Productivity Growth: The Australian Miracle has no Clothes

The Productivity Commission Annual Report makes the case for Australia's innovation efforts to be increased. After all, despite the Australian economic miracle over the past few years, productivity has slowed.

Productivity growth through labour force participation and capital accumulation (and terms of trade) is all well and good, but we need much more if the Australian miracle is to continue. It all turns on how we reinvest the accumulated capital (risk capital) and how we achieve labour force productivity (such as through enabling technologies). This is the challenge:

Innovation and diffusion of new and better production methods, and the introduction of new goods and services, are the core drivers of productivity growth - getting more, and more highly valued, outputs from any level of inputs.

Although the Commission points to international experience that market competition is the best way to drive innovation, Australia's peculiar competitive structures (generally with two or three major market players) and the relatively low cost of acquiring latest-generation foreign technologies, particularly in the ICT and medical/health sectors mean that some form of innovation intervention is justified if we ever want to have capability in those fields.

The current government understands this to the extent that they recognised, at the time of commencing the National Innovation System Review, that in the twenty-first century Innovation Policy is Industry Policy.

In my opinion, we need three things to happen to generate future economic wealth for the nation.

First, we need goverment to deliver on the rhetoric and motherhood statements about innovation in a coherent, systemic, considered, targeted and collaboratively generated policy that stimulates the reinvestment of accumulated capital into activities that will result in future productivity.

The longer-term planning horizon (be that 2020, or beyond) is the relevant timeframe. This is policy that touches science, education, research, commercialisation, tax, capital concessions and availability, regulatory burdens, international treaties and standards, immigration, and infrastructure, not to mention our national response to the threats of global warming, the impending intergenerational crisis and associated skills and capital structure dislocations, and a possible economic slowdown.

There is, fundamentally, a need for leadership and strategy at a national level on this issue. This is not the time for ducking and weaving and playing a short-term political game. If we want a vibrant Australia with independent wealth for future generations (beyond the mineralised assets of fortune and circumstance) this is a time for bipartisan coordination and agreement on this touchstone.

Second, we (industry, entrepreneurs, investors, researchers and institutions) need to take action and stop whining about the current reality. In each decision we make we need to be open to these fundamental innovation touchstones:

• Will this decision enhance the value (output) from my team/organisation/assets, and if so, how?
• To what extent can the value be increased by the application of (Australian) innovation (being the act of introducing something new or different in the hope of creating additional value)?
• If there is no current (Australian) innovation in this field, what can we do to identify, generate and stimulate that innovation?

And if we don't have clear answers to these questions we need to deeply examine why we are making the decision at all.

We are way beyond solely R&D here. We are into value creation in its broadest and most systemic sense. The second and third questions above may lead to an R&D solution or identify an R&D need and result in investment, but there must be more than this.

This is where industry and all the other stakeholders in the National Innovation System can no longer sit back and wait for a seat at the table in the creation of innovation policy. Let's not wail and moan, let's get stuck into the thick of the debate, of advancing Australia through investment, through supporting risk and charting a pathway to future prosperity based on the mantra Productivity through Innovation. Let's get a comprehensive response to Venturous Australia through debate, discussion, and engagement with government.

Ideally, let's get the opposition to the table and articulate a productivity-based future for Australia well into the future planning horizons that can sustain the inevitable economic ups and downs that are ahead. If we need to borrow against our future capability to generate wealth, let's ensure that we have the ability to create and sustain that capability.

Finally, we need an approach to communicate all of this to the population at large. Too much of this debate sits in the rarefied air consumed by innovation policy makers, innovators and entrepreneurs and not in the government relations specialists in corporations, in boardrooms and in other parts of government. It is a very rare discussion at the dinner tables of Australia.

In the fairy tale the Emporer had no clothes and the population was too afraid to point it out until a child pointed, stared and laughed.

In Australia it is not the Emporer who has been tricked into thinking that he is dressed in the finest clothes, it is the populous at large that confuses the current economic success with a sustainable future, and worries about immediate tax rates, welfare, and health and education funding.

It is time for our highest leaders to point out the reality.