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Nov 8, 2010

Terry Cutler: the dearth and decline of innovation

Countries like Norway and Chile are using returns on natural resource exports to create national funds to diversify and future proof their economic base. This is all about national leadership and vision. And when it comes to innovation, we don't have it, writes Terry Cutler.

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Three years ago I had a brief flutter of hope that Australia might allow the topic of innovation onto the main stage.

Before the 2007 election the then opposition launched sensible policy statements that tightly coupled the themes of innovation, competitiveness, and productivity.  This coupling was a refreshing focus on just why innovation is important for us all — it is all about wealth creation and our quality of life and community well-being.

By the last election, however, a dismal silence had fallen over all these topics. Dust accumulates on the report of the review I chaired into the state of the national innovation system, Venturous Australia. My perverse consolation is that dust is equally accumulating on the government’s response to that review, Powering Ideas, and on the related reform packages in the Henry tax review and the Garnaut Report.

There had been a glimmer of light under former Finance Minister Lindsay Tanner’s genuine sponsorship of action around information policy and through his support for the work of the Government 2.0 taskforce. On the other hand, the proposal for a radical restructuring of tax concessions around R&D languishes unlegislated.

This is possibly a good thing because Treasury officials have been allowed to take a good idea and strangle it with even more bureaucratic red tape and a hostile narrowing of eligibility criteria. Good policy design has remained more observed in the preaching than the practice. And good public policy needs to be grounded in brutal honesty about industrial and community realities and concomitant challenges, not disembodied theory.

Since the 2008 Review I have been struggling, fitfully, to work to complete a personal manifesto on innovation. The publishing sponsor is not impressed with the slow progress. But an emerging sub-text is about exploring just why it is we make such hard work of the innovation challenge.

Part of the problem is that it is easy and tempting for governments to retreat to a narrow, supply-side focus around innovation. This revolves around traditional science and technology policy and coincidentally the main related policy statement at the last election was on science policy: big science. It is a good thing to fuel or power ideas, but this profits little if there are no paths to impact in the real world.

The reality is that innovation, in essence, is about people seizing opportunities arising in the real world to do things differently, and searching for the tools, the inventions and ideas that help them make things happen. With the great wicked problems that confront us — whether population health, climate adaptation, food security or resource depletion — we need to marshal worldly ingenuity to identify and test possible solutions.

In other words, we need to focus more on a market-pull model of innovation. Innovation and invention are not the same thing.

An innovator is essentially a change agent, challenging the status quo with the uncomfortable notion that we can do things better. For the innovator trying to make things happen on the ground with customers or though endeavouring to reshape market structures, this requires tenacity, drive and passion. Incumbents will always fight hard to protect their turf.

Fred Hilmer, the author of our National Competition Policy in the 1990s, recently observed that one explanation for why Australia’s productivity growth has stalled may be because we have abandoned any active focus on competition policy. And unlike Europe or the US, Australia has never had the weaponry of anti-trust regulation.

We also have a cultural problem. Too many of our business owners or managers have what we might describe as a lifestyle approach to business.  Even many of our so-called success stories look like under-performers when benchmarked globally. This lifestyle model of business strategy imposes a false ceiling on ambition: success is having the designer car in the garage, and the holiday home or two.

Sadly, this is not a caricature. At a recent forum I actually heard people saying they didn’t need to expand or export because they were doing it quite comfortably as things are. I am not making this up.

Cultural change needs to start in our schools and business faculties. I am on the board of a technology university in Malaysia. Their student surveys show that most graduates want to start their own businesses. Not surprisingly the importance of being entrepreneurial is built into the curriculum, along with exposure to business life survival skills.

We also need firms that focus on rewarding workplace innovation and creative problem solving. During the 2008 Review I kept asking people to nominate exemplar firms and it was depressing to watch people struggle to come up with role models. On a more positive note I applaud the recent work of the Australian Industry Group in initiating a major project with its membership around trying to reinvigorate an active discussion around innovation.

