Commercial innovation in the 21st century is very focused on IT engineering and much less so on science. By way of example, I would suggest that over 90% of Silicon Valley’s investments over the last decade have gone into IT start-ups. At the moment, science is considered very ‘20th century’ in the tech investment world. The reason is that the comparative financial rewards for investments in IT are much higher, and with lower risks. It will take some time before this equation changes – we have a mountain of IT opportunities to work through and it will take decades before science once again becomes a primary focus of tech investment.
The comparative problem with a science outcome as a focus of technology investment is the long time to market and the corresponding heavy capital investment required in the development phase. Investment in technology is measured by internal rate of return, which is ruined by large investments that have long periods before profits are returned. And this problem is even further exacerbated by the fact that IT solutions are returning higher ‘multiples’ – the perceived value of a working IT solution usually has a much higher relative value compared to a working solution based on a science outcome.
Australia’s well-publicised poor performance in innovation has very little do with science and everything to do with our corporate sector being users of IT technologies, and not vendors and exporters of IT technologies. They can afford to be so because of the implicit oligarchical environment in which they operate (e.g. four large banks, two large supermarket chains, etc) which to a large degree protects them from foreign competitors. Essentially they have no strong driving force to become global technology vendors because there are easier profits to made serving their protected Australian markets with off-the-shelf technology solutions.
If history is a measure, any solution to an innovation ‘problem’ that has an Australian government at its core is almost certainly going to fail. We have had program after program over the last three decades focused on innovation, knowledge nation, and various other catch-cries. And yet our high tech exports continue to fall as a percentage of our GDP. The reason is that government expenditure, focused on technology innovation usually starts with a misdiagnosis of the ‘problem’ followed by what could only be called a perversion of the process of remedy, i.e. it gets muddied by pork-barrelling and self-serving parties looking for government funding.
Contrary to oft-repeated pronouncements, Australia is not a risk-adverse nation. Indeed in mining exploration and other areas we are more than happy to invest in risky venture because we have been doing so for a century and a half and there is an investor class that fully understands the risks.
What we don’t have is large investment in tech-sector innovation because the return on investment into the tech sector in Australia, which has historically eked out a small existence usually with government support, has traditionally been very negative. This will not change unless our large corporations start becoming global vendors of technology solutions; without this driving force to create a local market for innovation assets, most of our high-value technology ideas (and their progenitors) will continue to disappear overseas and we will be left with the rump that ensures a negative return on investment. In this scenario our investors are not ‘risk adverse’ but ‘loss adverse’, i.e. very sensible indeed.
So do we actually have a problem? The only one that I perceive is that less than 1.5% of our exports can be considered as high tech, and this number is shrinking. We rely heavily on exports of resources and agricultural products, as well as imports of students and tourists. All of these revenue sources are susceptible to profitability and revenue cycles and if they all trend down at the same time we may be in a little strife.
Is there a role for government to fix the ‘problem’? Maybe, but only if the issue is handed over to a modern day Senator John Button; these political characters that can cut through the self-serving noise seem to be few and far between these days. The primary focus of any government-sponsored solution should be incentives, tax and otherwise, that act to get our large corporations into the business of exporting technology solutions to global markets. Short of this focus I can’t see the opportunity for meaningful change.
In terms of other actions, this country badly needs a Chief Technologist. We have a Chief Scientist but this role, absent a large corporate R&D sector, pretty much serves the needs of research institutes and universities. The widely publicised focus on STEM needs to be broken up into IT and SEM; STEM is an unholy grouping that does not recognise that a large fraction of IT innovation occurs in start-ups, SMEs and the corporate sector, and has very little to do with universities (other than training of the graduates that go into this sector). And finally, ‘Innovation and Science Australia’ needs to be supplemented with a body called something like ‘Innovation, Companies and Exports, Australia’.
Finally I would suggest that the success of any investment of public funds into the innovation ‘problem’ needs to measured in the context of high-tech exports. Without a quantitative metric of success it is all too easy for governments to invest in one failed program after another, with no carried-over learning.