A laundry list for Abbott's innovation nation

A strong culture of innovation and entrepreneurship isn't created in a vacuum, but encouraged by carefully coordinated policymaking and tax reform.

The shrunken portfolio titles of Prime Minister Tony Abbott’s new ministry has alarmed many who are passionate about the development of Australia’s innovation and entrepreneurship ecosystem. The absence of science or innovation in any portfolio title heralds a colossal step backwards, they fear — a glaring indication of a Coalition mindset stuck on rebooting the mining and resources industry at the expense of investment in the so-called “new economy”.

But such pessimism is premature and perhaps misplaced.

“It was a relief to see the alphabet soup of ministerial titles we had under Labor disappear,” says Terry Cutler, author of the 2009 Innovation white paper, Powering Ideas, which was largely ignored under Labor. “The back-to-basics titles are, for the most part, reflective of a team that is connected to the real world and not wedded to some parallel universe of its own devising.”

New Communications Minister Malcolm Turnbull signalled the new pragmatism weeks ago when I asked him to define what was meant by the term "new economy".  It was a follow-up to the same question asked of (but not answered by) both the former Prime Minister Kevin Rudd and then-Opposition leader Abbott in the first leaders' debate of the campaign.

Turnbull said: “Terms like the new economy and the digital economy…we should stop using them because the digital economy is the economy. Any economy depends on communications and digital interaction. That’s what trade depends on. And the most cost-effective platform is the internet and we have to make sure that is universally and affordably accessible.

“But the idea that you can just put in the pipe and innovation will just happen is pretty naïve. The critical thing is changes to attitude. We have to be less determined to defend legacy businesses and legacy ways of doing things. The scarcest resource is not technology, but technological imagination.”

Australia, like most other developed and developing nations, is in transition from a high-wage, low-productivity economy to a more diversified one that fosters knowledge-based enterprises as well as more traditional sources of wealth such as mining.

Economists and policymakers globally believe the key to improving competitiveness and productivity is by developing innovation and enterprise at all levels of an industry ecosystem. Innovation tends to be technology and internet driven, but requires new creativity in other areas such as business models, global benchmarking, design integration and management practices. Educating for the new skills of this new era is also critical.

As Professor Roy Green, dean of UTS Business School says: “Australia can only compete as a high-cost economy by moving up the value chain through uniqueness, creativity and agility.”

Innovation and entrepreneurship are not triggered in a vacuum. Policymaking and government stimulants in targeted and highly coordinated areas — the nexus between Communications, Industry, Trade, Education and Finance and Treasury — is key to fostering the right climate for sustained investment in innovation-driven enterprises that can scale and compete globally.

Historically, Australia has not had a deep entrepreneurial class in the tech sector. Our innovation status rates relatively poorly in numerous global rankings and our productivity has stalled. Much of this is cultural, shaped by a long history of success derived from farming, real estate and mining ventures. Dutch disease en-masse, perhaps. Start-up and risk capital for the newer engines of economic growth — digital businesses — is comparatively scarce in Australia. And unlike other successful innovation economies such as the US and Israel, there is very little tolerance for failure and the lessons we learn from it.

Moreover, efforts by those intent on starting and scaling innovation enterprises have been further stymied by the relative absence of a vibrant local IPO market and punitive taxation policy – most notably the complex treatment of stock options for high-growth companies.

There is a laundry list of stuff the new government needs to focus on to change this culture. Entrepreneurs and venture capitalists need access to capital and a fertile and globally linked networking environment, as well as a clear exit path for their risk and investment; bigger businesses need to develop a more entrepreneurial mindset and better support smaller companies products and services; the regulatory burden on businesses needs to be eased; and research and development organisations need to better align their work to commercially oriented outcomes.

So how may the Coalition government help or hinder all this?

Leading industry participants believe that better teamwork and co-ordination between like-minded Coalition ministers in connected portfolios will be a good start.

While re-defining the beleaguered NBN Co and its related contractual arrangements is a key focus of Turnbull, it is believed much of the detailed work will fall to his parliamentary secretary, Paul Fletcher, the Liberal MP for Bradfield. This could, in time, free Turnbull up to focus on related technology ecosystem issues and strategies such as the government’s “cloud” computing strategy. Turnbull and Fletcher are also some of the most informed and progressive policy thinkers for the start-up and venture capital sector.

“This is a process and we are only at step one,” says Hamish Hawthorn, the chief executive of technology and life sciences incubator, ATP Innovations. “But there is a lot to be encouraged about.”

Newly appointed Minister for Industry Ian McFarlane is viewed by many as a welcome change from Sophie Mirabella, who was broadly criticised for her divisiveness and the failure to produce anything close to an Industry policy document pre-election. McFarlane and Minister for Trade, Andrew Robb, may make for better alignment.

Assistant Treasurer, Senator Arthur Sinodinos, is also expected to be a significant asset to Treasurer Joe Hockey and a key advocate for much needed reforms of prohibitive tax structures and other regulatory burdens facing businesses small and large.

It is harder to assess what new education initiatives there will be under Education Minister Christopher Pyne, especially in terms of fostering greater participation in the critical science, engineering, technology and maths degrees needed for innovation economies. Australian companies, especially tech start-ups, are starved of appropriately qualified people. It is equally unclear just how the sharing of the science portfolio between Education and Industry will work in the near to long term.

As for major innovation and business improvement programs, UTS’ Green says the Coalition’s pre-election policy costings and commitments provide grounds for “cautious optimism”.

He says: “The programs to survive, at this stage — although we may yet hear to the contrary — include Enterprise Connect, Commercialisation Australia and the newly announced Innovation Partnerships. There are mixed reviews in the Coalition about the efficacy of innovation programs, especially given Sophie Mirabella had indicated an intention to scrap the partnerships as they are currently constituted. It’s wait and see.”

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