There are several smaller and resource-based economies that are doing a much better job of meeting the innovation challenge than we are. Countries as diverse as Norway and Chile are using returns on natural resource exports to create national funds to invest in diversifying and future proofing their economic base. This is all about national leadership and vision.

For me the leadership and vision challenge for Australia is simply about an agenda revolving around four things:

  1. Clear national priorities around which to focus our innovative effort, starting with areas where we do have sustainable competitive advantage or can leverage distinctive capabilities;
  2. Better “whole of government” co-ordination to build critical mass around national challenges and to support investment in cross-sectoral platform capabilities — the alternative is fragmentation of effort and disjointed, wasteful investment;
  3. Recognition that as a small country economy we must become more closely integrated within global supply chains and more adept at accessing — on the best possible terms — and deploying and adapting the 98% or more of innovation and R&D not generated here; and
  4. Recognition that, in the final analysis, it is smart, empowered, confident people who will make the difference.

Each of these areas merits an essay in its own right. We have much work to do in each area to turn things around. We need a coalition of the willing to make a difference. I will feel much more optimistic about Australia’s prospects when I no longer have to refer to overseas role models and success stories.

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27 thoughts on “Terry Cutler: the dearth and decline of innovation

  1. Gavin Moodie

    How can a government obstruct the development of a good idea? Declining to give a tax break or other hand out is hardly obstructing innovation.

  2. kennethrobinson2

    There is no doubt in my mind if you have a good idea and want to develop it, the government is the main obstacle.
    With the current crop of political people, who mostly wouldn’t know what a real job was, its hardly likely that they know what they are doing, except getting reelected and feathering their cosy nest

  3. freecountry

    I agree with Scott. A fertile ideas market does not come from some kind of “Building the Innovation Revolution” program; it comes from cleaning up the drags on the business economy, and investing seriously in an education system for future growth. That education system should be conducive to career flexibility and supplementary knowledge. For example a farmer or mechanical engineer who wants to develop a new idea for irrigation should be able to take a short technical course in irrigation to get quickly up to speed on what’s out there, not a three year “bachelor degree” padded out with soft subjects for the education export market.

  4. Scott

    Does it really matter if Australia doesn’t have a big innovation culture? The development of patent law and globalization has basically made most innovations available to anyone in the world, regardless of the source. Sure, you have to pay for them, but that is what global capitalism is about.
    Instead of the government throwing dollars around domestically to encourage risky, no guarantee product development, surely it is better to focus on education and research (through the CSIRO and the university system) and let the global private sector (including Australian industry if they want to) take the risk and potentially get the rewards of bringing goods/services to market.
    That way the government can save it’s dollars to ensure the public can get access to these innovations if they make our citizens healthier or happier (like the Pharmaceuticals Benefit Scheme). More bang for the buck in my opinion

  5. Peter McArdle

    I am a great admirer of what Terry Cutler and the National Innovation Council tried to achieve. But their major obstacles are apathy and an attitude re innovation that, if it does not involve a grant of a lot of money from the government, don’t do it. For an earlier summary of the problems identified, yet again, by Terry Cutler and his colleagues read Sleepers Wake by Barry Jones. Not much has changed in 28 years.

  6. Bigad

    “At a recent forum I actually heard people saying they didn’t need to expand or export because they were doing it quite comfortably as things are.”

    Seriously, this is the equivalent of a football coach (any code) saying to his team “Lets try to score one point in the first minute of the game, then lets shut the game down form there….we can’t lose!”

  7. freecountry

    On the wider question of innovation, Australia has become stifled by a political culture which always seeks one uniform way to do anything, and detests any difference. I’ll give two examples from outside the business and science space.

