National innovation agenda essential for manufacturing

For the first time since the Industrial Revolution, increases in technological capacity are leading to increases in productivity but not necessarily in employment and average income.

The development of robotics and of 3-D printing is changing the nature of manufacturing and cannot be ignored. The challenge is to harness these advances so that they generate, rather than shrink, jobs and wealth.

At the same time, as Reserve Bank governor Glenn Stevens has repeatedly warned, Australia needs to accelerate growth in the non-mining sectors.

We've had two reminders of this recently. One is a steep fall in the price of iron ore; the other is the release of the Global Innovation Index, which shows that, despite improvement, Australia lags behind leading OECD countries as an innovative environment.

Both examples are significant pointers to the way forward for Australia's economic framework.

To secure the future of this country, we must find ways of ensuring that other sectors can flourish, especially manufacturing.

Manufacturing employs close to a million people in Australia and accounts for nearly a quarter of all business expenditure on research and development. It is the fourth largest employer in Australia and the fourth largest contributor to our gross domestic product.

Manufacturing industries contribute about three times the industry value added the measure of the contribution by businesses to GDP of agriculture, forestry and fishing combined.

The debate as to whether we need a manufacturing industry ignores Australia's economic circumstances. Without a strong, knowledge-based manufacturing sector, Australia will remain at the mercy of fluctuating commodity prices. 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 Stevens talks about.

An innovation agenda is a vital part of any 21st-century government's economic framework. This requires a full suite of measures, ranging from possibilities such as an entrepreneur's visa and crowdfunding, to sectoral approaches.

This shouldn't threaten adherents of a market economy because innovation 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" or "corporate welfare".

A national innovation agenda isn't about dispensing subsidies to companies regardless of performance. It is about giving companies a strong incentive to innovate, to become more competitive. That gives them a competitive advantage as the world's governments adopt policies to attract new investment, build new capabilities and maintain vital industries.

Similarly, around the world there's a recognition that growth depends on developing capabilities in science, technology, engineering and mathematics.

Yet 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.

We may be ranked 17th in the Global Innovation Index but, of the 143 economies measured, Australia ranks 73rd for the proportion of science and engineering graduates in the total population.

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?

Innovation policy in the context of encouraging and assisting individual firms is where we 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.

In short: an innovation agenda is required and there's no time to lose.

This article was first published in The Australian on Wednesday, 17 September 2014.

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