Where are we headed?
By Roger La Salle
I’ll set the scene by citing the words of two people, words uttered within the past few months. If these are the commonly held views of our economic intellectuals, I really do fear for our future.
1. Chief Economist of one of our very biggest banks. As I understand it, formerly employed as a bureaucrat in the Department of Treasury and Finance in Canberra, so no doubt well versed in economics.
“The notion that we need to make things in the country to prosper is a complete myth.”
When challenged on this point, the answer given by the speaker was to the effect that the service providers simply provide other services to service providers and the money circulates and when they need to they will buy computers and technology products or manufactured goods. No mention was made of just where these technology products come from and that the purchase of a technology product by a service provider means money exiting this Ponzi scheme circular service loop and going off -shore
2 A senior economics writer for one of our bigger newspapers, in conversation.
Words to the effect of:
It’s really very simply. The accountant pays the consultant who pays the internet company who pays the lawyer who pays the school teacher who pays the doctor who pays the cleaner who pays the hairdresser and so on. Money circulates around the loop and everybody gets paid. It’s simply a 30 day cycle.
Ignorant I may be!
With interest rates at an all-time low, unemployment higher than it’s been for many years, exports of minerals tanking, the auto industry in exit mode, manufacturing in most sectors almost obliterated and our education OECD ranking in decline, despite our “Building the Education Revolution” why should we be concerned. The economists (not one of whom I think predicted the GFC even five minutes before it happened) tell us all is OK. Our Debt to GDP ratio is low compared with all the basket case economies, so “don’t worry, be happy”.
What value are services?
Wealth is created when things are created, including physical products, agricultural products, mining, music, dance, literature and the like.
As for services, in essence there are possibly just two services that actually create wealth for Australia, these being the export of education and inbound tourism. The rest simply circulate the wealth of people trading tangibles, which of course would include products of the arts such as music, dance, literature, film and art etc.
Trucking and transport is a service, but it creates no wealth in itself, nor indeed would it even exist if somebody else was not creating something that needed to be transported. Transport is just a service the in essence “clips the ticket” of the creators.
Of course many services are government funded, police, hospitals, education to a large extent, the military and so on. Where does the money come from to fund these?
Further, in the case of many services that are not government funded, such as accounting, book keeping, call centres operated by the banks and Telco’s and even web and industrial design, these too, like our manufacturing are now being exported to low labour cost countries.
Thus, not only is our manufacturing in decline and being exported, so too are many of our services.
A paradigm shift is needed
If Australia does not find a new way of stimulating and encouraging investment in technology and manufacturing, I see no escape from disaster other than a recovery in commodity pricing, increased agricultural exports, more inbound tourism or educational exports.
Failing the above, all of which as a technologist I find unpalatable, we need to find a way to rekindle our technology and manufacturing sectors. But then again, even if we do develop some great new ideas, why make anything in Australia when if you choose a low cost labour market such as China, your profits will be far greater.
There can be little doubt that, like Japan, as China and India move up the Quality Curve more and more of our manufacturing will relocate.
What now?
A paradigm shift in thinking is needed, no longer can we tinker at the edges, and as one of our past politicians once said of Government razor gangs, “at the end of the day, all we really do is simply tinker with the tea lady.”
In the technology sector, no longer is this acceptable.
There is sincere endeavour!
Nobody would doubt that governments of all persuasions in any developed country make serious attempts to assist researchers, inventors, innovators, technologists and entrepreneurs. There is a myriad of assistance programs, too many to mention, and always new ones being rolled out seeking yet new ways to assist. But alas, if you look at most indexes of Australia’s innovation ranking you will find us near the top OF THE BOTTOM.
The intentions are good. Unfortunately the outcomes seem none too impressive, especially considering the sums of money used to subsidise industry, research and innovation.
Innovation
Innovation, the act of changing something to add value, is what it’s all about and there is no end to the ways one can innovate. Having said that, if one retains a fixed mindset when attempting innovation, the constraints imposed serve to limit the ability to really think “outside the box”.
The overriding mind-set within government seems to be about subsidies. Provide grants and tax incentives for people to spend more on innovation in the hope, and it is little more than hope or blind faith, that this will inspire successful outcomes. Maybe it will, but at what cost? What is the return on this investment and does it really inspire innovation or simply fund a vast number of consultants all taking a good sniff of any funds doled out?
Grants for research and innovation are provided to selected applicants, often those that have the right idea at the right time and better still, the right story or perhaps “pitch”.
Despite the experts that governments employ to assist in selecting grant funding recipients, this really is hit and miss. It’s trying to pick winners from a vast field of triers all heralding their innovation or research as that most worthy of funding.
How often do they get it right, or perhaps a better question may be, what is the return on this funding investment? I am not privy to such a figure and wonder if any reader may know?
However, I would venture to say, the ROI would be vastly in the negative, despite the sincere endeavours of our bureaucrats.
Invert the model
Inversion, or thinking of things the other way round, is one way of looking to inspire new paradigm thinking.
Think for a moment what would happen if, instead of the vast subsidy spending that Governments provide (many billions of dollars per year to be sure), we removed all such funding (or significantly curtailed it as total removal may destroy pure research) and instead rewarded successful innovation endeavours.
Imagine the inflow of entrepreneurial funds from both local and overseas investors if we were to provide a tax holiday of perhaps five years on income earned from newly commercialised innovations. Imagine too the income for government from people employed in these new industries paying tax on their wages.
I suggest such a sea change in innovation strategy would have a vastly positive and lasting effect and largely remove wasted government investment in innovation.
Of course the naysayers may say this is too hard to audit, but let me suggest counting revenue on widgets sold would be a lot less prone to error, or even exploitation than the present system. A system where non expert public servants are expected to conduct reviews of complex projects in short order so as to fulfil audit requirements. This is an almost impossible task, even for an expert in the field.
Do the Sums?
Unfortunately, I simply do not have the time nor resources to do the sums, but if ever there may be a body of research worth doing it may be in looking at the impact of such a policy. A policy that I believe would save the government vast amounts of money and at the same time stimulate investment and create industries and new employment.
Is this a silly or entirely unreasonable proposal?
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Roger La Salle, is the creator of the “Matrix Thinking”™ technique and is widely sought after as an international speaker on Innovation, Opportunity and business development. He is the author of four books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC) as well as a number of companies both in Australian and overseas. He has been responsible for a number of successful technology start-ups and in 2004 was a regular panelist on the ABC New Inventors TV program. In 2005 he was appointed to the “Chair of Innovation” at “The Queens University” in Belfast. Matrix Thinking is now used in more than 28 countries and licensed to Deloitte for their Innovation Academy. www.matrixthinking.com
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