DOLTONE HOUSE, SYDNEY
11 SEPTEMBER 2014
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Sometimes the news of the day carries warnings about the future that are too quickly drowned out by the pressing issues of the moment.
Recently there have been two such warnings.
One has been a sharp fall in the price of iron ore. Iron ore exports have driven Australia’s growth for most of the past decade and helped us forge a closer relationship with China.
The other warning was the release of an international report card, the Global Innovation Index, which showed that, despite improvement, Australia still lags behind leading OECD countries as an innovative environment.
These two things are connected in what they signify about Australia’s economic framework.
It is a connection that matters to everyone in this room, and ultimately to every Australian.
You will remember the glib predictions in so much media commentary at the height of the commodities boom.
We were told that China’s massive and rapid modernisation would drive growing demand for Australian iron and coal for many years to come.
That facile optimism has been exposed.
In the past year the price of iron ore has fallen by almost 40 per cent, from $US136 a tonne to $US83.60 yesterday – its lowest point in five years.
Many analysts expect the price to fall as low as $US75 a tonne by the end of the year.
This will have consequences for the Abbott Government’s much-contested budget: the Treasurer has conceded that revenue projections will be revised down for MYEFO.
If Australia’s economy is over-reliant on commodity exports, such fluctuations will continue to throw the calculations of Treasurers and CFOs awry.
I don’t say this to make a partisan point. My concern is actually about the broader economy and its future.
The Governor of the Reserve Bank, Glenn Stevens, has repeatedly warned of the need to accelerate growth in the non-mining sectors.
To secure the future of this country, we must find ways of ensuring that other sectors can flourish, especially manufacturing.
If we don’t have a strong, knowledge-based, advanced manufacturing sector, Australia will remain at the mercy of fluctuating commodity prices.
And without a strong manufacturing sector, we will have fewer of the high-skilled, high-waged jobs that help sustain a good life.
That is one reason why the closure of Australia’s car-makers will have grave consequences.
Because car-making, like shipbuilding, is a foundation industry for advanced manufacturing.
Those who scoff at that obviously haven’t noticed how much software is required by the car they drive – there are 250 microprocessors in the modern car.
To escape dependence on commodity exports we must build as diverse an economic base as possible – and to do that we must innovate.
The role of government is essential in that process, because the market, left to its own devices, will not bring about the growth that the RBA Governor is talking about.
Economic theory suggests the huge fall in iron ore prices should have driven the dollar down, making our exports more competitive and thereby boosting manufacturing.
But it hasn’t been happening. The dollar remains stubbornly overvalued.
The real world does not always run as the textbook prescribes. So we must innovate.
Innovation: it’s a simple word that that means to change, to do things differently.
That shouldn’t threaten adherents of a market economy, because embracing change – striving to do better – is at the core of entrepreneurship.
But talk of government innovation policy seems to upset those who disparage all forms of industry assistance as “picking winners”.
The Abbott Government won’t even use the word.
They don’t like the fact that innovation policy demolishes their preconceived idea of industry policy.
A national innovation agenda isn’t about dispensing subsidies to companies regardless of their performance.
It is about giving companies a strong incentive to innovate, to become more competitive.
And that does not only mean more competitive in their immediate business environment.
Good co-investment policies also give companies an incentive to make their environmental footprint more sustainable.
That gives them a competitive advantage as the world’s governments adopt policies responding to environmental problems such as climate change.
The Industry Department’s 2013 Report on the Australian Innovation System sets out why firms should innovate:
- Innovation almost doubles the productivity growth of Australian businesses.
- Firms that collaborate with research organisations and universities are almost two-and-a-half times more likely to report increases in productivity.
Previous Coalition governments have eventually come to this understanding.
In its later years, the Howard Government’s Backing Australia’s Ability packages put in place programs that Labor expanded when we took office in 2007.
The Abbott Government, however, is trashing that agenda.
Rather than backing Australia’s ability, it is talking down Australian industry.
And the tragedy is that this is happening just as Australia’s performance as an innovator was beginning to improve.
The Global Innovation Index, which I mentioned earlier, offers an annual snapshot of that performance.
In the 2014 index, published two months, ago, Australia ranked 17th out of 143 countries, up from 19th last year and 23rd in 2012.
That’s a steady, incremental improvement: 47 per cent of Australian firms invest in innovation, up from 40 per cent when Labor was elected to office in 2007.
But Australia is still well behind the countries ranked highest in the index – Switzerland, the UK, Sweden, Finland, the Netherlands, the US, Singapore and Denmark.
Similarly, you have to agree with Catherine Livingstone’s comment that it is pretty appalling that the World Economic Forum collaborative index places us at 15th.
If Australia is to reach that top league, it will be necessary to accelerate our performance.
When Labor was in office, we put in place a 10-year innovation agenda to do just that.
On our watch, we:
- Made a record investment of $9.6 billion in science, research and innovation in the last financial year.
- Budgeted for an almost 100 per cent increase in university funding from 2007-2017.
- Introduced Future Fellowships and Researchers in Business, supporting early and mid-career researchers and connecting them with industry.
- Created Enterprise Connect, helping more than 21,000 SMEs get access to technology and expertise to improve their productivity.
- Launched Commercialisation Australia, which provided more than $200 million in grants to more than 500 firms. On average, the program raised two dollars of private capital for every government dollar invested.
- We replaced the former R&D Tax Concession with a better-targeted R&D Tax Incentive – and in the first year alone we saw a 49 per cent increase in the number of new firms undertaking R&D.
- We committed to introducing quarterly credits to the R&D Tax Incentive, because we understand the needs of business, particularly biotech firms.
