Where are we headed?

I’ll set the scene by citing the words of two
people, words uttered within the past few months. If these are the commonly
held views of our economic intellectuals, I really do fear for our future.

1. Chief Economist of one of our
very biggest banks. As I understand it, formerly employed as a bureaucrat in
the Department of Treasury and Finance in Canberra, so no doubt well versed in
economics.

The
notion that we need to make things in the country to prosper is a complete myth
.”

When challenged on this point, the answer given by
the speaker was to the effect that the service providers simply provide other
services to service providers and the money circulates and when they need to
they will buy computers and technology products or manufactured goods. No
mention was made of just where these technology products come from and that the
purchase of a technology product by a service provider means money exiting this
Ponzi scheme circular service loop and going off-shore

2.  A
senior economics writer for one of our bigger newspapers, in conversation.

Words to the effect of:

“It’s
really very simple. The accountant pays the consultant who pays the internet
company who pays the lawyer who pays the school teacher who pays the doctor who
pays the cleaner who pays the hairdresser and so on. Money circulates around
the loop and everybody gets paid. It’s simply a 30 day cycle.”

Ignorant I may be!

With interest rates at an all-time low, unemployment
higher than it’s been for many years, exports of minerals tanking, the auto
industry in exit mode, manufacturing in most sectors almost obliterated and our
education OECD ranking in decline, despite our “Building the Education Revolution” why should we be concerned? The economists (not one of whom I think
predicted the GFC even five minutes before it happened) tell us all is OK. Our
Debt to GDP ratio is low compared with all the basket case economies, so
“don’t worry, be happy”.

What value are services?

Wealth is created when things are created,
including physical products, agricultural products, mining, music, dance,
literature and the like.

As for services, in essence there are possibly
just two services that actually create wealth for Australia, these being the
export of education and inbound tourism. The rest simply circulate the wealth
of people trading tangibles, which of course would include products of the arts
such as music, dance, literature, film and art etc.

Trucking and transport is a service, but it
creates no wealth in itself, nor indeed would it even exist if somebody else
was not creating something that needed to be transported. Transport is just a
service the in essence “clips the ticket” of the creators.

Of course many services are government funded,
police, hospitals, education to a large extent, the military and so on. Where
does the money come from to fund these?

Further, in the case of many services that are
not government funded, such as accounting, book keeping, call centres operated
by the banks and Telco’s and even web and
industrial design, these too, like our manufacturing are now being exported to
low labour cost countries.

Thus, not only is our manufacturing in decline
and being exported, so too are many of our services.

A paradigm shift is needed

If Australia does not find a new way of
stimulating and encouraging investment in technology and manufacturing, I see
no escape from disaster other than a recovery in commodity pricing, increased
agricultural exports, more inbound tourism or educational exports.

Failing the above, all of which as a
technologist I find unpalatable, we need to find a way to rekindle our
technology and manufacturing sectors. But then again, even if we do develop
some great new ideas, why make anything in Australia when if you choose a low
cost labour market such as China, your profits will be far greater.

There can be little doubt that, like Japan, as
China and India move up the Quality Curve more and more of our manufacturing
will relocate.

What now?

A paradigm shift in thinking is needed, no
longer can we tinker at the edges, and as one of our past politicians once said
of Government razor gangs, “at the end of the day, all we really do is
simply tinker with the tea lady.”

In the
technology sector, no longer is this acceptable.

There is sincere endeavour!

Nobody
would doubt that governments of all persuasions in any developed country make
serious attempts to assist researchers, inventors, innovators, technologists
and entrepreneurs. There is a myriad of
assistance programs, too many to mention, and always new ones being rolled out
seeking yet new ways to assist. But
alas, if you look at most indexes of Australia’s innovation ranking you will
find us near the top OF THE BOTTOM.

The
intentions are good. Unfortunately the outcomes seem none too impressive,
especially considering the sums of money used to subsidise industry, research
and innovation.

Innovation

Innovation,
the act of changing something to add value, is what it’s all about and there is
no end to the ways one can innovate. Having said that, if one retains a fixed mindset
when attempting innovation, the constraints imposed serve to limit the ability
to really think “outside the box”.

The
overriding mind-set within government seems to be about subsidies. Provide
grants and tax incentives for people to spend more on innovation in the hope,
and it is little more than hope or blind faith, that this will inspire
successful outcomes. Maybe it will, but at what cost? What is the return on
this investment and does it really inspire innovation or simply fund a vast
number of consultants all taking a good sniff of any funds doled out?

Grants
for research and innovation are provided to selected applicants, often those
that have the right idea at the right time and better still, the right story or
perhaps “pitch”.

Despite
the experts that governments employ to assist in selecting grant funding
recipients, this really is hit and miss. It’s trying to pick winners from a
vast field of triers all heralding their innovation or research as that most
worthy of funding.

How
often do they get it right, or perhaps a better question may be, what is the
return on this funding investment? I am not privy to such a figure and wonder
if any reader may know?

However,
I would venture to say, the ROI would be vastly in the negative, despite the
sincere endeavours of our bureaucrats.

Invert the model

Inversion,
or thinking of things the other way round, is one way of looking to inspire new
paradigm thinking.

Think
for a moment what would happen if, instead of the vast subsidy spending that
Governments provide (many billions of dollars per year to be sure), we removed
all such funding (or significantly curtailed it as total removal may destroy
pure research) and instead rewarded successful innovation endeavours.

Imagine
the inflow of entrepreneurial funds from both local and overseas investors if
we were to provide a tax holiday of perhaps five years on income earned from
newly commercialised innovations. Imagine too the income for government from
people employed in these new industries paying tax on their wages.

I
suggest such a sea change in innovation strategy would have a vastly positive
and lasting effect and largely remove wasted government investment in
innovation.

Of
course the naysayers may say this is too hard to audit, but let me suggest
counting revenue on widgets sold would be a lot less prone to error, or even
exploitation than the present system. A system where non expert public servants
are expected to conduct reviews of complex projects in short order so as to
fulfil audit requirements. This is an almost impossible task, even for an
expert in the field.

Do the Sums?

Unfortunately, I simply do not have the time nor
resources to do the sums, but if ever there may be a body of research worth
doing it may be in looking at the impact of such a policy. A policy that I
believe would save the government vast amounts of money and at the same time stimulate
investment and create industries and new employment.

Is this a silly or entirely unreasonable
proposal?

Roger
La Salle
, is the creator of the “Matrix
Thinking”™ technique and is widely sought after as an international speaker
on Innovation, Opportunity and business development. He is the author of four
books, Director and former CEO of the Innovation Centre of Victoria (INNOVIC)
as well as a number of companies both in Australian and overseas. He has been
responsible for a number of successful technology start-ups and in 2004 was a
regular panelist on the ABC New Inventors TV program. In 2005 he was appointed
to the “Chair of Innovation” at “The Queens University” in
Belfast. Matrix Thinking is now used in more than 28 countries and licensed to
Deloitte for their Innovation Academy. www.matrixthinking.com

Image: http://lgi-consulting.com/