Politics of innovation difficult but not impossible

Malcolm Turnbull gathered together some of the biggest names in Australian tech, start-up and venture capital for an ...

The classic metaphor – Nero fiddles while Rome burns – has taken on new meaning in Canberra.

While politicians exchange bile, the real engine room of government, cabinet’s expenditure review committee, is examining ominous material pointing to Australia’s future decline unless the economy innovates more.

The choice is stark. As Australia’s innovation tsar Bill Ferris tells AFR Weekend: “Innovation drives everything across the whole system, so innovation has to be the core gauge; it has to run through all policy settings if you’re going to get yourself up the curve.”

It’s not as though Australians are not innovating. From the development of 3D-printed bespoke body parts using a metal compound sourced from rutile mining in Australia, to supplying Ford in the US with special carbon fibre wheels from a new plant in Geelong, and through to high speed ships built by Austal, remarkable examples of home-grown innovation abound.

Who should pay?
Who should pay?

The rate of technology change is astonishing

An experienced and successful business man in venture capital, yachting equipment and in promoting medical research through the Garvan Institute, Ferris reels off a list of established Australian companies that are also successful innovators. These include the Macquarie Group, Cochlear, CSL and mining giant Rio, although the latter is majority foreign-owned.

But the rate of technology change – in artificial intelligence, machine-to-machine communication, sensors, genome mapping, mobile phones, renewable power, etc – is astonishing. According to some estimates, it is accelerating towards 100 times more than the historical average.

Australia has made some effort to keep up with this dizzying pace. Since the December 2015 announcement of the National Innovation and Science Agenda, or NISA, venture capital has increased by about 400 per cent. The rise has been driven by changes in taxation incentives for wealthy investors, improved tax structures in the Early Stage Venture Capital Limited Partnerships program, the creation of the $500 million Biomedical Translation Fund and CSIRO’s $200 million Main Sequence Venture Fund.

But we’re not doing nearly enough. We are falling down international league tables in the study of subjects such as maths and science, despite spending more on education. At the same time, BERD – the acronym for Business Expenditure on Research and Development – reached a high point of 1.3 per cent of Australia’s GDP in 2008, but fell to 1 per cent in 2015-16. Contrast that to the 2015-16 BERD level of 3.6 per cent of GDP in Israel, and about 2 per cent of GDP in Germany and the US.

Prime Minister Malcolm Turnbull and Minister for Jobs and Innovation Michaelia Cash at the Brindabella Business Park in ...
Prime Minister Malcolm Turnbull and Minister for Jobs and Innovation Michaelia Cash at the Brindabella Business Park in Canberra last month. Alex Ellinghausen

Hobbled by fear

“We need BERD to expand significantly, with something closer to 1.7 per cent of GDP being a reasonable aim by 2030,” Ferris says. “We’ve got to be right up there and turbo-charged, and you’re not going to get there – as an economy and a society – unless you really take it seriously. It’s a whole way of life.”

The political challenge is stark. In a knife-edge Parliament, and polls running against the government since the July 2016 election, Prime Minister Malcolm Turnbull, a one-time innovation buff, is hobbled by the fear that the average punter equates innovation with losing their job.

As Ferris acknowledges: “Tiptoeing around the word [innovation] because everyone wants to hear good things about jobs, yeah, we get that. The politics is hopeless but people are going to have to think about what else can they do.”

Michaelia Cash led the charge into yet another iteration of Canberra's "who's up who" politics.
Michaelia Cash led the charge into yet another iteration of Canberra’s “who’s up who” politics. David Rowe

The proverbial bottom line is that “innovation drives productivity and productivity drives GDP growth. GDP growth drives living standards and, with that, and only with that, do you get sustainable jobs and more jobs, not less”, Ferris says.

Laggard position

“But as soon as you start talking about productivity and GDP growth rates and living standards all powered by innovation, you lose people. Who wants to talk about productivity? So we have to carry that discussion in the corridors of power and the responsible analysis of proposals by economists and others in the bureaucracy.”

Currently, these discussions centre around the latest report from the National Innovation and Science Board, which Ferris chairs. Recently delivered to the government, the plan covers key areas – education, industry, how government itself can be a catalyst for change, reform of the public service, research and development, and culture and ambition – and aims to catapult Australia from its laggard position into the top tier of innovation nations by 2030.

