Innovation is not a dirty word

15 November 2019



Innovation is not a dirty word: how government neglect is hampering the jobs of the future, and what we need to do to fix it


I wish to acknowledge the Wurundjeri people - traditional custodians of this ancient land along the Yarra.  I have great respect for their elders both past and today, and acknowledge any Indigenous Australians present with us here.

James Harrisons’ refrigeration, Fiona Wood’s spray-on-skin, Hugh McKay’s combine harvester, Ramsay McGarvie Smith’s anthrax vaccine, preferential voting, cask wine: we invent cool things in this country, always have. 

We are a frontier nation. The question is, what frontiers will we conquer next? 

When the shadow ministry was reshuffled about five months ago, I was lucky enough to score the Innovation portfolio. 

Since then, I’ve met some of the smartest scientists in the world. I’ve spoken with some of the most innovative thinkers in the country, talked with the most brilliant maths and science teachers. 

I’ve seen Australian technologies that are changing how industry works around the world, and visited labs which are solving the biggest challenges we face as a society. 

It’s honestly exhilarating. 

More so because a central question for Labor as we face this next three years in opposition is how we are going to secure a high wage, high skill economy for the next generation of Australians. 

This is what Innovation policy is all about: making sure we have a big pipeline of quality jobs, now and in the future. 

There is a huge opportunity here for the taking. 

The ingredients for Australia to be an innovation nation are all there: world class scientists, frontier spirit, history of innovation and invention, high performing education system. 

There’s just one problem. In the most innovative countries in the world, government is the special sauce. It’s what makes the sum of the parts greater than the whole. Today, on innovation, our government is missing in action. 

For the past 40-years or so, my party has led the debate on economic policy. It’s something I’m very proud of. The problems we grapple with today, of course, differ from those faced by Hawke, Keating, Rudd and Gillard. 

Massive global shifts in technology and globalisation are changing how our economy grows, and how the benefits are shared. 

Fresh thinking is clearly required. But I am not even sure the Morrison Government knows there is a problem.  

Today, growth is the slowest it has been since the Global Financial Crisis, business investment is back where it was in the 1990s, interest rates are at quarter of so-called emergency levels and there are 2 million Australians looking for more work. 

The Morrison Government has no plan to address these challenges, much less for the big structural shifts we face, which are numerous. 

Australia’s productivity growth, the driver of improved living standards, has virtually stalled. 

The recent Harvard Atlas of Economic complexity has us 93rd in the world in economic complexity, behind Senegal and Morocco. Too much of what we export is grown or dug out of the ground. I don’t trivialise agriculture and mining - they are critical to our economy and we are generally world-leading in how we do both. But diversity and a bigger focus on value-add would be a good thing. 

The distribution of growth problem is a doozy. Our economy is growing today (though not as quickly as we would like), while average families are going backwards. 

This may sound a small thing; it’s not. It’s a seismic challenge to our approach to economy and society. 

This new economy is also leading to big inequalities between groups of Australians: those of high and low skill, Australians living in the cities, the regions and the bush, between men and women. 

These are big, daunting problems, and there are others: our education system has not kept pace with changing needs, our engagement with the outside world is subpar, we are continuing to invest far too little in economically crucial countries like China and Indonesia. 

And remember, these problems are emerging as we embark on a massive global transformation which will reshape many of Australia’s industries. 

In the past, Australian firms could be successful if they were the best value on the high street. In the future, many will compete with companies from all over the world.  

Some of our home grown companies are already outsmarting global peers. And we are so proud of the work they are doing. 

But, I’m concerned there are not enough of them. A Treasury Report released earlier this year showed that on the whole, the best performing Australian firms lag global best practice. 

The government may feel that global forces will do what they will. But I think that undercooks the vast implications of the transformation underway. 

The worst case scenario is an Australian economy dominated by big multinationals, scaling technology (ie creating a cost structure no one can compete with) and using assets they monopolise - such as rich and detailed data about the lives of Australians, often accumulated without appropriate consumer understanding or protections.

Firms which might make plenty of money from Australian consumers but employ very few of us, and don’t pay much tax here. 

I’m not generally into Armageddon-thinking on these questions, but I think the burning platform is starting to get a little smoky. It is beyond time for the government to get moving on some of these critical questions. 

That’s particularly the case because while the Morrison Government dozes on the couch, the countries we compete with are being smart and strategic. 

Artificial Intelligence is probably the clearest global example. 

PWC estimates that AI will deliver $22.9 trillion to the global economy by 2030. Naturally, there is fierce competition for countries to get a slice of the pie.

