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Industry policy can’t wait for Productivity Commission revamp

Updated: Apr 24

7 April, 2014

Sandy Plunkett, Realpolitech

It is just five weeks until federal Treasurer Jim Chalmers delivers his third budget in what he has frequently described as a defining decade for the country on all fronts: socio-economically, technologically, and geopolitically.

Like many, Realpolitech is wondering whether the occasion will finally bring some definition to the “recast and modernised” industry policy framework that Chalmers has signalled is emergent.

“Our industry policy framework needs to be recast and modernised so we can maximise our advantages and leverage our strengths in a new age of net zero,” the Treasurer said in his keynote to the National Economic and Outlook Conference (NEOC) in November.

The urgent need is for some whole-of-government cohesion to the spate of innovation, green energy and defence industry funding programs announced last year.

Australia hasn’t had a consistent, sustainable, globally competitive industry and innovation policy for decades.

Instead, consecutive governments have reflexed to lazy, short-sighted policies to bolster the national obsession with the proverbial “holes and homes”.

It has resulted in too many missed opportunities and Australia’s creeping irrelevance in the technological, data and intellectual property-driven industries of the 21st century, where real power and value reside.

The neglect means our mid-sized national economy, rich in raw resources and real estate but below the poverty line in high-value industrial output and economic complexity, is now struggling to define its place in a world of accelerated change and uncertainty.

The Covid pandemic revealed our supply chain vulnerabilities; hot regional wars in the Ukraine and Gaza and an increasingly fractured US/China relationship revealed our lack of security and sovereign capabilities; and the accelerated advance of exponentially transformative tech from AI to quantum computing to advanced manufacturing and renewables revealed the folly of ignoring the global shift in value from commodities to intellectual property-driven research and commercialisation.

Because we never moved up the value chain from raw materials and commodities, we are decades behind in industrial plant processing facilities, advanced manufacturing skills and the management capability to build and scale globally relevant new companies and industries, green or otherwise.

All of it has contributed to the nation’s high cost of living, low growth, and declining productivity malaise.

So, when the Treasurer and Prime Minister Anthony Albanese and every government minister down the line talk as much as they do about defining and decisive decades; about recasting policy for a new era of Australian reindustrialisation and Green Energy Superpower moonshots, the domestic tech and innovation sector participants begin to have expectations.

Experience tells us to temper them.

The very next line in Chalmers’ November keynote was, “The Productivity Commission (PC) should and will play a bigger more constructive role in organising our thinking when it comes to climate and energy policy.”

The Treasurer was talking about the promised ‘revamped’ Productivity Commission under new chair Danielle Wood, a former Grattan Institute chief executive. That alleged revamp started with the Treasurer’s simultaneous delivery of the first Statement of Expectations in the Commission’s 25-year history.

But the Treasurer’s affirmation of the primary role of the Productivity Commission to provide economic guidance for the country was a “wah-wah” moment for many astute and globally savvy innovation system leaders who have long viewed the PC as the enemy of the innovation state.

The PC’s historically staunch free-market, non-interventionist ideology has deliberately discouraged direct government investment in developing strategic technologies and industries; “the extraordinary complexity of much defence equipment, systems and software” described by the PC’s former lead, Michael Brennan that we couldn’t prove a comparative advantage in developing.  That meant we stuck to mining, agribusiness, and services like education.

“How ironic that so much weight is given to the even more limited voice of the PC, which has overseen a structural deterioration in Australia’s productivity performance,” wrote Dr John Howard, executive director of the newly established Canberra-based Acton Institute for Policy Research and Innovation (AIPRI).

This historically immovable stance by the PC is now considered way out of step with a changed world.

To fuel a post-COVID reconstruction and bolster national security, many Western governments – led by the United States – are deploying trillion-dollar investments to steer economic development and secure strategic industries.

The US’s Inflation Reduction Act and the Chips and Science Act are the lead examples, and the largesse of the subsidy programs have allies and competing countries alike scrambling to respond. The EU has responded with its own ‘Chips Act’.

Beyond the establishment of the $15 billion National Reconstruction Fund (NRF), Australia’s full response to this shift and the intense competition for capital and capability it brings with it is yet to be revealed.

Another government-led initiative is expected in the May Budget. But no one knows what.

The Treasurer said the new statement of expectations of the PC reflect his efforts to “reform, refocus and revitalise our key economic institutions” that will “guide our country toward a successful net-zero transformation”.

