Australia Needs to Pull Its Socks Up on Investing in R&D
When we compare the research and development funding of Australia's top three companies – the Commonwealth Bank, BHP, and Westpac – with the three equivalent US companies – Microsoft, Amazon and Apple – we see the US giants spent 11 per cent of sales on R&D in 2018, while the expenditure of the Australian leaders could not be found in their earnings statements.
It tells us a lot about Australia’s policy settings and our underperformance in developing a technology sector.
UNESCO’s research into global R&D spending released in June 2018 found that the top ten countries on the list cumulatively account for 80 per cent of worldwide spending. Australia ranked fifteenth, spending 2.2 per cent of the total GDP, almost half of what South Korea, the top dog, commits. Samsung, alone, spent $15.3 billion in 2018 on R&D.
The Australian Bureau of Statistics says 98 per cent of Australian businesses employ less than twenty people and if our three biggest companies place little value on R&D, innovation will not underpin Australia’s future prosperity.
No Australian government should rely on Adam Smith’s invisible hand to sustain or diversify our sources of revenue.
There are exceptions, though - Australian tech-billionaire Mike Cannon-Brookes, the chief executive officer and co-founder of Atlassian, commits 36 per cent of revenue to R&D annually. However, a handful of local leaders will not boost national revenue.
The opportunity to build a vision for and plan the acceleration of our industry sectors, beyond mining, do not appear on the national radar. Indian miner Adani, and others with stakes in Queensland’s Galilee Basin, may be our only winners for the foreseeable future.
The Australian Computer Society (ACS) earlier this year released its manifesto about ways to lift Australia’s tech-industry. The manifesto contains six primary strategies, starting with the establishment of an industry skills fund, and concluding with strategies to foster smart cities.
However, the acceleration of any industry requires a coordinated national effort. Quality infrastructure, access to capital and relevant skills, mentoring programs and help with entering foreign markets, spring to mind.
CSIRO’s Australian National Outlook published in 2019, looks out to 2060, and identifies looming technology disruption, as well as climate change and city policies as major concerns. The report says we have a stark choice: slow decline or sustained prosperity, “as Australian companies use technology to move productivity towards the global frontier ….”. ACS and the CSIRO agree on the need for a clear long-term direction and fundamental changes to sustain national wealth creation.
Many nations only make these hard-decisions, profit most, or work best, during war. Niccolo Machiavelli (1469-1527) knew the value of serious external threats - everyone rallies around their leaders and focuses on what is critical for survival. Cooperation becomes a higher value than dog fights.
During WWII, neutral countries like Sweden and Switzerland, profited from combatants and reinforced their self-reliance and prosperity. These outcomes continue to generate significant revenue for these nations.
Sweden, with a population of 10 million, has a significant military industrial complex that supplies 90 per cent of its military needs, employs 30,000 people and generates many tech spinoffs. Sweden is ranked the third largest arms exporter per capita in the world, while Australia is one of the world’s biggest spenders, per capita, on military equipment and associated services.
We remain very dependent on the innovation and expertise of others to sustain our defence, and we appear content to watch billions of dollars go offshore. Australia’s problem is we have been lucky for too long.
Investing in Australia’s tech-industry, promises our greatest return. World leaders in R&D investment: South Korea, Israel, Japan and Finland - agree. Interestingly, these nations abut real potential military threats.
In the world’s biggest economy, the United States of America, information technology ranks the second most profitable business behind health. By revenue, only Apple makes it into America’s top ten – Walmart is top dog. However, by market value, IT companies dominate the US economy. The tech-industry is founded on innovation, disrupts and boosts most other industries, demands and rewards S.T.E.A.M skills, fosters startups and is highly profitable.
Technology is advancing so fast that at some future point it may become beyond our control. Unless Australia’s economic performance improves, our productivity may fall proportional to the speed of technological change. As we approach this point, rather than a slow economic decline as a potential by the CSIRO, our fall may be more dramatic.
Helping local industries overtake coal and iron as our biggest revenue generators need not be a dog fight or a war. A nation that simply turns its focus on an industry in a sustained way, increases the likelihood of success many-fold.
We need to invest in industries with the best future prospects for raising export revenues, and I think Australia should make our tech-industry top dog.