Ict policy review (acs 2002)

ICT Developmentin Australia

A Strategic Policy Review

Australian Computer Societywww.acs.org.au

http://www.acs.org.au/

This report has been prepared for the Australian Computer Society.

Copies can be obtained from The Australian Computer Society National Office:

PO Box Q534, Queen Victoria Building, Sydney NSW 1230Phone: (02) 9299 3666Fax: (02) 9299 3997 Email: [email protected]: http://www.acs.org.au

Copyright © 2002, Australian Computer Society Inc.

General permission to republish, but not for profit, all or part of this material is granted, provided that the ACS's copyright notice is given and that reference is made to the publication, to its date of issue, and to the fact that reprinting privileges were granted by the Australian Computer Society Inc.

National Library of Australia Cataloguing-in-publication data:

Australian Computer Society.ICT Development in Australia: A Strategic Policy Review

Bibliography.ISBN 0 90992 599 2

1. Information Technology. 2. Communications3. Policy. 4. Australian Computer Society


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Foreword

As we move into a new century, Australia’s ability to harness ICT for the collective national benefit has been questioned.

The Australian Computer Society commissioned Professor John Houghton from the Centre of Strategic Economic Studies to draw together the most recent performance data on Australia’s participation in ICT as both a user and producer. ACS also asked Professor Houghton to review the various Australian government policy initiatives implemented since the first pro-active ICT programs were applied in the mid 1980s, and provide a perspective of the current gaps in ICT policy.

Professor Houghton has brought these two inquiry paths together into a strategic policy framework for ICT. The result is a three-tiered strategy that groups over 50 detailed policy options and priority actions. The three interdependent elements of that strategy are:

Platform for Production – support to stimulate Australian-based production in both ICT producing and using industries

Building Businesses – initiatives aimed at enterprise improvement, finding ways to expand and develop Australian firms, creating linkages between companies and forming enterprise clusters

Achieving Scale Through Investment – creating the competitive environment in Australia for foreign ICT investment.

Our objective in releasing this report is to raise the level of debate among the key stakeholders and influencers – ICT companies, ICT professionals, institutions and public policy makers. Clearly, bold policy initiatives are necessary to address current negative trends.

Professor Houghton’s report warns of decline in a range of economic measures of national ICT ‘well-being’:

at the end of the 1990s there were fewer ICT manufacturing businesses in Australia than at the beginning

employment in specialist ICT industries has been in decline in the latter years of the decade

Australia has been spectacularly unsuccessful in growing medium to large indigenous ICT companies, despite nearly two decades of policy support

ICT equipment exports are now lower than they were at the beginning of the 1990s

our reliance on overseas ICT has ballooned, producing a trade deficit of around $16 billion in 2001

our ranking on a range of OECD national technology penetration measures has seen Australia slip down the OECD country pile.

In March 2002, at the World Congress on Information Technology in Adelaide, Prime Minister Howard announced the formation of an important industry-government-institutions advisory group to develop an ICT Framework For The Future. The ACS has welcomed this initiative and now offers this report as one of the first detailed contributions to the Framework process.

We would also like to see this debate extend beyond industry boundaries and become a public issue. The reality is that what we do or don’t do in relation to ICT over the next five years will impact on the wealth and well-being of all Australians.

Richard G. HoggPresidentAustralian Computer Society

June 2002

Executive Summary

Taking stock and moving forward

The Commonwealth Government recently established a Broadband Advisory Group and a joint industry-government advisory group to develop an ICT Framework for the Future. The Australian Computer Society (ACS) welcomes these initiatives. As an input to discussions the ACS commissioned a review of policy reports in order to distil and synthesise the key strategic directions and policy suggestions emerging from recent analysis. Our aim in releasing this summary is to contribute to policy debate. We seek to build on what has already been learned and achieved, and to move forward by building consensus for a bipartisan approach to the development of ICT in Australia.

Major insights

Recent policy reports contain a number of insights, which provide an essential input if we are to learn from experience and build on past achievements. They include:

Australia’s information and communication technology (ICT) industry is not fully competitive – because of small local firm size, because Australian capital markets are not competitive for technology companies (beyond early stage financing), because there is limited electronics production, and because multinational firms tend to be oriented to the domestic market rather than exporting;1

Competitive advantages in high-technology industries around the world have been created through combinations of attracting multinational firms to establish manufacturing plants, building the national skills base, and strengthening R&D in key areas;2

It is not sufficient for Australia to be a fast user of other nations’ technology: we must have leading edge capabilities so that we can develop pioneering technologies that will ensure the competitiveness of our industry in the global marketplace of the future;3 and

Australia will struggle to maintain its strong economic performance if we do not have a focused effort to continually up-date domestic capacity in ICT innovation and production. Without ICT research and production capabilities we may well lose the capability to be intelligent purchasers of ICT goods, let alone pioneers.4

Elements of a strategy

Recent policy reports have different foci and use different terminology, but certain themes are common. The key elements of a strategy are clear:

We need to take a strategic approach, which entails adopting a longer-term perspective and focussing on key points of leverage;

We need vision and leadership to energise and direct the process;

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We must understand that education, skills and professionalism will be the key ingredients;

We must realise that the process will be one of continual upgrading and renewal, and commit to a coordinated and sustained business improvement program;

We must understand that investment is the key to realising outcomes, and make the investment climate and pro-active investment attraction top priorities;

We must ensure that the business environment and regulatory frameworks are supportive;

We must understand that linkages facilitate innovation, and make cluster development a focus for action;

We must ensure that policy initiatives are adequately resourced; and

We must develop a sense of urgency to drive the process forward.

Priorities for action

This report outlines more than fifty detailed priority actions, three of which are identified as flagship initiatives.