They include a greater focus on the “major forces, trends and transitions that will impact the Australian economy over the coming decades, including technological and digital transformation; climate change and the net zero transformation; population ageing; rising demand for care and support services; and global shifts such as geopolitical risk and fragmentation.”

That’s a strong, contemporary list of priorities and expectations. But it’s about 30 years late.

A radically different Productivity Commission would have to emerge at lightning-speed to close the 21st century capability gap we have allowed to widen with every missed opportunity over several transformative phases of the information and digital data revolution – from semiconductors to AI.

AIPRI’s Dr Howard says: “Successive Australian governments have not had the interest or absorptive capacity to internalise and act upon the sophisticated policy discourse that a vibrant innovation community can generate, and which is central to the success of other advanced economies.”

Dr Howard is one of Australia’s most respected and seasoned innovation & industry policy specialists. Over several decades he has seen (and co-written) umpteen innovation system-focused and research and development reviews that have been ignored or superseded by a change in government.

He and other vocal critics of the Productivity Commission, notably including the high-profile innovation system specialist, Professor Roy Green who was recently appointed to the CSIRO board, say it is long beyond time for the Government to seek out and act on alternative sources of advice. (Professor Green was also instrumental in bringing Mariana Mazzucato, the renowned “mission economy” economist to Australia last month).

“The strategic foresight and communication has been present in Australia. It just hasn’t been utilised,” says Dr Howard.

“Over 30 years, thought leaders like Jane Marceau, Ron Johnston, Mark Dodgson, Roy Green, Goran Roos, and others have significantly contributed to the discourse on innovation in Australia.

“They picked up the concept of ‘national innovation systems’ pursued by the OECD from the mid-1990s. They have prepared academic publications, contributed to the grey literature, delivered direct policy advice, and undertaken a swathe of commissioned policy reviews and evaluations.

“The best response to this work was governments’ sporadic interest in university research commercialisation and startup approaches to innovation, but without solid or continuing commitment.”

Australia’s cultural and intellectual block about the very strategic business of tech and industry development can be seen in the spectrum of ‘advice’ consecutive government leaders have listened to and acted on over the years.

The risk-averse, markets-know-best” Productivity Commission has been ever dominant; followed by the more fashion-and-fad-oriented think tanks and big consultancies, who tend to produce the occasional lengthy report claiming ‘Australia could be XX billion-times richer if we do Y.’

Bringing up the rear are a plethora of industry associations of varying degrees of strategic heft and influence from the Australian Information Industries Association (AIIA); the more nerdy and slower-moving Australian Computer Society (ACS); to the newer Tech Council of Australia (TCA), something of a go-to for Industry and Science minister, Ed Husic.

Dr Howard says that Australia’s lack of business-focused innovation think tanks is reflected in the demise of the Australian Business Foundation (ABF), which was set up in 1997 by the Australian Business Chamber and run as a well-funded and independent research entity by the highly respected Narelle Kennedy until it closed in 2012.

The Australian Business Foundation was not afraid to tackle a diverse range of complex innovation system-related topics and issues and seeded many of Australia’s best innovation system researchers and economists such as Jane Marceau, Mark Dodgson and many others. Kennedy now runs her consultancy, the Kennedy Company.

But that was then. Today we have bigger problems to solve and little time to solve them.

Last week, the independent think tank, the Centre for Policy Development threw its proposed solution into the ring with the release of a report “Setting Direction: A Purposeful Approach to Modern Industry Policy.”

The report notes that governments should be cautious of completely disregarding the prevailing ‘free-markets’ orthodoxy, but that “sometimes the most economically efficient outcome is not the one that society would choose – and only governments, not markets, can decide these trade-offs.”

Industry and innovation policy and execution is one of those strategic areas where the markets are not enough, it says.

The report re-affirms what many industry and innovation sector leaders and participants have been wanting for some years – a coordinating agency that pulls together the threads of Australia’s national innovation system, much like Innovate UK or Vinnova in Sweden.

“This could be a one-stop shop for supporting the innovation and industry ecosystem – with a role to set grand visions; engage and get buy-in from leaders in industry, government and research (not just technical experts); facilitate collaborations; advise government; and coordinate funding.

“Such an institution would go beyond the responsibilities of current institutions like IISA, CSIRO, or the new NRF (although any one of these agencies could be given the mandate and resources to play this central role). It is also important that this kind of agency has the ability and mandate to coordinate across government agencies and jurisdictions.”

Originally posted in InnovationAus, 7 April 2024

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