Is Australia an innovation nation or beneficiary of dumb luck? – ABC News (Australian Broadcasting Corporation)
Updated
“People wasting away in paradise” — that’s how Peter Garrett described Australia in a Midnight Oil song back in 1982.
He was lamenting Australia’s complacency and willingness to rely on foreign powers for our economic fortune.
But a recent Harvard University study shows those lyrics are even more apt now.
The latest Harvard Growth Lab Atlas of Economic Complexity ranks Australia 93rd, lagging Kazakhstan, Uganda and Senegal, and only just ahead of Pakistan and Mali.
That’s despite Australia being the eighth richest country in the world according to the study, with a national per capita income of $US54,093 in 2017.
Indeed, while Australia has almost trebled its national income from Harvard’s earliest data back to 1995, our complexity ranking has dropped from 57th, with 22 of those places lost just over the decade to 2017.
So why do we rank so poorly?
It’s because Harvard’s index measures the complexity of the goods and services we export, and three of Australia’s top exports are natural resources.
In fact, according to the Department of Foreign Affairs and Trade, in 2018 Australia’s three biggest exports were coal, iron ore and liquified natural gas (LNG), with education and tourism coming in fourth and fifth, before the top 10 was rounded out by gold, aluminium ores, beef, crude oil and copper.
Even tourism ranks low down on Harvard’s index of complexity, although it doesn’t appear to distinguish between holiday travel and international students — perhaps indicating some lack of complexity in its index.
Economist and UTS industry professor Warren Hogan says it’s somewhat inevitable that Australia will rank poorly.
“One of our great strengths in this country is our significant natural resource endowment — partly a result of our size and also our geology,” he explains.
“So our lack of complexity in our exports is largely a function of that resource endowment.”
Largely, but not completely.
Canada, Brazil and Russia are also well endowed with natural resources but are inside Harvard’s top 50.
All three countries have much larger advanced manufacturing sectors than Australia, including aerospace and automotive.
Professor Hogan says the persistently high level of the Australian dollar during the mining boom has been a problem.
“The flexible Australian dollar has been very useful cyclically to help take some of the heat out of the economy and to help it when it’s soft, but that high level of it, because of the resource exports, has probably hurt some industries.”
Build on what you ‘re good at
But while industries like car manufacturing are largely dead and buried in Australia, there are positive signs that the nation can reverse its slide down the complexity ranking, before we fall behind the likes of Liberia, Zimbabwe and Mongolia.
Harvard’s Growth Lab recommends that countries look at expanding into more complex exports based on the less complex industries where they are already strong.
Australia is already doing this in resources, with the nation’s industry running some of the most sophisticated mining operations in the world, with a strong focus on automation.
Moreover, the expertise that has developed in the mining sector is expanding into new markets.
A case in point is Hunter Valley-based electrical engineering firm Ampcontrol.
It employs around a thousand people globally, with 850 in Australia, mainly near Newcastle in New South Wales.
The company began by supplying electrical fit-outs for the region’s underground coal mines, but chief executive Rod Henderson says it has recently diversified into other types of mining, road and rail tunnels and electronics for renewable energy systems.
“We recognised, about five years ago when we started to make a real play into the energy and infrastructure markets, that we have to have a well-balanced company that not only operates in the mining sector,” he tells The Money.
“With the fact that we’re not going to put any large [coal] base generation back into Australia, it was obvious to us that it was going to go to a more decentralised generation market and we’ve positioned ourselves quite well to take advantage of that.”
While it is expanding into new areas, Mr Henderson says Ampcontrol couldn’t have done so without the skills and industrial base generated through its mining-related operations.
“We can take a lot of the technology that Ampcontrol has developed over the last 30 or so years and transition that very nicely into the [road or rail] tunnelling environment.”
Emerging biotech powerhouse
There are some complex industries where Australia is already a global leader.
Blood products and vaccine giant CSL is now the fourth biggest company on the ASX by market value, worth a staggering $117 billion, and rapidly catching up with Rio Tinto’s $128 billion valuation.
Other major international success stories include hearing implant maker Cochlear and Resmed, which makes equipment to treat sleep apnoea.