The Chinese government’s latest venture capital fund is expected to invest more than $30 billion in AI and related technologies within state-owned firms. 

One Chinese state will alone devote $5 billion to developing AI technologies and businesses. The city of Beijing has committed $2 billion to developing an AI-focused industrial park. A major port, Tianjin, plans to invest $16 billion in its local AI industry. 

Stanford has recommended the US government invest $120 billion in various AI initiatives over the next decade. France has committed $2.4 billion over five years; the South Korean government has committed to $2.7 billion. 

In Australia, the Morrison Government has committed to $29.9 million over four years. 

That’s million, not billion. 

You can see what’s going to happen if nothing changes. We’re going to get steamrolled. 

Today though, I don’t want to focus on risk. I want to talk about opportunity: how better Innovation Policy might create the conditions for Australians to solve some of the problems I have talked about. 

I know there is a big opportunity here because Innovation is the area of economic policy where I think the gap between what we know we need to do, and what we are actually doing, is the largest. 

Partly, this is because Innovation has become the policy that shall not be named by the Morrison Government. 

Scarred by the failure of the Turnbull approach, the Government has cast this critical lever of economic transformation into the Albanian forest with Voldemort. 

By our research, during the long recent election campaign, Mr Morrison uttered the word “innovation” just four times. 

That’s regrettable because the Ferris Report, initiated by Malcolm Turnbull, was sensible. We have essentially lost three good years of progress. 

Indeed, we have regressed since Malcolm Turnbull was deposed.

Only $5.5 million of the Coalition’s Research Infrastructure Investment Plan was spent in the  last financial year. The current government plans to spend less on innovation over the next four years than they did in the previous four. 

The Government has introduced cuts of $2.2 billion from universities over these coming years; a further $3.9 billion was removed from the sector with the closure of the Education Investment Fund. 

Today, of the 34 advanced nations, Australia ranks 30th for government spending on universities.

That sound you hear is the sound of the ball being dropped. 

It is not just Labor voices highlighting these concerns. 

In February, Ashik Ahmed, chief executive of the workplace software company Deputy told the ABC: "Ever since Turnbull left, I don't think there has been any interest shown at all." 

Labor is not afraid to talk about Innovation Policy. That’s the case because we know this is not about accelerating the pace of people losing their jobs to technology. 

Quite the opposite. 

Good innovation policy is all about jobs. It’s about ensuring our country has plenty of high skill, high wage jobs, and that Australians, and their kids, can get the training they need to work in them. 

Good innovation policy is about making sure that Australia’s 2.2 million small businesses have the tools and infrastructure they are going to need to compete and win against global behemoths. 

It’s about making sure the regions have the chance to grow their local economies, not get left in the dust of Melbourne and Sydney. 

Innovation is not a dirty word to us. 

It will be squarely located within Labor’s economic story, as a critical tool for us to shape the change that’s coming, and make sure more Australians can benefit from it. 

To do that, we are going to need to make an intellectual shift as a country. We need to put to bed the furphy that government doesn’t have any influence over the shape of the economy. 

Government spending in Australia is 36% of our GDP. Of course it shapes our economy, indeed, it cannot avoid doing so. 

Government decides whether we fund students to do biomedical science or business; architecture or aged care. Government determines whether we fund an inland rail route or an international space program; whether we push for a better trade deal for live cattle or lithium. 

All these decisions build the platform on which Australians innovate, invent, start businesses, export, grow, employ, and train up others. If we don’t acknowledge this and seek to take advantage of it, we miss the chance to be thoughtful about how all the choices we make are connected. 

As we used to say at McKinsey, ‘if you don’t have a strategy, you are still making strategic decisions. They are just not likely to be very good ones.’ 

The power of government to shape how the economy grows is acknowledged around the world by politicians of every stripe. Our politics has been slow to adapt, I think in part because the narrative about government’s role in the economy has been so firmly entrenched over such a long period of time. 

Governments - especially Labor governments - went to a great effort to help Australians understand why government needed to get out of the way. That was the right focus for the time, indeed, it has borne fruit for decades. But now, I think we need a more nuanced conversation. 

When I talk to global innovation experts about Australia, this is the centrepiece of the criticism. The pieces of the puzzle are all right there. 

Quality government policy - which can create the right environment for innovation, and makes the sum of the parts bigger than the whole - is what is missing.  

As much as I would like to escape the reality that there is a basic problem in Australia that we cannot avoid: We are not investing enough in R&D.

