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There’s nothing wrong with picking winners—just not too many losers

Dr John H Howard

April 16, 2024*

Global corporations and new technology investors pick winners all the time. But the ones who are good at it have worked out ways to do it without picking too many losers. Regions and countries can also learn from that experience.

Success comes from adopting what management guru Peter Drucker taught us quite a few years ago about the discipline of innovation.

To Drucker, most innovations result from a conscious, purposeful search for innovation opportunities: unexpected occurrences, incongruities, process needs, industry and market changes, and in the social and intellectual environment, demographic changes, changes in perception, new understandings of reality, and new knowledge.

These elements are reflected in the announcement of plans for a Future Made in Australia Act.

In many ways, the announcement is a culmination of a search that has been going on for quite some time about the innovation opportunity, the necessity, and the urgency relating to climate change, national sovereignty, and geopolitical factors.

Of course, there are innovations that spring from a flash of genius, but these are rare – and the Future Made in Australia plan is not one of them.

The outline of the Future Made in Australia plan has multiple elements or strategies that are not yet clearly laid out. However, as the Prime Minister has indicated, we expect to see more in the Budget in a month’s time.

Last Sunday, the Treasurer canvassed in very general terms a range of policy instruments (strategies) that could be covered.

The government’s real challenge will be implementing these strategies. So far, the Prime Minister’s announcement only makes some observations about re-aligning the government machinery to enable the implementation of existing programs.

The implementation aspect of strategies is often overlooked in Australian public policy. It should not be ignored on this occasion. The stakes are too high.

To avoid the pitfalls of failed delivery and implementation, innovation writers like Gary Hamel (Leading the Revolution) address delivery in a framework of ideas, experiments, and ventures. Venture capitalist investors have taught us about the portfolio approach to investment. Mark Dodgson and colleagues have written eloquently about the practice of Think, Play, Do. Business analysts conduct rigorous project appraisals assessing desirability, practicality, and feasibility.

Business and economic historians have drawn attention to the role of government in enabling innovation delivery and outcomes through procurement, grants and loans, government research institutes and particularly government research laboratories.

Academic writers on the Triple Helix of university-government-business interactions have informed us about the intertwining and convergence of government-industry-university institutional objectives and priorities.

The reference to the government in the Triple Helix narrative is not so much about government subsidies as it is about the active involvement of the government in disseminating knowledge, encouraging collaboration through public-private partnerships (for example, CRCs), and providing access to public research facilities and instruments, particularly where there are clear market failures and considerations of prescience and preparedness.

Unfortunately, when many commentators discuss government investment in research and innovation, their attention is on the flow of resources (annual expenditure), not building the stock of public and private R&D assets. While this can focus on poorly targeted subsidies and handouts, it draws attention away from the government’s key role in creating the infrastructure that lifts capacity and capability for innovation in government, business and higher education.

CSIRO, ANSTO (Australian Nuclear Science and Technology Organisation), and DST (Defence Science and Technology Group) are essential components of Australia’s public research and innovation infrastructure. However, they have been subject to continuing budget cuts over the last ten years.

The Australian government (through CSIRO) picked winners with its investments in computing (the Pawsey Centre), astronomy and radio physics (the Australian National Telescope facility), the NovaSAR-1 Satellite, and the Australian Centre for Disease Preparedness. This has given Australia a competitive advantage in space technologies, quantum technologies, and animal health preparedness.

Through ANSTO, the government picked winners, such as the OPAL multipurpose reactor, the Australian Synchrotron, and several other major facilities and instruments. Through DST, the government has picked winners with large investments in defence-related facilities, equipment and instruments, which are playing a major role in building Australia’s defence industry.

The disappointing aspect of the Future Made in Australia announcement is that it did not address building research capability to deliver the outcomes being sought. The announcement referred to the US Chips and Sciences Act but did not pick up any of its elements.

The Chips and Sciences Act authorised a five-year US$169.9 billion (A$245 billion) Research and Innovation Initiative – a US$82.5 billion increase over the current baseline. In dollar terms, this will be the biggest five-year investment in public R&D in United States history. The President, in his announcement, said:

“The R&D investment is intended to grow both curiosity-driven and translational research, ensuring both the creation of new ideas and the ability of those ideas to create new innovations, products, companies, and jobs in the United States.

“It will also build new technology hubs across the country, increasing the participation of underrepresented populations and geographies in innovation, and combat the illicit foreign absorption or theft of US research products.

“The investments are seen as strategic steps to regaining U.S. strength and reducing long-term supply chain vulnerabilities in critical areas such as advanced manufacturing, next-generation communications, computer hardware, and pharmaceuticals”.

Specifically, the Act provided for:

  • The National Science Foundation to receive US$81 billion, doubling its budget. This includes US$20 billion to support a new Directorate for Technology, Innovation, and Partnerships (TIP), which aims to accelerate the process of bringing technologies such as artificial intelligence and quantum computing from the lab to market.

  • $US67.9 billion for the Department of Energy, covering the DOE Office and Science to support areas of physical sciences – such as fusion and nuclear physics in national laboratories, universities and private companies.

  • The Department of Commerce to receive $US11 billion to create 20 geographically distributed “regional technology hubs” that will focus on technology development, job creation, and expanding US innovation capacity.

  • The National Institute of Standards and Technology to receive $ US10 billion to cover critical research and standards for the “industries of the future,” including quantum information science, artificial intelligence, cybersecurity, advanced communications technologies, and semiconductors.

It took two years for the idea for the Chips and Sciences Act to pass through Congress and reach the President for signature. However, the result was a very detailed piece of legislation that provided a very high level of detail regarding the amounts to be appropriated to each agency and what it was to be used for. It covered 1034 pages of text.

The Future Made in Australia Act is not picking a winner. It is a vision and an announcement – an idea that has been some time in the making. Transforming the vision from rhetoric into reality will require an implementation strategy that will evolve over time and adjust to reflect knowledge gained through the implementation process.

We look forward to further details in the Budget, including how the expenditures will be incurred. A major commitment to R&D would facilitate and enable the delivery of the outcomes sought in the proposed legislation.

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Timely article - I think the trajectory of CSIRO from Flagships (which were an attempt to focus on areas of potential national competitive advantage) are also worth reflecting on at this time. I felt (from the inside at the time) at these were largely heading in the right direction but lost momentum after around 8 - 10 years.

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