No. 218

INNOVATION BY GOVERNMENT – CAN IT WORK?

Stone the crows! Why do we think government can engineer innovation?

NSW Minister for Finance Dominic Perrottet is very keen on the collaboration economy, the idea of short term sharing between peers, demonstrated by service providers like Uber and AirBnB.

The NSW Finance Minister, the way things are going in ICAC, may hold every ministry beginning with a vowel by Friday. He gave a utopian address the other day, in favour of government getting out of the way of entrepreneurs using technology to create peer-to-peer services, suggesting government should encourage this “free market on steroids” in place of “the old world of heavy regulation, union dominance, high fees, high taxes and inflated prices that please no one but those that the top who reap a profit”.[i]

Good luck with that minister. If you wonder why it isn’t going to happen here consider what the Feds are funding.

For a start, there is a $482m Entrepreneurs Infrastructure Program to help all those bold self-starters with “business management, research connections; and commercialising ideas”. Apparently, “the unique challenges associated with building or diversifying a business through commercialising a new product, process or service, are distinct from the challenges that face all businesses”. [ii]

Is it just the Crows or is the idea of the state funding entrepreneurs oxymoronic? Particularly, publicly funded business advice which Tony Peacock from the Cooperative Research Centres Association argues adds to our existing problem:

Australia has a chronic problem of our businesses and researchers working in different circles and we should be working more on the overall culture, in my view. I have real trouble seeing how government funding of business advisers is the answer to that problem.[iii]

But wait, there’s more and it’s even better for bureaucracy. Entrepreneurs need assistance to innovate! The Senate Economics References Committee has just closed submissions in an inquiry on how the government can encourage innovation, “including policy options to create a seamless innovation pipeline, including support for emerging industries, with a view to identifying key areas of future competitive advantage”. [iv] Which sounds to the Crows like the state picking winners.

Most of the 160 odd submissions certainly saw a substantial role for the state, making three general points – innovation is very complicated, more research is needed, not to mention more public money. Does it strike anybody that an entrepreneur on the public payroll isn’t doing much innovating? As the CRC Association put it, “The focus should be on providing funding for the development of technology, not given to people to learn how to run a company.”[v]

As well as all this, the Chief Scientist Ian Chubb is campaigning for a science strategy. “Whether it is our climate, our health, our ageing population, our food supply, our economy or our security, it will be scientific discovery and the use of scientific knowledge that will give us the capacity to respond,” he said last week.

Good-oh, it is the job of government to decide how science can serve the national interest. But this does not mean the state should guess what will work in the market. And yet Professor Chubb suggests, “At least a proportion of public money going to private companies is focused on areas where there is need, advantage and outcomes which can be taken to market.”[vi]

Which is innovation by committee, something unlikely to deliver much, given government cannot do what entrepreneurs can – bet the farm on an idea, accepting that it may not make money.

Ironically, Australian universities research and teach entrepreneurship, QUT, UNSW, RMIT and the University of Adelaide, for example. But this is not the same as a culture where people innovate on their own.

There are all sorts of explanations for why we are not good at innovation – a thin venture capital market, tax treatment of employee share-options in start-ups, for example. But they do not explain the absence of innovation in big business, which generally has the capital to invest in new ideas. Australia’s innovation output is alarming – we are 26th out of 28 OECD members.[vii]

Not that there aren’t ideas to address the issue. Industry Minister Ian Macfarlane proposes assessing university research performance on the basis of patents awarded rather than papers published.[viii] It will not work, given that the vast bulk of public research is incremental, not leading to a patentable idea. Still, it makes a change from calls for more research and public money into innovation. The federal government has also long-funded cooperative research centres, jointly funded by government and industry to commercialise research – each centre has a limited life to ensure that anything they come up with gets to market rather than funding a permanent research establishment.

This is not to argue that entrepreneurs drive all innovation – the Internet is the obvious example of what the very deep pockets of government can create. The trouble is, governments simply cannot fund the sorts of paradigm shifting plans that create new industries, basically because they are too ambitious, or apparently insane, to meet probity checks for public spending.

As Minister Perrottet points out, the purse-holders charged with regulating the existing system are hardly going to welcome people who want to destroy it. What do you reckon would have happened if the creators of Uber had asked for seed funds from the NSW state government? Nothing is my guess.

 

Stephen4@hotkey.net.au

Speeches drafted, opeds written, briefings prepared

Stephen Matchett

0417469093

 

ENDNOTES

 

[i] Dominic Perottet, “Speech to Intersect Australia: Supporting research impact,” @ http://goo.gl/VSsRqJ recovered on August 16

[ii] Department of Industry, “Establishment of the entrepreneurs infrastructure programme,” June 6 @ http://www.industry.gov.au/industry/Pages/EstablishmentOfTheEntrepreneursInfrastructureProgrammeDiscussionPaper.aspx recovered on August 16

[iii] Stephen Matchett, “Interminable Innovation,” Campus Morning Mail, June 6 @ http://goo.gl/ZtNXqm recovered on August 16

[iv] Parliament of Australia, Senate Standing Committees on Economics, “Australia’s innovation system, terms of reference” @ http://goo.gl/9NVJuC March 18, recovered on August 16

[v] CRC Committee submission, July 30 2104 @ Senate Standing Committee op cit

[vi] Ian Chubb, “2014 Jack Beale lecture,” August 13 @ http://goo.gl/cBf7MA recovered on August 16

[vii] Department of Industry, Australian Innovation System Report (2013) 62 @ http://goo.gl/kqGVR2 recovered on August 16

[viii] David Mark, “Minister floats science funding based on patents not papers,” ABC Radio, World Today, August 7 @ http://goo.gl/jKqku0 The minister’s remarks on patents is not in the official version of his speech @ http://goo.gl/JFgpRq both recovered on August 16

 

recovered on August 16

'2012