March 2016

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The start-up whisperer

By Nick Feik
Just how innovative is the Turnbull government’s innovation package?

If innovation and economic reform could be achieved by sunny proclamation, Australia under a Turnbull government would be sitting pretty. Agility would be our paradigmatic virtue, ideas our major export.

In early December, the government announced its National Innovation and Science Agenda. It was perfect policy: reassuring, forward-looking, apolitical and a much-needed change of direction from the Abbott years. It was respectful of science and research, as well as of commerce. Who could be against innovation?

The prime minister was the start-up whisperer. “I’m really excited,” Jodie Fox, co-founder of bespoke footwear company Shoes of Prey, told Fairfax Media. “[The Agenda] is holistic and fearless but it’s not foolhardy.” Tim Fung, the CEO of work-outsourcing site Airtasker, appreciated its ambitions. “We need to keep attracting great global people, companies and capital into our ecosystem, which will have further ongoing and self-propagating positive impact.”

The Agenda, promoting scientific research, industry collaboration and business investment, touted 24 initiatives – tax concessions, regulatory changes and spending measures – and was worth $1.1 billion over four years. Mark Dodgson, director of the Technology and Innovation Management Centre at the University of Queensland Business School, remarked at the time, “$1 billion is what Samsung spends on R&D every three weeks.” A rare instance of scepticism. Still, after years of governments running down science and research capabilities, it was a start.

Three months on, the Agenda remains not so much a strategic blueprint as a statement of aspiration. Problems with the policy were evident if you looked closely and, while generally glossed over, now seem indicative of other troubles facing the Turnbull government.

Mark Dodgson was being charitable about the headline dollar figure. Bearing in mind that government spending on research and development will be $9.7 billion this financial year, an additional $1.1 billion over four years represents an annual growth of less than 3% – a rate almost identical to the projected national GDP. In relative terms, then, it is no increase at all. The $1.1 billion, it should be noted, includes tax incentives and other concessions (worth almost $200 million) that might have nothing to do with scientific research and development.

But even this is being kind, because the deeper you delve, the less impressive things are, in dollar terms at least. One “new initiative” was ongoing funding to the tune of around $400 million for the Australian Synchrotron and the National Collaborative Research Infrastructure Strategy (NCRIS). To be clear, the synchrotron has been running since 2007 and the NCRIS since 2005, and the only reason for classifying their funding as “new” is that the Coalition government under Abbott had refused to commit to any recurrent funding.

The new innovation package also included an “additional” $127 million in funding for university block grants, which sounds great except that $262.5 million was pulled out of the equivalent Sustainable Research Excellence program in the last budget – not to mention cuts to the Cooperative Research Centres Association worth $107 million over the past two years, and $75 million to the Australian Research Council.

The Agenda also heralded an $84 million skills program, “[to inspire] all Australians in digital literacy and STEM [science, technology, engineering and maths]”. A week after the innovation statement release, and with rather less fanfare, the government announced that $274 million had been cut from the Industry Skills Fund, which was set up just the year before to assist industry to “invest in training and support services and to develop innovative training solutions” and “build a highly skilled workforce that can take advantage of new business growth opportunities and adapt to rapid technological change”.

The announcement of the Industry Skills Fund reduction also noted that the total amount cut from education and training since the last budget was $996 million over the next four years, a figure eerily similar to that earmarked for innovation.

Whichever way you cut it, there wasn’t a lot of new money. So what did it all amount to? A new leader setting a positive tone, minor adjustments to regulatory arrangements, and encouragement for the R&D sector and new businesses. As to the effectiveness of the innovation package – there is little evidence that it will have the slightest effect in transforming our economy.

“Many governments aspire to foster innovative businesses, but exhibit little flair for innovation themselves … Innovation is their new god but they worship it with old prayers,” noted Aaron Timms recently in Institutional Investor. “If you don’t have Silicon Valley to help you innovate, what next?” Policy approaches in most parts of the world are strikingly similar, and unproven in their success. They are built, as Timms says, on the idea that the state needs to get out of the way and let the idiosyncratic geniuses of private enterprise do their thing. The state’s role is to “remove obstacles” to innovation – and an ideas boom will follow. Small business grants, small industry-specific handouts and soft regulation are touted as the keys to the future, but they weren’t even new when John Howard and Margaret Thatcher were dishing them out.

