Senator Arthur Sinodinos, Prime Minister Malcolm Turnbull and Minister for Innovation, Industry and Science Christopher Pyne at an Innovation Roundtable in October

Perhaps because innovation policy is so complex, and Australia has been so unsuccessful at it under multiple governments, the topic tends to reveal the deep-seated ideologies of those articulating it more than most policies.

It was Kevin Rudd who elevated innovation to the political top table in 2007, when he appointed Kim Carr to the traditional Industry portfolio but renamed it Innovation and Industry (Carr had previously been shadow for “Industry and Innovation” under Mark Latham). The focus on innovation under Rudd was resolutely on manufacturing — Rudd didn’t want to be leader of a country that didn’t make things, famously. And under Labor, manufacturing meant cars, which meant Carr making pilgrimages to Detroit and Tokyo, where he would, like so many industry ministers before him, dole out taxpayer money to multinationals to keep Australia’s inefficient, small-scale car manufacturing sector alive.

GM and Ford were, in Australia, the antithesis of innovation, given they have more or less ignored consumers’ evident preference for smaller vehicles, but nonetheless they were offered hundreds of millions to make “green cars”. Carr launched reviews of both the automotive and textiles sectors. But to Carr and Rudd’s credit, they also engaged innovation guru Dr Terry Cutler to conduct a broader review, which produced a green paper, Venturous Australia. Despite a half-baked “response” by the government in 2009 to Cutler’s nuanced, thoughtful examination of what impeded innovation in Australia, in essence Rudd and co ignored the review, leaving Cutler disillusioned.

By 2013, Carr was gone from the portfolio, having fallen out with Julia Gillard (who had cut programs like the green car fund), and his replacement was Greg Combet, by then minister for industry and innovation, not the other way round. By that stage the strong Australia dollar — which had been above parity with the US dollar for most of 2012 — was smashing Australian manufacturing, and Gillard, Combet and then-treasurer Wayne Swan released an Industry and Innovation Statement, funded by restricting access to much-rorted R&D concessions. It was focused on encouraging more investment in startups, imposing more red tape to encourage local industry participation in major projects and the establishment of 10 “industry innovation precincts”. The focus was still on manufacturing, but access to capital for startups had by that stage become a priority.

The statement also formed part of perhaps the only coherent economic-political narrative we’ve had from a government since the turn of the century, in which Julia Gillard argued the need for a plan to deal with a strong Australian dollar that didn’t depend on slashing wages to make Australia competitive but focused on increasing productivity and innovation. Actually getting clear air to convey that plan was impossible — Kevin Rudd and his supporters made sure of that. Under the returned Rudd, Carr was restored to the portfolio — the order reversed to Innovation and Industry again — and made noises about making innovation a central part of Labor’s re-election pitch. However, it became painfully clear during the election that Rudd had spent 18 months on the backbench thinking only of how to get the Prime Ministership, not what to do with it.

Still, things got worse under Tony Abbott: a war on science was launched, annoyingly fact-based institutions like the CSIRO were targeted for cuts (CSIRO was already struggling under Labor-era cuts as well) and Ian Macfarlane as industry minister (the word “Innovation” was abandoned altogether) had to watch Joe Hockey eagerly kill off what was left of the car industry while a commitment to build the next generation of submarines in Australia was dumped, before he was forced to make way for Christopher Pyne. Pyne, at least, got “innovation” back in his title.

Today’s package partly builds on two themes from Labor’s 2013 statement: creating incentives for investment in start-ups and driving participation in government procurement. Indeed, innovation seems now to be entirely about startups and small business — directing capital to them and making it easier for them to get government contracts. It also reverses the Abbott cuts to the CSIRO, but we’ve moved completely to the other end of the ideological and business spectrum from the Rudd-Carr years. Innovation is now the province of tiny, agile, disruptive startups, not huge multinationals. The Gillard-Combet statement of 2013 now seems a halfway point in the transition between them.

There’s one thing missing in all this. Let’s go back to Terry Cutler’s 2008 review. One of the key points Cutler made is that we don’t have a business culture that facilitates innovation. Cutler wrote in Crikey:

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…. 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.

This isn’t just anecdata on Cutler’s part — it was backed up by an important speech by then-Treasury Deputy Secretary David Gruen in 2012. Gruen noted that a key impediment to productivity growth in Australia — readers may recall we were going through a period of national soul-searching about productivity then — was the mediocre quality of Australia’s business. “[M]anagement practices in Australia are mid-range,” said Gruen. “We are well below top performers like the United States, Germany, Sweden, Japan and Canada, but more similar to France, Italy and the United Kingdom … Australia, like some other countries, has a somewhat larger tail of companies with relatively poor management performance…”

For daring to suggest Australian business might not be world-beaters, Gruen was attacked by the Australian Financial Review and far-Right economic commentators and even accused of siding with Labor — although as Crikey explained, even the Rright was prepared to admit Australian managers weren’t much chop — but only because of evil unions and restrictive industrial relations laws.

Gruen also noted that large firms tend to be better managed and have higher productivity than smaller ones. “Ownership arrangements are also important: multinationals tend to implement strong management practices; publicly listed companies perform well; but family-run businesses tend to exhibit inferior management performance. The level of education and skills of both managers and non-managers is positively correlated with management performance. Moreover, the differences in management practices appear to matter for productivity levels: better managed firms are more innovative and have higher productivity.”

Productivity of course isn’t innovation. The agile startups of the Turnbull era might be low-productivity, but highly innovative. But it’s possible that the fetishisation of small business in the innovation space by this government may be no more useful than Labor’s obsession with the car industry. We’ll see.

Peter Fray

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