Governments must pair their new appreciation for innovation and public investment with a co-ordinated strategic approach, according to an eminent innovation expert, who warns money alone won’t overcome decades of industrial policy being “ignored” in Australia.
Emeritus Professor Roy Green, a special innovation advisor at the University of Technology Sydney, on Tuesday called on state and federal ministers to match their rhetoric with tangible action, and their funding with a strategic plan.
Without it, Australia will struggle to break away from decades of industrial policy dogma and an “old fashioned view” of innovation, he told the InnovationAus.com’s Capability Papers Manufacturing and Energy Transition forum.
“We ignored [industry policy] in adherence to a market based theory of comparative advantage, in which we privileged our exports of unprocessed raw materials over knowledge based goods and services,” Professor Green said.
Other countries moved well before the COVID-19 pandemic exposed the fragility of global supply chains and the importance of sovereign capabilities, building up more diverse and complex economies based on their competitive advantages of “knowledge and ingenuity”.
“That’s really the essence of industry policy. It’s about the choices we make about our future industrial structure. We decided to opt out of those choices over the last 20 or 30 years.”
Australia last month slid again down global economic complexity rankings, while both the Commonwealth and the nation’s overall investment in research and developments are record lows.
Clawing back and beyond Australia’s previous economic complexity ranking in the 50s two decades ago and getting R&D investment at least to the OECD average will be difficult, according to Professor Green.
“We have a hollowed out manufacturing infrastructure. We have not so much abandoned manufacturing – manufacturing has abandoned us because we haven’t taken it seriously,” he said.
“This occurred during a period when we were beneficiaries of a series of major commodity booms. And these commodity booms made us richer through the terms of trade — around 15 per cent over a six year period — without us having to do anything except watch the prices of our materials go up.”
But productivity has fallen and remains a persistent problem for policy makers, while the pandemic and shifting geopolitics have exposed how vulnerable the national economy can be, Professor Green said.
Add the existential threat of the climate crisis and there is a dire need to use industrial policy to “make some choices about our future”.
There are encouraging signs from both state and federal governments about a new approach, led through a $15 billion National Reconstruction Fund that will invest in strategic parts of the economy and specifically in businesses that bring a new approach.
The Fund and its nominated priority investment areas like clean energy, advanced manufacturing and critical technologies is based on pandemic recovery research published by the CSIRO in 2020.
Labor formally adopted the policy more than two years ago, allocated funding in its first budget in October last year and passed enabling legislation in March.
An NRF board was revealed earlier this month but investment mandates are yet to be finalised and no money from the fund has made its way to industry yet.
Professor Green said it was heartening to have the fund and the rhetoric about a new approach to industry policy by both state and federal ministers, but it is time to “it’s time to get on with it” with a new approach.
Increased funding for industry and research is sorely needed but governments also need to change how it makes industrial policy decisions, Professor Green said.
“We’ve had research and innovation spending spread across 13 different portfolios of government, 150 different budget line items. [It is] quite extraordinary fragmentation [and] duplication — and that doesn’t even count for duplication with the states,” he said.
“So a much more coherent and cooperative approach across departments, a whole of government approach to industry policy and certainly better systems of integration with the states is called for.”
States and territories have welcomed the Albanese government’s national plan and agreed to cooperate, according to New South Wales Modern Manufacturing Commissioner Lisa Emerson, who last month met with counterparts from other governments.
“We agreed we we don’t want to be competitive where we end up with the net sum zero,” Ms Emerson said. “We do have to be working together. We do have to work out what our critical supply chains are across Australia and work out where the gaps are give the opportunities also to manufacturers that can actually just make that slight pivot and diversify.”
Underscoring this need for coordination is the fact the NRF’s seven priority are not especially different from what has been identified in the past, Professor Green said.
While the new fund represents one of the largest peace-time industry investments in Australia’s history, it still needs to be strategically invested and be part of a wider plan for Australia to compete with other countries also making huge investments.
Skills, procurement, research and capability must also complement the massive fund, he said, as part of a new “bottom up” approach modelled on the UK and German innovation schemes.
“The Germans pioneered this with the Fraunhofer system, the UK followed with the Catapults, the Biden program is doing place based innovation on steroids with its National Science Foundation Innovation Engines and the Regional Technology Hubs.”
Australia has so far only managed to replicate similar place based innovation with a handful of individual facilities like the Tonsley Innovation District, Brisbane’s Advanced Robotics for Manufacturing Hub, and the upcoming Advanced Manufacturing Research Facility in western Sydney.
“But all of these have grown out of the energy and talent of the participants. There is no national network or commitment to grow these things,” Professor Green said.
“We’ve been really slavishly following a very old fashioned view of how to do research commercialisation: someone comes up with something in a lab, we try and licence or patent the IP, [and turn it into a commercial product.
“That’s still important, but it’s a very small percentage of what innovation looks like.
“Innovation is about the constant and fruitful interaction between all the players within a local innovation ecosystem, building on what they do well and using government leverage and resources to access global markets.
“That’s something we haven’t done so well. But we could.”
Do you know more? Contact James Riley via Email.