The economies that have been truly, transformationally innovative – the likes of the United States, South Korea and Estonia – boast government spending on R&D around twice that of Australia. (Readers may chuckle at the idea that we should emulate Estonia, but its investment in internet-related technologies from the late ’90s onwards has made it the most tech-savvy government in the world, one whose every major function, from health-care and social-service provision to voting and data privacy, has been revolutionised online, and is space-age compared to ours.) These are nations whose governments invested heavily and directly in R&D and technological infrastructure, and now lead the world. Ours, by comparison, finds innovative uses for decades-old copper wires in order to save in the short term.

The iPod and the iPhone may have changed the world, but they weren’t built on research done by Apple. The funding for their core technologies – microchips, touchscreen, GPS, cellular communications, capacitive sensors, Siri, solid-state memory, the click wheel – came from the US government and military, just like the internet itself. Wi-fi was developed by our own CSIRO.

At least the Turnbull policy had the advantage of seeming benign. The bright future of an oncoming ideas boom promised good things to all. Until recently.

Last month’s announcement of job losses and changes at CSIRO came as a major shock not just to its employees but also to the public at large. The innovation package restored to CSIRO some of the $110 million that had been cut under Abbott, but the new dollars were earmarked for innovation programs, while other areas remained underfunded. As a result, there will be sizeable job cuts over the next two years, mainly in the Oceans and Atmosphere division and the Land and Water division.

The CEO of CSIRO, Larry Marshall, formerly of Silicon Valley, cited Netflix as his management model. His comment infuriated staff but also drew attention to the major political risk inherent in his restructure – it had the potential to torpedo both Turnbull’s innovation platform and his climate-change credentials. Critics immediately made the link.

“Prime Minister Turnbull likes to talk about digital disruption,” said CSIRO Staff Association secretary Sam Popovski, “but the reality is that climate change is a major disruption that cannot be ignored. How can Australia mitigate and adapt to the challenges of climate change without the CSIRO scientists doing the research?”

Community and Public Sector Union national secretary Nadine Flood criticised the changes as “moving CSIRO to a business model based on speculative investment rather than real science. IT start-ups might be agile, but deep science cannot be simply switched on and off again.”

Turnbull isn’t responsible for the internal decisions of CSIRO, but this episode illustrated some cold truths. There’s no such thing as a political act without consequences, even if there appear to be no losers at first. True innovation is not just a question of how to gain financially from the technological revolution rushing towards us, but also one of how to preserve valued capabilities and knowledge while that happens.

If innovation should come to mean liberating people from their jobs, or incentivising commerce while disrupting efforts to protect the natural world, or the creative destruction of respected organisations or companies that pay tax in favour of exciting new ones that don’t, then Turnbull, as an agent of these changes, if mostly by association, will be branded with his own buzzwords.

His government’s innovation package was widely applauded for increasing or at least restoring R&D spending. But it also highlighted the static nature of Australian policy debate. There was little expectation and therefore no real pressure on Turnbull to provide a genuine boost to R&D funding. The political imperative was simply to demonstrate that he wasn’t Tony Abbott.

Many in the Coalition will always refuse to consider any alternative to neoliberal settings, and the public has become so accustomed to the lack of genuine leadership, and to reforms that serve only the market, that most have given up expecting anything else. The Turnbull innovation package is the perfect example of what current economic and political conditions create: a series of small reforms, a lot of money-shuffling, and some serious public-relations exertions – all in search of a plan. “Only in Australia could we announce something called a ‘Global Innovation Strategy’ and only assign $7 million a year for it,” Mark Dodgson said.

If the government limits its definition of innovation simply to that which a small band of footloose free-marketeers will benefit from, what hope is there for the society it governs? Turnbull has the political capital to do more. There is no shortage of social and economic problems that would benefit from some innovative thinking. People are waiting.

Nick Feik

Nick Feik is the editor of the Monthly.

@nickfeik

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March 2016

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