tale of regulatory mis-steps and dashed political hopes illustrates the failure of Australia’s ‘go big, go global’ policies of the 1980s. Today, Australia is more dependent on mining exports than it has been in more than 50 years while manufacturing and services have actually fallen since the 1980s as a proportion of outward trade.

Australian exports by sector: Department of Foreign affairs and trade
Australian exports by sector: Department of Foreign affairs and trade

Notable in the above graph is how in the 1990s it appeared the ‘go big, go global’ was working but by the turn of the century, the combination of the mining boom and the nation’s business elites – particularly in banking, insurance, retail and media – had starting looking at exploiting their domestic markets rather than competing internationally.

While there have been successes such as Westfield in shopping centres, Lend Lease in construction and Brambles in logistics management, the bulk of Australia’s corporate leaders are inwardly focused on extracting maximum revenue from their captive local companies.

Global ownership

Increasingly, those dominant companies aren’t even Australian. The brewing industry is a good example where locally owned beer producers make up less than ten percent of the market dominated by New Zealand’s Lion Nathan and British based global conglomerate SAB Miller. Australians, it seems, cannot even brew their own beer any more.

Australia’s managers have been the greatest beneficiaries from the nation’s failed business policies as it’s insulated them from global competition, life is good when you’re the biggest fish in a tiny pond.

While good for managers, the lack of business diversity competitiveness and insular focus leaves Australia’s economy deeply exposed. The failure of the 1980’s grand vision where Australia developed a cohort of globally leading businesses is one that will be regretted by future generations as they pay higher prices for poorer products.

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Gen X and the big economic shift

The costs of the 1970s economic shift are beginning to be recognised.

The single economic event that defines Generation X was the 1973 Oil Shock, the OPEC embargo on the west bought the post World War II era of economic growth to an end.

With stagflation gripping the western world, new solutions were sought and by the end of the decade governments touting ‘business friendly’ economic policies – more accurately ‘corporation friendly’ – were seen as the solution.

As Robert Reich described in the New York Times, these policies were not only a disaster for workers but also for the middle classes and business productivity.

US-economy-employment-wages

A notable aspect missing in the above graph is US productivity growth has since stalled as corporations have focused on stock buy backs rather than investment. The problem has been compounded by the use of tax shelters that have resulted in huge amounts of American corporate profits being locked away in offshore bank accounts.

While those stock buy backs and arbitraging tax regimes have benefitted executives and a small cabal of fund managers, the diversion of capital from productive investment has weakened the US and global economy.

For the baby boomers, even those of the Lucky Generation who preceded GenX, that lack of investment now threatens their retirement lifestyles as incomes and government spending stagnates.

The ‘big business friendly’ ideologies of Thatcher and Reagan defined the late Twentieth Century and continue to dominate government thinking in much of the western world, it may be though that we a reaching the end of that era as the costs to the broader economy are beginning to be recognised.

For GenX and their kids, the costs are being borne now but their parents may be about to feel the costs too.

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Cutting through Australia’s innovation rhetoric

Investor Steve Baxter talks about some of the strengths and weaknesses in Australia’s innovation statement

Four months ago, the Australian government launched its innovation agenda with the noble ambition to put the nation “on the right track to becoming a leading innovator.”

The keenly awaited innovation statement was seen as a defining the new Prime Minister’s agenda after two decades of complacent political leadership. At the launch of the paper Malcolm Turnbull said “our vision is for Australians to be confident, embrace risk, pursue ideas and learn from mistakes, and for investors to back these ideas at an early-stage.”

One of the early stage investors currently investing in Australia’s startup sector is Brisbane based entrepreneur, and Australian Shark Tank judge, Steve Baxter who spoke to Decoding the New Economy last week about where he sees the strengths and weaknesses in the proposals.

