Historic moments don’t always feel historic, but this one does. The first six months of 2020 brought Brexit, the dismissal of Donald Trump’s impeachment, a summer where 20 per cent of Australia’s bushland burnt to the ground and a billion animals died, and then COVID-19, the biggest health and economic crisis for a century, for which there is no end in sight. If things are going to change (and they must), now is the time.
Depending on your perspective, this historic moment has arrived at the best or the worst time. The worst because Australia lost the impulse for policy reform somewhere in the last decade and we have been caught on the hop. Or the best because these challenges have laid bare the consequences of our failure to move our country forward and have the power to kick-start a new era of reform.
I am an optimist. In darkness, there is always opportunity. And I believe in the ability of Australians, in their clever way, to make the best of any situation. But I’m also a realist. And I think Australians want—make that need—to hear the truth.
We are a dynamic people. Partly because of that dynamism, and partly through luck, we live in the best country in the world. Most Australians have access to a quality of life, health care, education and a natural environment that the vast majority of the 7 billion people with whom we share this planet will only ever dream of.
The problem is that the dynamism of Australians is not reflected in our economy. There are harbingers of a poorer future everywhere we turn. Our environment is deteriorating and starting to threaten the very best things about our country. We rely too much on what we dig out of the ground and grow, and as a consequence we are too reliant on a narrow range of exports to a narrow range of countries. We do not gain enough national wealth from inventions, from innovations, from things genuinely new to the world. Too few Australians are starting new firms, and too few of those new firms end up globally competitive.
That stagnation is starting to be reflected in the way we work, save and prosper as individuals and families. Wages have been stagnant for a decade. Casualisation and underemployment are rife. We have extraordinary amounts of private debt, and far too much wealth is generated directly or indirectly by population growth and by rising property prices, where no real economic value is generated. Some of the highest-paid people in the country produce work of questionable value, while others aren’t paid enough to live on but do work so crucial that society cannot function without them. Something is off.
Of course, it’s not all bad. We have a lot going for us: a highly educated population, government that works, abundant natural resources, the world’s best scientists, brilliant universities, some of the world’s most liveable cities, and one of the world’s largest per capita reserves of retirement savings—to name merely a few of our advantages.
Before COVID, our anaemic economy was, for many, a sign of a darker existence for the next generation. Now, the problems we face have clearly escalated the crisis and will have significant, immediate impacts on millions of Australians as we struggle out of this economic hole. We have a clear opportunity to regain the reformist zeal that drove our nation out of the backblocks of the 1970s and 1980s. Change is not an option anymore: it is a responsibility. So how do we do it?
In Why Australia Prospered, Ian W McLean explained that ‘learning, adaptation and innovation have been the drivers of changes in rural production methods and products that have kept Australian farmers world competitive with relatively low levels of subsidy and protection’.1 Take the stump-jump plough. Richard and Clarence Smith, two brothers from the Yorke Peninsula, wanted to plough mallee fields without having to remove tree stumps and rocks. The plough, one of the founding technologies of civilisation, had been around for thousands of years, but the Smith brothers reimagined that ancient technology by inventing a plough that could jump over stumps and rocks.
Australian public policy needs to regain its stump-jump mentality. We need to think like the Smith brothers and consider how their practical, pragmatic, realistic and inventive approach can help make our economy more productive, competitive and self-sufficient.
The very opposite of this approach is dogmatism. We are not a very dogmatic people. What is odd is how much dogma we have seen in recent years in Australian public policy. One of the most damaging examples has been the notion that the best thing government can do for the economy is get out of the way.
Government spending in Australia is more than a third of our GDP. Whatever theories may suggest, in the real world, government couldn’t get out of the way if it tried. Some government interventions are direct, such as pulling the rug out from under the car industry or signing a free trade agreement that preferences one industry over another. Some are less direct, such as cutting funding to universities, providing free skills education in specific areas, or restructuring the priorities of the CSIRO. All these decisions shape our economy, in good ways and bad.
If we want an innovative economy, we need to nail the basics. For instance, we are not spending nearly enough on R&D. That’s our pipeline for future growth, and we are simply underinvesting. We are making life incredibly difficult for our world-leading scientists instead of supporting their work and celebrating their achievements as they deserve. We need proper funding for universities and the CSIRO, and policies to support a more collaborative approach to innovation, with a stronger focus on commercialisation. All this has been understood in policy circles for a decade.
But COVID-19 has opened the door to even further reform. With calls for greater sovereignty, and a clear period ahead in which we will be less certain about how we can engage with the rest of the world, even some conservative voices are acknowledging that government will be involved in our economy in more fundamental ways over the coming years.
Shouldn’t those interventions be strategic, and be used to solve some of our big national challenges? I am fairly certain of how the Smith brothers would answer that question.
Simply acknowledging the fact that government will be a driving force allows us to move into a new area of policy debate: how should government engage, and where, to get the most bang for buck? In answering that question, one quickly finds that while Australian politicians have been debating tax reform as though it’s the only economic policy that matters, industry policy has had a massive ideological reboot, and leaders around the world, of every political stripe, are thinking in a clear, evidence-based way about how to get government—this most significant actor in the economy—to play the most constructive role it can.