Australia’s national spending on R&D is about 1.8% of GDP. World leading countries are spending more than 4%, and the OECD average today is well above ours at about 2.4%. In fact, 2016-17 was the first year R&D spending in Australia actually went backwards. 

The picture of government R&D spending is grim. Just between 2015-16 and 2017-18 government R&D expenditure fell 19% in real terms. 

It’s the pointy end of a longer term issue. There are a full 2000 fewer people working in government-funded R&D programs than there were in the mid-1990s. 

The low level of private sector R&D spend is also critical. We are massively behind leading countries and we need to do better. This is not just a failure of the private sector. It is a failure of government.

The Morrison Government is investing $2 billion of taxpayer funds a year on the Research and Development Tax Incentive. The point of this policy is to incentivise private sector R&D spend.

It’s a big swag of money and I think it’s pretty clear that there is a reform opportunity here. What worries me is that the government seems more focused on how it can use these dollars to improve its budget bottom line rather than creating a much-needed incentive to stimulate research. 

The problem of low and declining R&D spend is a problem of deep national concern, especially coming as it does during a historic decline in Australian productivity growth. 

Universities Australia reported in 2019 that government spending on R&D was the lowest it has been in four decades.

R&D is our pipeline for economic growth and a high standard of living for the future. 

We can’t go on like this. 

The amount of spending is an issue, but what government funds is another critical question. If government’s role is to create something bigger than the sum of the parts, spending ought to be strategic.

The RDTI is the centrepiece of our R&D policy. And it’s an indirect tax incentive. As long as a company’s project qualifies, they get government support, no matter the subject of the research. 

The Ferris Review made a pretty simple point: best practice countries are doing much more direct spending on R&D, for example, through grants programs, than we are. That allows those governments to be much more strategic about what they do and don’t fund. Indeed, in Germany and Israel, the entire R&D program is directly funded. 

I’m not advocating a full direct-investment approach, but rather noting that the RDTI is just one of an incredibly diffuse range of investments being made by the government, which spread scarce innovation dollars across a dazzling array of activities. 

There are myriad schemes offered by government. There are many thousands of private sector R&D projects, more than 100 CRCs and CRCPs. Across government, there are roughly 250 state and territory programs and 83 federal government programs designed to support innovation in Australia. 

Australia is a small country. We are somewhere in the order of 2% of global R&D spend. We can’t be the best at everything.  

Instead of letting a thousand (or many thousand) flowers bloom, best practice countries are driving innovation the opposite way - by focusing policy and spending on a handful of national research and innovation priorities in areas of comparative advantage. 

Some are setting priorities through developing national missions, an approach advocated by Mariana Mazucatto, the world’s leading thinker on innovation. Under this approach, countries determines what are their most important challenges to solve, and government programs, universities, CRCs, businesses and other parts of the system work towards that bigger picture.  

There is an opportunity for us to consider whether a more strategic approach may help us get more ridgey-didge innovation out of our investment. 

While I’ve spoken about the need to be strategic, we also need to provide for basic research. 

Basic research is research without a specific commercial goal in mind - it’s pure science, answering difficult questions, even if we don’t know how that information might be useful. 

It can pay big dividends. CSIRO’s breakthrough in WiFi, for example, came out of basic research into radio waves in remote areas. 

Basic research is the critical first part of science’s commercial pipeline, and it is today being massively underfunded. 

In the 1990s, about 40% of R&D spend was invested in basic research. Today, that figure is 23%.  

Largely because the funding amounts are so incredibly limited, the application process for our scientists has become, frankly, insulting. Writing a grant application can take months of each year in the life of a scientist. Remember - when these brilliant Australians are in the lab, they are often creating science that it genuinely new to the world. 

In the last round of NHMRC grants for young, mid-career scientists - the Leadership Level 1 program - just over 7% of projects got funded. Seven percent.

That means that 93% of these young scientists, who poured hours, weeks and months of effort into these applications, failed. In leading countries, the pass rate is in the order of 30%. 

This success rate is beyond demoralising - if a government policy was designed to show our brilliant young scientists that we don’t value their work, this would be it. Because of the lack of funding, we are losing good people to Silicon Valley, Oxford or Cambridge. 

As one responder said in a survey for young scientists, “we are some of the most educated people in the country and we can barely provide for our families and have at most 3-4 year job stability.” 

In a 2016 survey by the Australian Society for Medical Research, 83% of responders had considered leaving a career in research to do something else. 61% had considered leaving Australia. 

At a recent roundtable Brendan O’Connor and I had with leading scientists, we heard of an Australian researcher who trained at one of our major research institutes and at a leading American university. She returned to Australia to build a career in research, but instead faced a life of precariousness and funding uncertainty. She later left science to become a real estate agent.

