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Panel of experts discuss the Innovation Statement

MONICA ATTARD: Well, the whole point of today's exercise is to make RD more attractive and feasible for business, but does it? Well, to discuss the question we've been joined in Canberra by Dr Mike Hershorn, one of the founders of the hugely successful cochlear ear implant technology. In Sydney, we have Bruce Cooper, the General Manager of Corporate Marketing for AWA; and policy analyst, Derek Sicklin. They're also speaking with Jim Gale.

JIM GALE: Derek Sicklin, lots and lots of, as I said to Senator Cook, lots and lots of bits and pieces - what do you think is the strategy here? Do you identify a real strategy?

DEREK SICKLIN: I think the first point here, Jim, is that the Government needs to be congratulated on addressing the issue of innovation of itself. I think it's the first innovation statement Australia has ever had, and I think of the 50 initiatives or so that Senator Cook referred to, many of these are excellent points in their own right.

The question that you asked, though, goes to a broader point and that is: where's the strategy? Senator Cook, I think, refers to the need for brain-based jobs. You mentioned in your introduction that, in fact, the trend in Australia over the last 10 years has in fact been that we have tended to lose brain-based jobs. We have lost high-wage jobs, high-skill jobs, and the fastest growing sectors of the work force have been in industries like accommodations, cafes and restaurants, which are typically low-paid jobs and typically part-time.

So, essentially what we need this statement to do, or this statement in tandem with other statements, is to effect a 180 degree U-turn in the direction of Australia's industry and job market. I think that's a big ask and I don't see that there's an overarching philosophy in this statement that addresses those broader industry structure issues that are going to give us that U-turn which is taking us closer and closer towards competing with the low-wage countries of Asia and South America and towards the brain-based jobs that Senator Cook is referring to.

JIM GALE: Is that because this policy doesn't really identify that problem? It's too hard? Or is fair to say it's just a first tentative step down that road? Which of those?

DEREK SICKLIN: I think it's a combination of some of those factors, Jim. I think that certainly a lot of the components of the statement itself are admirable. They do address in some ways successfully, in some ways I think unsuccessfully, some of the problems that innovative firms have encountered in Australia over the last couple of decades. However, I don't think it addresses the broader issues as to the overall structure of the economy.

We are still too dependent upon, particularly on exports, on low value added exports. We are too dependent upon the growth of tourism, on low value added manufacturing, and those trends are not addressed by this statement. And if we are going to go towards those brain-based jobs, if we are going to produce the industry sectors that take us up towards where the OECD is, then we're simply not going to do it by essentially marginal tasks or marginal projects such as these. These are good in their own right. Most of these proposals I would endorse. Some of them need a little, I think, definition, but most of them I would endorse; but I just don't think the statement goes far enough.

JIM GALE: Well, Mike Hershorn, I mean the make or break of this statement will be whether it actually does take small companies and get them able to take ideas, develop ideas, and then go out and market them. You've been involved in that process. You're very much involved in advising companies now doing that sort of thing. Does this make it easier for small companies to get ideas and then get money?

MIKE HERSHORN: I think that overall it's a complicated statement to read, and the most important part of it, I think, is that it recognises the value of the existing schemes and strengthens them, particularly the 150 per cent RD tax incentive, which I think is the most important incentive we have in Australia for RD. The main focus to me of the statement really is on the applications of the public sector to innovation rather than the private sector. So in that way....

JIM GALE: What, it really doesn't deal with the private sector enough?

MIKE HERSHORN: No, I think it actually offers very little for the private sector other than giving a nudge and a push to the public sector. I have left Cochlear now. I'm no longer with cochlear, but just to give you an idea of the dimensions, it took cochlear $9 million of negative cash flow before it turned positive to create what it is today. And in the Innovation Statement, they're emphasising that they're going to renew the $40 million competitive grants scheme. Well, $40 million isn't very much in that context and I think there's very, very little new resource going out to industry.

