The NBN's high-speed path to where?

With the mining boom on its last legs, Australia will have to look to the technology and services sector for new sources of wealth.

In the leaders’ debate between Prime Minister Kevin Rudd and Opposition Leader Tony Abbott, Daily Telegraph political editor Simon Benson asked the prime minister to outline what he meant by the ‘new economy’, how we transition into it and where people can expect the jobs to be.

It’s a great question, one that Rudd said goes to the “absolute core of the economic debate that lies ahead of us, for the nation”. Then Rudd spoke of a changing China and the death of the mining boom. But he didn’t answer the question.

Abbott, “not a tech head” by his own admission, steered clear of a definition by retorting that if the mining boom was over, it was because “Rudd killed it”. His pitch to voters focused on promises of traditional infrastructure upgrades, such as highways and new airports. These upgrades are important for new jobs and a great way to spend money when headed into a downturn. But they won’t transition us into the new economy.

So what do we mean by the new economy?

The new economy is one where sources of new wealth are increasingly derived from digital products and services. It‘s innovation-driven and it’s global, which means new ideas jump around the world fast. With some 220 countries and 7 billion people on the planet, there is increased breadth and depth in pockets of global opportunity. If you have something valuable it will spread. With high speed networking, it no longer matters where you are located.

The shift from the physical to the digital and from local to global is disrupting, transforming and killing traditional industries and jobs. But resistance is futile. Competitively we have almost nowhere to hide. Countries, governments and businesses are competing like never before for a share of the world’s best minds, managerial talent and customers.

IBM Australia and New Zealand managing director Andrew Stevens nailed the socio-economic shift when he said: “We know that the internet generation born in the mid-1990s is now outnumbering the baby boomers in the economy and, with the ’millennials‘ coming through, this (shift) is going to accelerate and is going to be the deciding factor at the competitive frontier between leader and laggard in every industry and every corner of our economy. If we get this digital transformation right, we will power Australia for generations to come.”

Stevens’ comment was part of the introductory remarks to a recent conversation about Australia’s national broadband network between Opposition communications spokesman Malcolm Turnbull and Business Spectator’s Alan Kohler. That event was followed by Lateline’s NBN debate between Turnbull and Labor’s newly installed minister for communications, broadband and the digital economy, Anthony Albanese.

Both NBN discussions, however, failed to excite or inspire, by staying down in the weeds of comparative net speeds. There was little discourse to enlighten business leaders and consumers on how either party’s version of a national high-speed broadband network could become a platform for innovation and business transformation and enable the more efficient delivery of vital services in health and education.

Whichever version of the NBN eventually materialises, it will most definitely play into Australia’s ability to transition and compete in the new economy. I view the different approaches to the NBN build-out in this way: Labor’s NBN may have the bolder vision and even the policy language of the new economy, but it has so far failed to prove that it can execute any scope of the project efficiently; meanwhile, the Coalition’s stripped-down fibre to the node version may materialise quicker, with lower (but good enough) ambitions. But with the structural separation of Telstra at risk, that model also looks like it may mean a reversion to a Telstra dependency and only a slightly-reframed Telstra monopoly.

As much as we should question’s Labor’s ability to execute the NBN without further cost blowouts, we should also question the Coalition on its vision. How much does the Coalition leadership care about how the NBN plays into broader innovation policy?

In Innovating Australia – How we Measure Up, an excerpt from an upcoming book for CEDA called Adjusting Australia, Professor Roy Green and Dr Danielle Logue at the University of Technology, Sydney state: “Australia’s recent economic history suggests that our commitment to innovation is sharpened by adversity, but conversely blunted by the wealth effects of a commodity boom, which engenders what former Prime Minister Paul Keating depicted as ‘policy indolence’.

Green and Logue examine the evolution in Australian innovation policy within the past decade. These include Backing Australia’s Ability, a five-year innovation plan launched by the Howard government in 2001 with its focus on public investment in science and technology, and Dr Terry Cutler’s Powering Ideas in 2008-9. Cutler’s review took a broad view of the national innovation ecosystem and its dependency on talent and creativity. More recently we had Gillard’s manufacturing taskforce and the development of the innovation precincts program in the Plan for Australian Jobs.

But Australia’s high wage economy and relatively low productivity growth presents significant challenges. Green and Logue argue: “This is an unsustainable combination as it means that unit labour costs are increasing much faster than in other advanced countries, with the prospect that we cannot match the intensifying global competition at the high end of the value chain or from lower cost, faster growing emerging economies.”

Innovative industries are as dependent on government policy intervention to foster success (or at the very least, not get in the way of it) as they are on industry big and small to make it happen. Policy leadership has to connect old and new economy transformation potential by creating “joined up” portfolios of expertise in innovation, skills and productivity. That means re-thinking industry linkages and political portfolios.

It also means having a stomach for failure, because without risk-based endeavour and the failures that come with it, success in the new economy is hard to come by. 

From a policy standpoint, incentives need to be asymmetrical, with strong incentives for success and weak penalties for failure. The reverse is precisely why incumbent organisations tend not to be innovative. Once a company becomes successful and institutionalised, its incentive structure tends to be more about loyalty than rewarding risk-based endeavour. The same is true of nations, especially those who have initially enjoyed success but are now faced with the complacency effects of a commodity and resources boom.