- And we set aside $500 million in funding to establish 12 Innovation Precincts, to support greater collaboration between industry, universities and research.
All these things took a hit in the Abbott Government’s budget, which ripped $2.5 billion out of Department of Industry programs.
Together with the $5.8 billion cut from universities and $2 billion stripped from the Skills portfolio, there has been a massive degradation of Australia’s innovation capacity.
The budget announced that Enterprise Connect, Commercialisation Australia, Innovation Precincts, the Innovation Investment Fund and other measures would shut down from the end of December.
These measures together distributed more than $1 billion to innovative firms.
They are being replaced by a single program, the Entrepreneurs Infrastructure Program, with three streams – supposedly supporting business management, research and commercialisation.
Yet these streams have to share less than half the funding available to the successful measures they are replacing.
The Government has created a one-stop shop, lamely touting “innovation-lite” as it spends a quarter of this funding on a new administrative structure and website.
There is no longer a comprehensive innovation strategy.
And the wares of this one-stop shop are available only to SMEs.
That excludes many of the firms that participated in our Innovation Precincts program.
The Government’s spin on this is that it makes industry assistance more focused.
But they are really just scrounging savings to comply with their fiscal agenda, as they did with the $620 million cut from the R&D Tax Incentive in the budget.
They have also introduced legislation to exclude a number of large Australian firms from the Incentive – despite Joe Hockey’s strident promises before the election that they would not do this.
The budget also cut $878 million from science and research agencies.
And the Government is proposing to cut funding for undergraduate university places by up to 37 per cent.
If the legislation that the Education Minister pushed through the House last week is approved by the Senate, the nation’s capacity to engage in research – and especially in productive collaboration between industry and universities – will be degraded.
That kind of research is not going to happen unless we invest in education that produces the graduates we need.
As the Chief Scientist, Ian Chubb, reminded us recently, we are not doing that.
He said that “it is the knowledge that science will offer, and the sensible application of that knowledge to agreed goals that will build a stronger Australia.
“Countries at all levels of development are now focusing on the capabilities required for building new jobs and creating wealth.
“At the core of almost every agenda is science, technology, engineering and mathematics [STEM]. It is the almost universal preoccupation now shaping the world’s plans.”
Yes, it is an almost universal preoccupation, as the Chief Scientist has noted.
And yes, everyone is aware that the so-called STEM subjects are crucial to building research capacity and innovative opportunities.
But we are not doing it well enough.
Australia is under-investing in STEM education. We may be placed 17th overall in the Global Innovation Index, but in this sub-index we are much lower.
Out of the 143 economies measured in the index, Australia ranks 73rd for the proportion of science and engineering graduates in the total population.
While other countries are increasing their public investment in STEM, the Australian Government is proposing to shift the cost of these degrees on to students.
Science and engineering courses are among the hardest hit by Christopher Pyne’s nonsensical cuts.
How is doubling or tripling the cost of a science or engineering degree encouraging young Australians to study these crucial subjects?
How is this helping to build the knowledge base and the skills that characterise an innovative workforce?
How will it ensure that governments and businesses have the informed, professional advice they need to build a future that is environmentally sustainable as well as economically secure?
I spoke earlier about innovation policy in the context of encouraging and assisting individual firms.
That is where it must begin, but more broadly it must also be about a consistent, whole-of-government approach that ensures our goals in education, in science and research, and in industry policy are coherent.
Those goals aren’t just a set of responses to economic data. They reflect a vision of the nation we want to be.
For a social-democratic party like Labor, that means a nation in which opportunities to share in wealth creation are spread as widely as possible.
At the present stage of world history, there are particular challenges to fulfilling such an aspiration.
For the first time since the Industrial Revolution, increases in technological capacity are leading to increases in productivity but not necessarily to increases in employment and average income.
The continued development of robotics and the increasing development of 3D printing … These things are changing the nature of manufacturing.
We are in a new age of automation and digital technologies, and we do not have the option of ignoring it.
That is why we have moved to establish an inquiry into Australia’s innovation system in the Senate.
Some of you will have made submissions to the inquiry, for which I am grateful. And others may be able to offer evidence at hearings. I encourage all of you to contribute to this process.
What we learn from this inquiry will help guide Labor as we prepare for next year’s national conference, and as we develop our platform for the next Federal election.
There will be a sharp difference between the Coalition and Labor at that election.
Because we will not abandon our commitment to an industry policy with an active role for government in fostering innovation.
Nor will we abandon our commitment to a high-quality education system in which only ability and personal choice determine how far someone can go.
The economic vandalism perpetrated by the Government makes reinvestment in these things a necessity.
How the reinvestment is to be made is part of the process of policy development that is now under way.
Labor’s commitment to science and innovation is championed from the very top, by the Leader of the Opposition, Bill Shorten.
And many of you will have heard my colleague Chris Bowen’s recent address to the McKell Institute, where he described Labor’s innovation agenda as a “vital part of our economic framework”.
He also mentioned some of the ideas currently being discussed – like an entrepreneurs visa and crowd funding – but really these are just the start.
Labor is looking at a full suite of measures, including sectoral approaches. We have different types of companies in different stages of development requiring different approaches.
Whatever new ideas we might adopt, the reinvestment in a comprehensive innovation strategy must begin.
Because without that strategy we will be less and less able to expand opportunities, for individuals and the nation.
I am in politics because I want those opportunities to increase, not shrink.
Politics is about ambition, but that includes being ambitious for the nation.
I want an Australia in which there are opportunities for all to create and share in the national wealth.
We have to dream large. That means devising and implementing the policies that will build a richer, fairer, and greener Australia.
I invite you to join in that project with me.