I think the good points are I think that the technology access centres, although small, are a good thing and will help some industries and companies interested in commercialising technology. The banks getting a prompt to provide equity can only be good and the idea of a mini stock market is also good.

But I think the strength of the statement really is on what they're not taking away, rather than the new things that are coming out.

JIM GALE: Well, Bruce Cooper, I mean AWA is obviously a much larger company than a lot of the small companies that Senator Cook and Paul Keating were talking about today, but I mean for a high-tech company like AWA, has there been much in this statement for you?

BRUCE COOPER: Thanks, Jim. I've been looking mainly at the information and communication services aspect of the statement. The primary focus of this statement is to look at the uptake and dissemination of technologies. Now this is a valuable initiative -clearly the dissemination of information technology across a broad range of Australian industries keeps those industries at a global leading edge.

But from the particular perspective of the IT and the communications industry, there's probably not enough in this section to generate new innovative behaviour, put down new RD programs.

JIM GALE: Why not? What's missing?

BRUCE COOPER: Probably the main missing link here is a powerful linkage to the government leading-edge users of information technology. That's what government can really do - the big users like Defence and Telstra, we really need to see a lot of their purchasing power harnessing to develop local intellectual property that can be used for export [..] products.

JIM GALE: So what - the Government using its contracts to stimulate local companies developing more?

BRUCE COOPER: Pretty well correct, yes. Trying to get those relationships in very positive, long-term, powerful, stable relationships. This is particularly important to some of the smaller firms that find difficulty in accessing big public departments.

JIM GALE: That seems easy enough. Why isn't it in this statement, do you think?

BRUCE COOPER: Well, it is to a minor extent and we have to applaud the Government for including in this statement a leading-edge customers program. This is clearly here. And they talk about government customers. But I think the funding and the weight of a program in the broader context of the statement is just really too light. We've seen a number of initiatives, probably over the last three or four years, where the Government's attempted to harness the purchasing power of its departments, and most of those initiatives have fallen on pretty barren ground, and I don't see any fundamental reason why this should be any different.

JIM GALE: Okay. Well, look, just finally, Derek Sicklin, we've got a pretty lousy record in RD of late in this country. Do you see this as starting to turn it around .. enough to turn that around?

DEREK STRICKLIN: Probably not, Jim. I'd follow on a point from Bruce and also raise the issue of small and medium size enterprises. I think we have to appreciate that Australia is a country dominated by large firms. In number, the small firms and medium size firms predominate, but in terms of value, value added, in work force, in turnover - for example in manufacture, the 20 largest firms account for something like 20 per cent of the total manufacturing work force and over a quarter of the wages and salaries. Of our exports, the top 50 companies in Australia account for more than two-thirds of merchandise exports. So, yes, it's important to encourage the SME sector, but the major drivers through leading-edge customers and through sustained long-term demand are going to be large hubs around which SMEs orbit. That's why networks are so important.

So, it's important here that we just don't go speeding down the SME highway and ignore the need to harness government purchasing, which is the country's largest purchasing organisation, the largest purchasing group, with a $30 billion a year budget. And as well as that, harnessing transnational corporations and large domestic firms to ensure that their purchasing dollar is maximised within Australia and is maximised as the provider of long-term, leading-edge, high-tech contracts.

It's no good simply giving RD incentives to companies and hoping that they'll therefore provide the goods; that's a very supply side - supply creates its own demand phenomenon. What we need also is the demand side where we have the nuclei around which these SMEs can orbit and apply those RD incentives to generate the sort of products that we need. It's only if we have that mixture of small, medium and particularly centrally large organisations in government purchasing that we can then send out the market signals to those SMEs and to other companies in the economy, which will generate those jobs of the future, those high-tech, high-wage, high-skilled jobs. So by focusing purely on SMEs we're going to miss the picture.

JIM GALE: Okay. Derek Sicklin, Bruce Cooper, and Mike Hershorn, thanks very much.