Beating the rhetoric

“Competitive threats are far more effective than rhetoric from a Prime Minister,” says Baxter in observing what really drives adoption and change while emphasizing that the announcement is a welcome shift,  “the change in messaging from the government has been very important. It’s having an impact and a future looking message has been fantastic.”

While Baxter is positive about much of the incentives on offer and the importance of changes to regulations around bankruptcy and treatment of business losses, he flags the the delay in implementing the tax incentives as being a problem.

Too focused on commercialisation

Baxter though has been a long standing critic of Australia’s research sector and the emphasis on commercialisation of academic work is in his view one of the Innovation Statement’s major weaknesses, “commercialisation is a concept that we’ve failed at. It’s dead. We’ve put so much money into it, it’s actually embarrassing. We need a new mindset towards it.”

“there are seven hundred million dollars of a billion going to the research sector. That’s not entrepreneurship. In fact universities and research institutes are the least entrepreneurial organisations you’ll ever come across.”

“We need more business model innovation, we’re seeing too many people in lab coats with synchrotrons, square kilometre arrays which we have to do,” Baxter states. “What we’re not seeing the Dropboxes and the Instagrams and the Facebooks and the Wayze’s, the cool stuff that doesn’t need a two hundred million dollar building.”

Thin pipelines

As an early stage invest Baxter sees the real challenge for Australia lies in encouraging individuals to launch their own ventures, “I don’t think we’ve done enough yet to prove we have an investment problem when it comes to early stage companies,” he says. “I don’t believe we have a lack of capital”.

For those starting their own ventures, Baxter sees the word ‘innovation’ as being a barrier in itself.
“The entrepreneurs I back aren’t those who say ‘I’m going to innovate’ but those who say ‘I can see a problem’.”

While Baxter doesn’t say this, the real challenge lies weaning Australians off property speculation and encouraging investment and risk taking, something that requires major tax and social security reform.

Sadly, the Turnbull government has abandoned the prospect of any immediate taxation reform and even the Innovation Statement’s more modest agenda is now in doubt as the nation’s febrile Parliament prepares itself for an early election.

Baxter’s views, and his optimistic but guarded outlook towards the Innovation Statement reflect the opinion of many of those in the Australian investment community, it would be a shame for the country if the current opportunities are lost for short term political maneuvering.

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Legislating for innovation

Can bureaucrats define innovation? It seems Australia is about to find out as the country’s regulators struggle to decide what businesses will be eligible for taxation concessions under the government’s Innovation Statement.

That bureaucrats are tasked to identify what businesses are worthy ‘innovators’ is worrying for those of us who hoped the new Australian Prime Minister would end two decades of managerial complacency.

Adding to the ‘business as usual’ under the revamped government was a speech by the Minister for Mineral Resources yesterday describing the glowing future of the nation’s resource industry in face of continuing Chinese demand.

While Josh Frydenberg was delivering that speech to Canberra’s National Press Club, the world’s biggest shipping line, Maersk, reported an 83% drop in profits in the face of slowing global trade and collapsing Chinese commodity demand.

Australia’s long term economic policy of riding on the back of a never ending Chinese resources boom is looking shaky, and the luxury of a tax system that favours property speculation over productive investment is increasingly looking unsustainable.

Rather than looking at ways to define ‘innovative’ companies, Australian governments would be better served levelling the playing field to attract investment into new businesses, inventions and productive infrastructure.

Just as a narrow group of tech startups are important so is investment into new plant and equipment for agriculture, manufacturing and tourism. Encouraging workers to attain new skills should also be an objective of the tax system, instead of disallowing school fees and book costs.

The treatment of taxpayers’ education costs versus that of property speculation expenses speaks volumes about the current priorities of the Australian tax system.

For a government wanting to encourage productive, employment generating investment and building a first world economy that’s competitive in the 21st Century, the first priority should be to put all forms of investments on the same footing.

Asking a committee of well meaning bureaucrats to create an artificial group of ‘innovative businesses’ seems unlikely to help Australian workers and businesses meet the challenges of a digital century.

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