From the days of the gold rushes, to the banking and mining booms of the last 15 years, Australians have long worried that most of the world's innovation was happening somewhere else. Did our good fortune deter Australians from innovating? As one journalist posed the dilemma: "Do we want to be digging dirt or digging ideas?"
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We don't have to choose. Australia will long remain both a resource exporter and an innovator. In the resource sector itself, miners now oversee their Pilbara iron ore mines, in real time, from remote operating centres in downtown Perth. They are doing much more than just digging holes in the ground.
Firms in every sector are doing old things in radically new ways. They mix and match from a suite of technologies, including mobile devices, cloud computing, crowdsourcing, digital fabrication, remote monitoring, distributed sensing, and big data. These new mixes yield new processes, tools, products, services and jobs.
Old boundaries are blurring. What counts as knowledge is changing: the basics are accessible to all online, but the depth needed of a true expert has never been deeper. What counts as talent is changing: some skills that once were prized are becoming automated, while others are coming into their own. What counts as a firm is changing: you can now build and run an online store from your mobile phone. And what counts as a market is changing: even small firms can now sell to the world, while niche interests can be found and served.
Much innovation is led by entrepreneurs scattered across the economy. What, if anything, can policymakers do to tip the balance towards success?
First: plug the leaky innovation pipeline
Some innovations travel down a pipeline. A light bulb goes on in a professor's mind. A lab proves it can work. A venture capitalist funds a startup to take it to market. The startup sells to an established firm. The established firm scales up to mass production.
For each stage in that pipeline, government provides support or sets legal frameworks. For the light bulb moments, the Australian Research Council and other grants support peer reviewed science. For more light bulb moments in applied labs, research and development is undertaken by CSIRO and others. Venture capitalists and startups are supported by grant schemes, Commercialisation Australia, the Innovation Investment Fund and employee share option schemes. Many established firms are entitled to R&D tax concessions. And all organisations are subject to intellectual property policy.
But there are leaks in the pipeline. Much research is never cited and much cited research is never applied. Some intellectual property doesn't seem worth protecting. Many innovation grants are made yet little is known about their value. Employee share taxation is failing startups, which rarely use a tool that should be a great fit for them. Some R&D tax concessions seem to reward investment that is not really R&D.
More than this, we don't even know where many of the leaks are. Research might be leading to commercial breakthroughs, but we don't track it. Policy makers need to figure out where the big leaks are in the standard innovation pipeline. And then they need to fix some of the leaks if they can.
Second: think in networks
Most innovations do not go down a pipeline. Instead, they form in a network. Musical innovator Brian Eno coined the term "scenius" to describe the genius of a creative scene.
The innovation scene is partly global — you can source ideas, tools and collaborators from anywhere. And you can sell to anywhere. But the scene is also local: networks form in cities. The growth of startup accelerators, incubators, and co-working spaces shows the value of proximity to peers, role models and mentors.
To host "innovation scenes" in our cities we need to mix local and global ingredients. We need local talent and global networks; local startups and global firms. So we need openness — to uncomfortable disruption by foreign firms and foreign talent. And we need liveability, so mobile talent will want to stay.
Critically, we need the right infrastructure (transport, communication) to bring the local ingredients close together, and link the local to the global.
Third: shape talent down to a T
Third, we need old fashioned individual genius, too. We need to train people who can tell machines what to do: scientific, technical, engineering, and math (STEM) talent. Our schools do not rate well on mathematics and science. In some cases, our universities have produced quantity STEM, but nobody wanted to buy. We need higher quality STEM, as well as higher quantity.
STEM skills by themselves won't be enough. We also need to train people who can do what machines can't do: people who can coordinate, coach, care, and create.
And we need "T" shaped talent: all-rounders who are also technically deep in at least one area. For those whose depth is STEM, the breadth will be "softer" human skills or business skills; leadership, creativity, finance, entrepreneurship. For some, the human or business skills will be the deep part of the "T", with technical breadth rather than depth.
To get there, we need to fix remaining quality gaps in STEM education, then build out the all-rounder skills. We need to put the all-rounder classes close to the STEM core curricula — "entrepreneurship for coders", "coding for entrepreneurs".
Fourth: rethink government levers
We need to take a broad view on how government can support innovation. Government has a huge influence on how things are done. A third of GDP (including transfer payments) goes through its coffers. Its services are among the largest employers. It is the largest buyer of information technology. Its systems touch everyone. It sets the rules of the game in health, education, finance and beyond.
Government can foster innovation by opening up where the costs of failure are low. Government remains risk averse, but blanket caution is the wrong rule. Government can do far more to offer data for the community to re-use, for example by choosing open data protocols as standard, and to open government processes to input from innovators, for example where new health recording devices could send data to managing GPs.
Government can also foster innovation by getting out of the way in many areas. Where the regulatory burden is high, government can reduce barriers and compliance costs. Regulatory changes that permit small firms with new ideas to access capital, manage cash flows, and share risk will be key. The regulations that limit the use of crowdfunding for equity should be removed, and tax treatment of employee share options needs to be more flexible. Those reforms could help to unleash a new set of startups.
It's time for the lucky country to make its own luck.
Jim Minifie is the Productivity Growth Program Director at Grattan Institute. This is an edited version of a chapter contained within "Australia's Innovation Generation: Start with Code", published by Google Australia. This work is part of Grattan Institute's Spreading Smart Ideas series to identify policy reform opportunities to accelerate the spread of innovation. The series is made possible with the support of Google.