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People & Ideas

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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