Commercialisation and collaboration are further areas I’m concerned about after talking with experts over recent months. 

Collaboration between industries and the scientific research sector is far too low—the share of projects being run in partnership is about 43% in Germany, 37% in Japan. 

In Australia, we are running at around four per cent. Lucky last in the OECD.

This is problem that could and should have been addressed many years ago. Yet there is still no plan from government to do anything about it. 

Commercialisation is similarly a problem. We have brilliant, globally-renowned researchers in Australia - I have not spoken to an expert who disagrees with that. 

But when we look at how many start-ups are formed per billion dollars spent on research, in the US or Canada we would expect to find about 15 companies. In Australia, we see just two.  

Again here, we see the same phenomenon. We have the right pieces, usually the right inputs. But on areas which are clearly the outcome of policy - collaboration and commercialisation - we are not just doing pretty ordinary. We are among the worst in developed countries. 

Historically, science, technology, engineering and maths have been crucial for our economic growth and prosperity in Australia, and they are getting more important. 75% of the fastest growing job occupations globally require science skills and knowledge. 

So the issue of skills, and STEM education, is crucial both for national growth, but also how we share that growth through quality jobs that are accessible to many Australians. 

If there is a canary in the coal mine here, it is this: participation in STEM subjects in Australian schools has been declining for decades, with enrolments in these subjects the lowest in 20 years.  

Performance in STEM subjects is also slipping. In 2003, five countries significantly outperformed Australia in maths. By 2012, it was 16. It’s a big slide in 9-years. 

The proportion of Australia’s population aged 20-64 with post-school qualifications in STEM has fallen over the past decade. In fact, in 2002, the number of Australian domestic students completing an IT-related degree was 9,494. Last year, there were 6,302. 

According to Deloitte, over the next six years Australia will need 121,000 workers with undergraduate or postgraduate degrees in IT-related fields. 

But looking at our current trajectory, on 2018 numbers, we’ll produce about 38,000 graduates in that time - a projected shortfall of around 83,000 qualified applicants for high-skill, high-paid jobs. 

The response from government has been virtually non-existent. There is a huge economic opportunity - literally tens of thousands of quality jobs of the future - right there in our line of sight. But the government has no plan to capture them. 

Unfortunately, the approach to STEM exhibits the kind of malaise, inertia and vague disinterest which has characterised the government’s thinking on Innovation since Turnbull left office. 

I say this with zero sense of glee. I am always an Australian first. I want Australia to capture the benefits that are so clearly there for us and our kids. 

But we are not going to do it under the current approach. In the six year life of the Abbot/Turnbull/Morrison government, we have had six different innovation ministers. 

Since 2007, there have been more than 30 reviews into innovation policy. Many of these are very worthwhile. 

But actual reform is what is needed, and that takes commitment, energy and action. The Morrison Governments need to toughen up fast, and get moving on these incredibly crucial national issues. 

If you take anything from the words I’ve spoken here today, take this: for Labor, innovation is not going to be some kind of side project. This is a core, critical part of the approach to helping Australia’s economy and community ready itself for the future. 

Our goal is to improve this policy area to ensure the creation of many more decent jobs for Australians. 

Anthony Albanese and Jim Chalmers have made some shrewd and pointed criticisms in recent weeks about the lack of general activity from the government of critical economic issues. Even when, as Jim pointed out on Monday, the Australian economy is running on fumes. 

There is no doubt the Morrison Government are failing the day-to-day management of the economy. They are also utterly neglecting the longer term drivers of growth I have talked about today. 

We cannot adopt a “she’ll be right mate” approach to Australia’s economic future, and to the creation of good jobs for the next generation of Australians. 

Like house mice, the Liberals briefly appeared in the innovation policy kitchen. But after the scare of the 2016 election, they have not returned. 

We will not get the jobs of the future that Australians deserve without policy change on innovation. And I fear we will not get policy change under this government. 

Let’s finish on the incredible potential there is out there. There are some truly brilliant things happening all around the country. 

And the good news is that Labor embraces these problems with enormous energy. Why wouldn’t we? There is so much value left on the table. 

What’s needed is motivation, energy and activity. 

Labor’s commitment to innovators and researchers has never waned. 

We are the party of science, the part of the future. 

And we are reinvigorated by the desire to tell a story of national and economic growth in which government - in an active and thoughtful way - plays the role it can to knit this system together. 

Helping our brilliant scientists, entrepreneurs, small business leaders and inventors make the bigger contribution to national wealth which is so evidently possible.