    1. In political attitudes to immigration, there is a growing feeling that “multiculturalism has failed” and the test of a suitable immigrant is how well he or she will “assimilate”. While Australians back-slap themselves for (we like to think) outgrowing racism, we’ve simply substituted culturism. We no longer care what colour someone’s skin is or what shape their eyes, but we insist they must speak like us, dress like us, sign up to the same “values”, and generally be urban middle class yuppies. This is a growing global monoculture, and it is considered the only legitimate culture to have in Australia.

    2. Even in education (a neglected area which in economic terms is over-the-horizon long term investment) we have collectively decided to solve all problems by unifying to a national education system. Federation came at a time when education was the subject of more discussion and a greater proportion of national investment than at any other time in Australian history, before or since. And yet the founding fathers specifically avoided unifying it under the central government, because they knew there would never be just one best way to educate people, and graduates of different systems later mix together and learn from each other.

    Fast forward to the late 20th century, the emphasis on universities rather than technical institutes led to widespread loss of a great many short technical courses, which had previously enabled innovative people to cross train (a common practice in Germany, where all education is decentralized to the states). These courses were padded out to three year degrees and that’s more than enough time for most people to go without full time work. People with broad talents now go elsewhere to develop them.

    Australia is turning into a country of pseudo-professional conformists who are terrified of anything outside their zone of familiarity.

  8. freecountry

    Joe Hoogland:
    [There is too much media focus on home ownership as a path to riches – this creates zero national wealth … (We need) banks willing to invest in business. My banker doesn’t lend to my business based on the business risk, it has mortgages over the assets of the directors.]
    An outcome of tax distortions, and the Basel Accord bank capital adequacy laws, which require the bank to hold twice as much reserve for a business loan as for a home mortgage.

  9. Fool

    I have to agree whole heartedly with JSW!

    Australians are amazingly innovative people! We develop more inventions per head of population than nearly every other country on this planet.
    Unfortunately there is no support from the short sighted apathetic Australian government, or banks as Joe Hoogland pointed out, or the dumbed down apathetic individuals who vote and call themselves Australian citizens .
    This article reminds me of all the ideas and innovations we have lost to other countries, who are far more willing to develop Australian ideas and innovations.
    The Sarich orbital engine, the Sliver solar panel technology, the Caseless electronic weapon – Metal Storm, there are probably hundreds more!
    Australia can no longer call its self the smart country, particularly if all we do is let great opportunities be sold and developed overseas.
    It is about time that the government actually supported research and development! Our limited investment in these fields is abominably low compared to the rest of the developed world.
    Then there is the complete lack of long-term planning and vision by government and many Australians. The longest plans for any Australian business are by BHP which has a 30 year long-term plan; in comparison many Japanese companies have 300 hundred year plans.

    The sooner Australia implements a government funded research and development authority, which has the ability to run independently, to gain investment and support from business, and actually manufacture the innovations in Australia the better of all Australians will be.

  10. Georgina Smith

    I usually read Crikey from my phone but logged onto the website just to leave a post challenging this: “I actually heard people saying they didn’t need to expand or export because they were doing it quite comfortably as things are.”.

    However, @Jonathan Maddox, you said it better than I would have. So instead of taking up space repeating matters, I’ll simply tip my hat to you.

  11. greenbacks

    Oz is yet to really face globalization as other countries know it. Of course if you are an Australian innovator no better start than to spend a year or 2 applying for a govt grant……..

    Innovation is alive in Australia, but unfortunately the system is back to front……

  12. JSW

    Terry, Australia’s problem is almost unfixable. My younger brother is a PhD student at TU Dresden, working at the Max Plank Institute. He has just been transferred to the ETH Zurich Basel biotech research facility. His PhD research is due to be published in Nature Magazine in the next 6-8 weeks. He did his Masters in Sydney, and looked at the research opportunities in Australia and there was nothing. Europe was the only place investing money in biotech research. Now, he’s got one paper accepted and another Nature Cell Biology paper only 2-3 months away. The discoveries he has made rewrite the way we understand cell mechanics. The commercial value of the discoveries he’s made will be worth billions, if not trillions over the next 30 years. There are 30+ other PhD students all working on different areas in his lab; some of them are making similar discoveries. One PhD student has found an astounding development to do with viruses, and overhearing one of the Professors last week there is a great chance this discovery could be used as a weapon to stop the HIV virus from replicating in humans in the future.