It’s as clear as day: our anaemic economy needs a transfusion of red-blooded industry and innovation policies. Fortunately, Australia has a rich history of smart thinking in industry policy on which to build. The late Hon. John Button, widely regarded as one of the most creative ministers of the Hawke and Keating governments, wrote the rulebook on industry policy in the 1980s. He wasn’t an ideologue—he was the ultimate pragmatist. He didn’t advocate building tariff walls around fundamentally uncompetitive industries. He believed that government and industry needed to work together to build a world-class economy. And I think he would have greatly enjoyed knowing that the ideas for which he argued for decades are having a resurgence in global thinking.
Much of this thinking is being led by economist Mariana Mazzucato, who is working with governments and politicians of every ideology around the world. At the cornerstone of her thesis is that government doesn’t have to be a lumbering, heavy drag on growth. Structured well, it can be an inspiration, a creator, a facilitator, a lead investor, a catalyst. It can be an innovator.
So what can we learn from this renaissance in thinking around the world? And how might Button, and the Smith brothers, think of its application to Australia?
The first and most obvious point is that we are a small country: around a third of 1 per cent of the world’s population. It makes no sense for us to try to be the best at everything. We have to be practical and realistic, and that means focusing on areas of competitive advantage. So, at what are we uniquely placed to succeed?
Australia is the first developed country to be severely affected by climate change. It’s a horrible truth, but then dark necessities are often the mother of world-leading inventions. The Smith brothers probably didn’t delight in having to farm uncleared fields, but in the end we are all very lucky they ended up in the rocky, stumpy mallee rather than the lush Liverpool Plains.
For Australia, climate policy is both an existential threat to our way of life and a massive economic opportunity. Renewable energy is the great no-brainer. Even if some politicians in Canberra don’t get the scale of the opportunity, just about every other Australian seems to. With more natural renewable energy resources than any other country in the world, we have ample opportunity; and with the best scientists in the world, ample expertise. Greater policy focus could help us ensure that that opportunity and expertise deliver value to Australian households and industry through the provision of low-cost, sustainable power.
Building large, reliable sources of cheap, renewable energy is not just innovation for its own sake. As Ross Garnaut has written about extensively in recent years, this alone has the potential to reshape our economy. Renewable energy could be a catalyst for the development of new, globally competitive industries, including heavy manufacturing. Imagine how much our economic future would change—and the kind of jobs that would be created—if cheap, renewable energy became Australia’s competitive advantage.
There is an applicable precedent. Victoria’s vast reserves of brown coal gave that state the opportunity to become the manufacturing heartland of Australia in the twentieth century. With focused policies, renewable energy could create an opportunity for Australia to become a manufacturing centre within the Asia-Pacific in the twenty-first century.
This is just the beginning of the opportunities presented by climate change. Australia could become a global leader in a vast array of scientific applications on which many other countries will be looking for expertise in the coming decades, such as minimising coastal erosion, optimising energy use, smart infrastructure, new agricultural techniques, water conservation, climate-conscious cities, and sunscreens with enhanced skin-cancer protections. The opportunities are endless.
But to make the most of them, we need direction. One of the centrepieces of the approach taken in some other parts of the world is setting national missions. Creative and entrepreneurial people love a problem to solve, and setting national missions could help galvanise action from our universities, governments, unions, scientists, super funds and businesses—as well as the population generally—around specific policy goals. Mazzucato calls the setting of national goals ‘moon shots’ because, like President John F Kennedy’s decision for the United States to travel to the moon, they could catalyse massive innovation and invention.2
Part of the benefit of national missions is the process with which a community can participate to develop them. Imagine the vigour that could be unleashed by engaging millions of Australians in articulating common goals for our country and economy and backing them up with the full force of government.
What else can we learn from world-leading countries with dynamic economies? To help build a more strategic approach, we need good-quality institutions to create, coordinate, frame and deliver on national missions. These organisations need to be driven by evidence, not party politics, and designed to ensure that industry policy is long-term, bipartisan and lasts the distance, and not a new forum for wishful thinking, partisan politics or pork-barrelling.
The importance of making good long-term decisions at this time can’t be overstated. One of the reasons industry and innovation policy in Australia has not delivered in recent years is because of the lack of policy certainty and a revolving door of innovation ministers.
Perhaps more importantly than these policy structures, what we need most right now is a national narrative. Australians love a good yarn, and our history is chock-a-block with stories of endeavour and innovation. Those stories can explain that industry and innovation policy is not about automating people out of work. It isn’t something to fear. It’s about recapturing a spirit of inventiveness that we have lost—in our economy, in public policy—and desperately need back.
The best thing about Australia has been the sensible, pragmatic, practical and innovative spirit of our people. Public policy made in that spirit will bring the best of our people to the fore. Like climate change, COVID-19 is a horrible event. There is no upside. But the one-in-100-year event that matters most here is the reminder of what happens when our nation works together on a common goal. Australia is world-beating, and our potential is limitless.