Lesson: innovation leads to wealth DARYL LE GREW THE AUSTRALIAN FEBRUARY 05, 2014 12:00AM OUR economy seems to be lurching into the future, with little by way of strategic vision or direction. With no real sense of economic transition, the nation seems resigned to abandoning old industries, with little idea of what can or will replace them. Its time for government to stop quibbling and start planning with foresight. And its up to business to demonstrate the will to invest, not just in todays profits but also in the future. The nations economy is built on a mixed bag of old agriculture and manufacturing, a loose leaf finance sector and a raft of public corporates and institutions, all sheltering behind more contemporary and lucrative resource enterprise. Take out the miners and Australia looks decidedly weak. Mining will continue, but its boom days are over. It now wavers with the global economy and, in this uncertain environment, the ancient regime of Australian manufacturing is exposed and increasingly irrelevant. Australia must move quickly to a new era of smart and elaborate manufacturing, designed for the global market. The conundrum is how, with a relatively small, highly paid and well supported workforce, can the nation compete in a world of manufacturing where developing economies can produce with less cost and greater efficiency? A hard look at OECD comparators suggests a way forward. There are small economies, especially in Scandinavia, where direct comparisons with Australia can be usefully made. Sweden, for example, has less than half Australias population and around one-third of its GDP. Both countries have high standards of living, high taxation and elaborate social security systems. The key difference is that Sweden has little by way of natural resources to bolster the economy. The Swedes must think, research and innovate their way into the future. As Australia must. Sweden has a far higher corporate presence in the Forbes Top 500 than Australia; and a model of manufacturing that is fundamentally based in research and innovation. The Swedes create products and services with global range and reach. And they create industrial units with sufficient critical mass to compete globally. Brand Sweden derives from research and innovation. About 3 per cent of Swedens GDP comes directly from global receipts from research - royalties, licences, commissions and the like. Contrast this with less than 0.5 per cent for Australia. Australia just doesnt get it that research, innovation and wealth are equated. Even more telling, Sweden, with its smaller population, has about the same number of research engineers as Australia, but more than two-thirds of these innovation-oriented engineers are based in private sector industry. Australia has more than two-thirds of its engineering researchers based in higher education. No wonder Australia is big on ideas and short on enterprise. If Australia is serious about moving to a knowledge economy, a few basics need to be implanted in the psyche of government, business and universities. Greater investment in research and innovation is vital. Many Australian commentators say so but have little idea what it means. Again, the Swedish comparison lays bare a lack of foresight. Where Australia invests just over 2 per cent of its GDP in research, Sweden invests 3.6 per cent. The Swedes invest two-thirds of this higher proportion of GDP into business and industry. And its a cultural given that universities and government vest substantial proportions of their research into those same industrial and business settings. This is transformative investment. What Sweden has got right is that it invests both in the supply and the demand side of research as an economic phenomenon. More researchers, ideas and innovations fuel the supply side of the equation and the demand side creates the enterprise environment that values and demands more research as the backbone of its product and service innovation. And of its success. Australia is slowly, slowly improving the supply side of the research and innovation equation through universities and research institutes, but the nation is flummoxed by the prospects of building the demand side through business and industry. The research assets of the country are both too light and out of balance. Swedish success also suggests the best research training creates expertise in innovation and design as well as in high-level analysis. Doctoral graduates with these talents and a global enterprise outlook will transform industry. Australia also needs the business nous to invest in research and in creating enterprise units with the industrial critical mass and mindset that make them competitive on the global economic stage. Australia must learn to collaborate nationally to compete globally. This means reversing the trend of national competition policy away from fragmentation towards a new policy of clustering idea-driven enterprise with the critical mass to succeed globally. The top 10 Swedish companies have global critical mass. They are research, innovation and design led - their products are crisp, smart and modern; they are designed to appeal everywhere and are superbly marketed into unique global niches; their back-up services are excellent and their capacity to create value and supply chains globally gives Sweden the range and reach to be competitive with much larger economies. Aiming to have more companies with these research-led credentials in the Forbes Top 500 should be one of Australias national economic goals. The mantra of government is we must live within our means. Fair enough, but creating the means within which to live is even more basic. The future of Australias new economy starts now. If it is to be knowledge-based, then it must be research-led. If it is to be research-led, then government, business and universities must have the wits to conjointly invest in the kind of research that will lead the way. Now that would be a bit of innovation. Daryl Le Grew is a consultant and former vice-chancellor.
Posted on: Wed, 05 Feb 2014 06:47:51 +0000
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