    Without the vision of the governments, universities, and individuals, these developments would not be happening. The German government has had to invest heavily in these facilities. These facilities have had to have cultures of big vision, innovation, and excellence. The individuals in these places are big thinkers, not just well educated (taught what to think) but they are taught HOW to think for themselves. All those elements are missing from the Australia I’ve been raised and educated in.

    I’ve been stunned by the difference in intellectual vision, competence, and culture compared to Australia. I know personally for myself that I don’t want to remain in Australia anymore. Sure, the weather is fantastic, the beaches great, but where is the future in staying? Our government has no vision! The voters have no vision either! Both Government and voters are apathetic, small minded, and visionless. The scope of Australian vision is tiny and pathetic in comparison with the leaders in the world. There are a few of us Australians who can see this, but far too few to be able to make any difference. Hence why I, and all the others, have to invest in our future, and go overseas where the future is.

  13. AR

    There seems not to be a problem with innovation in this country – from the stump jump plough, combine harvester through the PABX, first telex, black box, to the bionic ear and PhV, the problem was, is & will forever remain the timidity, or wrose forelock tugging cultural cringe, of bigbiz investment to develop before the innovator is forced overseas. As for the phatasy of government picking winners, I seem to recall a quango from many years ago, CSIRO which was first split in CSL (more world first discoveries) then made subject to industry wishes/commercialisation (bigbiz & bureaucrats -always a winner) for adequate funding.
    I could go on but tears are dripping on the keyboard.

  14. Jedimaster

    Nicholas- I absolutely agree with you. I define innovation as “the process of transforming an idea into something useful”. This could be any idea- the imagining of some possibility- personal, social or economic. Then comes the hard part- how does one negotiate the challenges of “the process of transformation”? The details change, but the processes are generically similar.

    One of the problems we have is that most education about innovation is couched in particular examples- mainly economic ones and then mainly about “widgets”. When one tries to generalise about processes, there are complaints about “being too abstract”. Thus is the nature of most management education- it assumes- as John Cleese implied in his (in)famous management movies- that managers, being practical, can’t abstract more than a ten-year-old. Thus the process has been so trivialised that it looks like a series of caricatures.

    The most counterproductive simplification was to try to replicate Silicon Valley in Australia. The trivialisation continues. Innovation must conform to the five-second media grab. Sorry, some things are more complicated than that.

  15. Nicholas

    Australia does need to develop an innovation culture, but innovation should not be completely bounded within economic growth. This isn’t a very innovative way to think about innovation.

  16. Jedimaster

    My heart goes out to you, Terry. But the non-action since your report was published is not surprising, for at least five reasons. The most immediate one was that the “GFC tsunami” hit soon after, thus crowding practically everything else off the shelf of public consciousness. The only product that was left there (for a while) was Climate Change, which has subsequently fallen off the shelf, too. The only products left, now, are ultra-conservative approaches to government in general (they’re on the right-side as you look down the aisle).

    The second reason-the very long-term one, is that ALL such reports have met a similar fate. My career in innovation policy, programs and practice spanned much the same time as yours and over that period there were many reports and events (remember Barry Jones’ Technology Summit in 1983- if you can, then you probably weren’t there!) Barry got rolled soon after that and John Button’s industry policy, as admirable as it was, essentially supplanted it. Innovation equalled “world’s best practice”- it helped keep the auto industry going, but left the wrong message as to what innovation was all about.