But there are hundreds of up-and-coming Australian biotech firms vying to make it big on the global stage.
The industry’s peak body AusBiotech held its annual conference in Melbourne this week and released its latest snapshot of the sector.
The number of Australian life sciences organisations increased 12 per cent over the past two years, resulting in a 5 per cent increase in sector employment to more than 243,000 people.
Moreover, the companies are also getting bigger and accessing the share market to raise funds, with a 15 per cent increase in ASX-listed life sciences firms since 2017 to 161, worth a total market value of around $170 billion.
Leading the sector are medical technology and digital health firms, followed by pharmaceuticals and food and agriculture technology.
One of the up-and-coming biotech firms is PolyNovo, which makes a biodegradable, body-safe plastic for regenerative medicine.
It’s first product, NovoSorb BTM, is already in use in Australia, the United States and other countries.
It is an artificial dermis, the main layer of skin below the surface layer, or epidermis.
NovoSorb is being used to treat large, deep wounds and burns that have damaged or destroyed the dermis, and has already saved the life of at least one patient with burns to 95 per cent of his body, who would have died without access to the new treatment.
Its chief executive Paul Brennan expects sales to double every year for at least the next five years.
“Five years ago, I was the sixth employee, now we have 60,” he says.
“Out of those, we do have 20 in the US. We will be expanding further both in Australia, the US and the UK in the next six months, so there’ll be further staff added in all of those places.”
While PolyNovo operates internationally, NovoSorb is entirely manufactured in the company’s Port Melbourne facility before being flown to markets around the world, and Paul Brennan wants to keep it that way.
“When you talk to investors, one of the first questions they say is, ‘when are you moving the manufacturing offshore?'” he says.
“I think it’s become a cultural norm for Australians to think that way.
“Where I challenge that is, we have a lot of smart people in Australia, this is a product that’s relatively straightforward for us to make once you understand the processes and the details of it.
“Australia has the skills, the capacity and the ability to do this, so I think if there’s more belief within our own culture that Australia can go back to a ‘can do’ mentality a lot more can be done.”
Government support ‘essential’ for future success
But the success of NovoSorb is not just down to PolyNovo. The substance was originally developed at the CSIRO, the Commonwealth Scientific and Industrial Research Organisation.
Paul Brennan says the future health of the CSIRO is vital to the biotech sector, and innovative Australian industry more broadly.
“If we want to be smart, then having institutions like the CSIRO as robust institutions I think is essential for our long-term ability to be that smart economy,” he argues.
Indeed, the Australian biotech sector is roughly split down the middle between publicly funded organisations and private companies.
However, while publicly funded research generates many of the scientific advances needed for new products, it is generally the private sector that commercialises them and brings the wider economic benefits back to Australia.
The chair of the sector’s peak lobby group, AusBiotech, Julie Phillips says research and development (R&D) tax incentives are essential to convert pure science into marketable products.
“That has been absolutely critical for small life sciences companies,” she observes.
“Keep in mind these small companies may take many years before they actually get revenue from their product development — cash is critical to these companies.
“So the R&D tax incentive for pre-revenue companies actually gives a cash rebate annually on their eligible R&D spend.
“We need to be internationally competitive. The R&D tax incentive is viewed as absolutely essential.”
But not every industry is happy with the government support it receives.
“We have quite a sizeable operation these days in Scotland and the support that our local business gets up there from the Scottish Government is far, far superior to what we’re getting down here,” Ampcontrol’s Rod Henderson says.
“Manufacturers need to stand on their own two feet and be viable in their own right to survive, but governments should be backing and supporting that a lot more than they currently are.”
Economist Warren Hogan agrees that there is an important role for government industry support, given the current global trends.
“We’re in a world where industry policy is quite widespread, to the point where our biggest trading partner, China, is one big industry policy, you could argue,” he observes.
“If you can identify market failure — that is, some problem in your domestic economy, either elevated energy costs, or an underskilled workforce, or the fact that your international competition is getting support from their governments — you can make the case for sensible government interventions.
“Strategic industry policy.”