Home' Forge : Vol 1 No 4 Contents FAST LANE // 9
Australian innovation may be a problem, but
training is not: OECD
Prime Minister Malcolm Turnbull has made much of Australia’s
poor record in innovation. Speaking at a CeBIT e-government
conference, he observed that Australian businesses that innovate
are twice as likely to increase productivity, ‘and yet, Australia
ranks 29th out of 30 Organisation for Economic Co-Operation
and Development (OECD) countries on the proportion of large
businesses that collaborate with universities on innovation’.
The picture is very diferent when it comes to business training.
According to the OECD’s Science, Technology and Industry
Scoreboard 2015, Australia ranks frst in the developed world
for investing in frm-specifc on-the-job training. The report says
that more than 40 per cent of workers in micro-frms in Australia
undergo on-the-job training, as compared to almost half in
small and medium-sized businesses, and 80 per cent in large
businesses. In proportionate terms, the micro-organisations outlay
more. Micro-frms invest more than seven per cent of their value
added in training, whereas SMEs and large companies invest,
respectively, two per cent and one per cent of their value added.
Training is one of the few areas of innovation and the knowledge
economy where Australia excels. The OECD report ranks Australia
last on its list of manufacturing countries, behind Thailand, also
noting that manufacturing jobs have declined in the OECD. The
analysis supports Turnbull’s emphasis on the links between
universities and industry. ‘Over the past 30 years or so, a steadily
increasing share of OECD manufacturing employment has come
from research and development (R&D)-intensive industries, rising
from 30 per cent to 35 per cent,’ the report says.
Australia’s government investment in R&D is in the mid-range:
16th out of 37 – about 1.6 per cent of gross domestic product
(GDP). The nation relies unusually heavily on tax mechanisms
to boost R&D. About nine-tenths of the outlay is in the form of
indirect government support through tax incentives – a higher
proportion than any other country. The only comparable countries
are the Netherlands and Japan. Most countries largely use direct
investment in business R&D.
Turnbull has also talked about the efect of globalisation, which
he believes has greatly increased the exposure of Australian
businesses to competition. He has argued that globalisation
powered by the internet means that many businesses and jobs that
were not previously trade-exposed now are. ‘The globalisation
of supply chains means that at every stage of production, there is
more contestability than ever,’ Turnbull says.
One reason for the advance of globalisation is the greater mobility of
capital. The OECD report notes that foreign direct investment (FDI)
has tripled over the last two decades. Although most FDI occurs
within the OECD, the investment fows are increasingly skewed
towards the East: China and South-East Asia. Because Australia is
located in the Asian region, this could present opportunities.
Another trend is increasing fragmentation of production. If
Australia is to improve its innovation performance, it needs to
become more involved in the global value chains, and be involved
in a part of the operations of global companies. ‘International
fragmentation of production has expanded rapidly over the last
two decades, with production processes in many economies
specialising in specifc tasks and activities,’ the report says.
‘But then, I guess it all comes down to what parliament and the
Australian media would make of this output. Would parliament
reject the TPP if all citizen panels and the Productivity Commission
recommended it do so?’
If the Productivity Commission was to examine the TPP, it
is likely that the assessment would be less glowing than that
prosecuted by proponents of the deal, who have greeted any
criticism with scorn. In the Commission’s Trade and Assistance
Review, bilateral trade deals are described as ‘costly and time-
consuming to negotiate, and add to the compliance costs of frms
and administrative costs of governments’. Other problems are
nominated as: more stringent intellectual property protection
regimes than previously required; the inclusion of contentious
investor-state dispute settlement (ISDS) provisions, which aford
substantive appeal rights to foreigners not available to domestic
frms; and a lack of transparency.
There is also growing evidence that the claimed benefts of free
trade agreements may not be as great as originally thought. This
is problematic. The calculations of the benefts are notional. Any
projected gains from the agreement must be compared with what
would have happened if it had not existed, which is necessarily
speculative and makes it hard to prove positive claims wrong.
But there is not much ground for confdence, either. When the
Crawford School of Public Policy at the Australian National
University reviewed the Australia–United States Free Trade
Agreement (AUSFTA) earlier this year – a decade after it was
struck – it concluded that both countries are worse of than they
would have been without the agreement.
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