    The third reason is the continued “hollowing out” of our economy, due to the success of the mining boom. For an insight into this, read “Escaping the Resource Curse”, edited by Macartan Humphreys, Jeffrey D. Sachs, and Joseph E. Stiglitz (Columbia University Press, 2007), or just the excellent Wikipedia article: http://en.wikipedia.org/wiki/Resource_curse. There is a kind of innovation in the mining industry, but it relates more to overall systems innovation than particular product and process innovation.

    The fourth reason is that, for reasons that include the above, an “Innovation Culture” has never gained traction in Australia. We all have our theories on that, and mine include politicians who couldn’t change a light bulb, let alone develop a new product or process and the media, including the well-intended ABC, that continue to depict science, technology and innovation as something that is done by socially-marginalised, impoverished nerds and must always be presented as AMAZING! Who wants to do that stuff, when they can get a well-paid job in “the professions”, where they don’t have to explain and excuse themselves at social gatherings? A bit more “ordinary-ness” would help.

    Finally, I still believe that without a National Institute for Innovation, or something like it, Innovation won’t become embodied in our academic curricula at any level. There are a few, sporadic classes, but they are marginal. It was recommended in your report and I put the question of implemenation directly to Kim Carr at a forum last year. He did the usual hand-wringing about tight budgets, but clearly didn’t comprehend that cultures need icons.

    …and there’s about fifty more reasons, that will be in my forthcoming book on the foundations of innovation, which is as slow in formation as yours, Terry.

  17. Bigad

    Just to pick up on Joe Hoogland’s comment above – I can’t bear to hear another dimwitted journo with a degree in basket-weaving STILL sneering about ‘noodle nation’….

    We all like to snigger a bit about some of the more hokey aspects of the US media, but whenever I go there I am always impressed by the depth and quality of commentary available their about technology, business AND their successful intersection…barely ever hear that kind of analysis here.

  18. PaulF

    Great post. Our current batch of politicians seem to be devoid of innovation themselves, let alone being able to create a framework/opportunity to help other Australians innovate.

    When the leading slogan of the opposition is about “stopping the boats” and a couple of thousand illegal immigrants is of key national importance, then you have to think somewhere along the line our political discourse took a wrong turn.

    Both sides are the same, interested in scoring political points and using nasty ways of doing it. There are the occasional gems in there, like Penny Wong and Malcolm Turnbull, who seem to be mostly rational and can argue policy. But ideologues like Abbott and Gillard have taken control. They focus on whatever earns political points and miss these larger topics.

    When a survey/poll or focus groups tells them to back off on a topic they will, that’s why the last election was devoid of genuine constructive debate and why it was all about stopping boats and stopping debt (despite Aust having debt of 6% GDP, very low)

  19. Bigad

    “At a recent forum I actually heard people saying they didn’t need to expand or export because they were doing it quite comfortably as things are.”

    Sounds just peachy! Trouble is, these people almost always find themselves dead and buried within 5-10 yrs of saying this sort of thing, and acting like they have been robbed and the guvvamint shoulda dun sumfink!!!

  20. masseyp

    Well said, if the politicians and bureaucrats actually ventured out here and experienced life as an innovator, those that survived more than 2 weeks might have your perspective…this is the problem!

  21. wilful

    At a recent forum I actually heard people saying they didn’t need to expand or export because they were doing it quite comfortably as things are.

    hear hear!

  22. the man on the clapham omnibus

    Having worked in a ‘knowledge’ nation in Sweden for several years their focus on innovation, education and lifelong learning leaves Australia for dead. They are also extremely export focussed to go the high road of value added products and services.

    We also lose a good deal of our intellectual brainpower overseas because innovative jobs and R&D does not exist in any meaningful capacity. Talking to PHD students here, they are at a loss as to their job opportunities once they finish, whereas in Germany and Sweden they are pursued by headhunters and highly desirable.

    The seed and VC funds available in the US don’t seem to exist in Australia, perhaps as some posters suggest the financial structures, tax treatment and regulations do not support innovation or startup finance?