Innovation and Jobs Minister Michaelia Cash with Google's manager of public affairs Jesse Suskin visiting Balga Senior ...
Innovation and Jobs Minister Michaelia Cash with Google’s manager of public affairs Jesse Suskin visiting Balga Senior High School in Perth to announce a partnership with tech giant Google last month. TREVOR COLLENS

The report also advocates a wholesale switch from the tax incentive model to promote innovation through more direct government support. “We’re not picking winners, individual companies or individual executives, or whatever. We’re endorsing competitive growth sectors where there’s the opportunity to scale up many more companies and the opportunity to get more,” Ferris says.

More broadly, “people have got to step up and their kids will have to step up”.

Principled directness

Stepping up is something Ferris does, and innovation is embedded in the family DNA. Ferris is slim and has that wiry, lanky body that was more common among Australian men in the ’50s. His alert, weather-beaten face – testimony to endless hours of ocean sailing – completes the picture.

As he recalled in a recent National Press Club address, his father, Chum Ferris, “tinkered with and repaired all manner of domestic devices powered by that amazing disrupter of his time, electricity”. At the height of the Great Depression, Chum started a business in Sydney repairing and manufacturing home radio receivers, and went on to design and manufacture Australia’s first portable car radio, the Ferris Car Radio.

“It was a new-to-market, high-quality product which tapped into the expansionary boom of car ownership and lifestyle wishes in a post-war, industrialising Australia”, and by the late ’60s the Ferris Brothers company employed more than 700 workers.

Bill Ferris valued his father’s principled directness but yearned to paint on a bigger corporate canvas. He completed an MBA at Harvard, became fascinated with the diversity and size of US capital markets, and in 1970 set up his moniker as the first venture capitalist in Australia. There were plenty of thrills and spills on the way but his private equity business grew.

More of the right stuff

Ferris showed he had more of the right stuff by turning around the Australian company, Barlow Marine, which specialised in manufacturing yachting winches, and made it a global business.

In the mid 1980s, he was appointed chairman of Austrade, and oversaw a makeover of Australia’s trade promotion body. “We were able to kit up the senior executive group with people from outside and everyone” – particularly the federal bureaucracy in Canberra, and senior management consultant Ralph Evans was appointed Austrade’s head.

Like corporate lawyer David Gonski, who parlayed being chairman of the Arts Council in the Howard government to authoring the Gonski report on secondary education for the Gillard Labor government, Ferris has worked for both sides of politics.

As head of Malcolm Turnbull’s Innovation and Science Committee, and the man responsible for the latest report on innovation – one that has also been signed off by all members of his powerful board – Ferris is in the midst, politically speaking, of a full Gonski.

The politics are certainly challenging. On Friday, former Treasury head and now NAB chairman Ken Henry was also calling on the government, and politicians in general, to take the long view on tax reform.

Decade of lost opportunity

The architect of the Rudd Labor government’s tax review, which was delivered in 2010, Henry lamented a decade of lost opportunity in tax reform. The current debate was too narrow and ignored changes that should have been put in place by more effective political leadership, he said. If this had occurred, not only would Australia’s tax system be dealing with entrenched budget deficits and covering the growing demands of “bigger government”, it would be less reliant on company taxes that global competition will inevitably leave Canberra “no option” but to cut.

A few days earlier, Innovations Minister Michaelia Cash downplayed the prospects for a second wave of Turnbull’s innovation agenda materialising. Last year the Turnbull government effectively acknowledged its “Ideas boom” innovation rhetoric – remember Turnbull’s late 2015 mantra that there was “no better time to be an Australian” – fell flat in the election campaign. Former innovations minister Arthur Sinodinos said the government was focusing on other priorities, such as the energy crisis.

Not the ideal political backdrop

Two days later Senator Cash, who is also Jobs Minister, led the charge into yet another iteration of Canberra’s “who’s up who” politics when she threatened to name members of Opposition Leader Bill Shorten’s female staff over what she called “rumours”. Senator Cash later “unreservedly” withdrew her comments, but did not apologise.

To put it mildly, this is not the ideal political backdrop for people interested in promoting longer-term programs, such as encouraging more innovation in the economy.

Ferris puts the issue at a more existential level. “Australia has done a pretty good job when you look around the world at inclusiveness.

“Just because you’re close to a beach that’s free, that can carry you a fair way. But you’ve still got to work hard at inclusiveness.”

That means improving our innovation performance, he concludes.

Read more: http://www.afr.com/news/policy/politics-of-innovation-difficult-but-not-impossible-20180228-h0wtmv#ixzz59067WOso

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