    I also notice a difference in corporate culture and management that may be telling. If we follow the U.S lead and head down to following the quarterly reporting cycle and promote the command and control, kiss up , kick down management style there is no surer way to kill innovation of creative knowledge workers who require autonomy, mastery of skills and purpose to prosper.

    @Joe Hoogland

    Would the Entrepreneurs tax offset help?

    http://www.ato.gov.au/businesses/content.asp?doc=/content/00149627.htm

  23. Gavin Moodie

    The Cutler review was poorly managed, the report was a massive 228 pages, it lacked a clear and persuasive argument or thesis, Cutler & Company Pty Ltd claimed copyright in what was meant to be a government report and the document was locked so it is impossible to copy parts of the text.

    Cutler is fortunate that Minister Carr was able to salvage as much as he did from the review.

  24. Joe Hoogland

    I am a small business owner with ambitions to be a manufacturer. We have plenty of product development ideas and are currently grateful recipients of an AusIndustry grant. What changes would I like to see to assist industry?
    1. stable government policies for R&D support. There seem to be program changes every couple of years. Planning product development in our case is not just a month to month process – it is considered over a 2-3 year cycle.
    2. a willingness to address innovation and productivity as a national wealth creation opportunity by politicians and media. There is too much media focus on home ownership as a path to riches – this creates zero national wealth. I remember clearly when Beazley released Knowledge Nation in 1999 it was jeered off the public stage by a ridiculous focus on one diagram, yet take a look at the recommendations today and they are still valid. Neither politicians nor media had the courage to address the thoughtful proposals.
    3. banks willing to invest in business. My banker doesn’t lend to my business based on the business risk, it has mortgages over the assets of the directors. The reality is that if I take a risk to develop a new product and that project fails, I lose everything; personal assets, business assets, everything. The current controversy over bank profitability is all about housing, nothing about business.
    4. business organisations such as Business SA have a narrow and short term focus and add little to key debates. Witness the mining tax response here in SA by the business lobby groups – predictable, hysterical, short term, adding zero value to the discussion.
    5. tax policies which encourage idea development rather than speculation. It doesn’t make sense to me to allow negative gearing on housing speculation, yet I can’t offset my business loss against my personal income.

    I could go on but who’s listening?

  25. Scott

    Beat me to it Jonathan Maddox. To decry business people for putting lifestyle ahead of expansion and profit maximization seems a bit silly to me.

    Innovation has it’s place (especially in regards to ecological modernization) and is important if it gets us where we want to go (or gets us away from an unhappy state), but let’s not forget that it’s a means to an end, not the end itself.

  26. Jonathan Maddox

    I commend those business owners who are happy with the results they are achieving for themselves and their workers, and who do not wish to commit their lives, their souls and their wealth to growth for its own sake.

    If the only priority for every business was growth for growth’s sake, all businesses would have the same culture, and the world would be an extremely dull place.

    Businesses do not need to exist only for the sake of growth. They may have other purposes : to make the founders rich is often the reason for setting up a business in the first place, but it’s a legitimate choice for owners not to make profit maximisation their first priority. I understand that the directors of listed for-profit companies have a legal fiduciary duty to maximise profits, but privately-held businesses are not under the same constraint. Nor, obviously, are non-profit organisations.

    Growth is not in itself an evil and it can indeed be a positive good. But it has many possible negative consequences. To date, economic growth has always gone hand in hand with growth in resource consumption; that growth *cannot* carry on infinitely on a finite planet or in a finite universe (as some resources are not renewable and there are limits to the production of the renewable ones).

    Our end-goals should be other, better, higher things than profits. If we’re obliged to pursue economic growth at all costs just to keep pace with other resource-destroying capitalists of our finite planet, we may as well just all kill ourselves now.

  27. Apathy

    Here, Here.

    Could you put up links to the reports you have referred to

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