1. Establishing a platform for production to support both ICT producing and using industries – by fostering innovation, developing the necessary infrastructure and regulatory framework, and enhancing skills and professionalism;

2. Building businesses – by fostering business improvement, enabling market access and expansion, and actively facilitating cluster development; and

3. Achieving scale – by creating an attractive investment environment, establishing an investment fund and engaging in pro-active investment attraction.

Government must recognise that having a local ICT research and production capacity enables rapid take-up and deployment of ICTs across the economy. It is equally important to realise that ICT production and trade play a significant role in driving employment and productivity growth. By joining with industry in providing vision and leadership, governments can underpin ICT development in Australia. By failing to do so, they can undermine it.

The ACS calls upon governments and other industry stakeholders to join forces, constructively develop and debate policy options, build on the lessons of the past and strive for a brighter and more prosperous future.

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Contents

EXECUTIVE SUMMARY......................................................................................................I

ICT DEVELOPMENT IN AUSTRALIA......................................................................1

Taking stock..................................................................................................................1Major insights............................................................................................................1Elements of a strategy...............................................................................................1

A strategic framework...................................................................................................2

Priorities for action........................................................................................................3Vision and leadership................................................................................................4A platform for production..........................................................................................6Building businesses.................................................................................................10Scaled by investment................................................................................................13

The way ahead.............................................................................................................15

APPENDICES................................................................................................................17

Appendix A: Do we need to review the current settings?.....................................17Appendix B: How did we get here?......................................................................24Appendix C: What major insights have emerged?................................................39Appendix D: What are the elements of a strategy?...............................................42Appendix E: What can be done?...........................................................................49Appendix F: Priorities for action..........................................................................53Appendix G: Reports reviewed & consulted.........................................................54

Notes and References......................................................................................................59

ICT Development in Australia

Taking stock

The Commonwealth Government recently established a Broadband Advisory Group and a joint industry-government advisory group to develop an ICT Framework for the Future. As an input to discussions the Australian Computer Society (ACS) commissioned a review of policy reports in order to distil and synthesise the key strategic directions and policy suggestions emerging from recent analysis and debate.

Major insights

Recent policy reports contain a number of insights, which provide an essential input if we are to learn from experience and build on past achievements. They include:

Australia’s information and communication technology (ICT) industry is not fully competitive – because of small local firm size, because Australian capital markets are not competitive for technology companies (beyond early stage financing), because there is limited electronics production, and because multinational firms tend to be oriented to the domestic market rather than exporting;5

Competitive advantages in high-technology industries around the world have been created through combinations of attracting multinational firms to establish manufacturing plants, building the national skills base, and strengthening R&D in key areas;6

It is not sufficient for Australia to be a fast user of other nations’ technology: we must have leading edge capabilities so that we can develop pioneering technologies that will ensure the competitiveness of our industry in the global marketplace of the future;7 and

Australia will struggle to maintain its strong economic performance if we do not have a focussed effort to continually up-date domestic capacity in ICT innovation and production. Without ICT research and production capabilities we may well lose the capability to be intelligent purchasers of ICT goods, let alone pioneers.8

(See Appendix C for details)

Elements of a strategy

Recent policy reports have different foci and use different terminology, but certain themes are common. The key elements of a strategy are clear:



1

ICT Development in Australia: A Strategic Policy Framework





We must understand that linkages facilitate innovation, and make cluster development a focus for action;

We must ensure that policy initiatives are adequately resourced; and


(See Appendix D for details)

A strategic framework

At its simplest, a strategy for the development of ICT in Australia must be: built on a solid infrastructure through innovation, skill and professionalism; focused on commercialisation and building businesses; scaled by investment; and driven by vision and leadership.

Figure 1 A Strategic Framework for ICT development in Australia

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Building BusinessesCommercialisation

Business ImprovementClustering & Linkages

Market Access

Scaled by InvestmentStrategic

Large-scale Targeted

Funded to Make It Work

Platform for ProductionInnovation

Institutional EnvironmentInfrastructure & Regulation

Skills & Professionalism

VisionLeadership

Australian Computer Society

Establishing a platform for production

The platform for production must support leading edge ICT production for both sale and own use (ie. support both the ICT producing and ICT using industries). Key elements will include the funding supports for ICT related innovation, the institutional settings for that innovation, and the necessary infrastructure to underpin innovation in ICT production and use. It will also be necessary to ensure that the regulatory environment encourages e-commerce and e-business development, and that there is an adequate supply of skilled and professional people.

Building businesses

The rewards from innovation will be reaped through building businesses. This can be fostered by supporting the creation and emergence of start-ups, helping them develop the necessary business and marketing skills, helping them attract investors to enable them to grow, easing access to export markets through reducing barriers to trade and facilitating outward investment to enable them to reach and serve international markets. One of the keys will be to develop innovative, solutions oriented clusters.

Scaled by investment

Scale remains a critical 'missing ingredient'. Historically, from barrier protection through purchasing leverage, Australian ICT industry development policies have focused on activities scaled to the domestic market. If Australia is to realise its global ambitions we must break through the scale barrier by encouraging, facilitating and supporting large scale, strategic investments. The centralisation of investment promotion and facilitation within Invest Australia (following the Blackburne review) is a first step. However, breaking the mould will require a major initiative, over and above existing investment attraction activities, for which it will be necessary to make a substantial strategic investment fund available to support the facilitation of large scale, strategic investments.

Driven by vision and leadership

Government must recognise that having a local ICT production capacity is essential for the rapid take-up and deployment of ICTs across the economy. It is equally important to realise that ICT production and trade play a significant role in driving employment and productivity growth. By joining with industry in providing vision and leadership, governments can underpin ICT development in Australia. By failing to do so, they can undermine it.

(See Appendix E for details)

Priorities for action

By focusing attention on establishing and maintaining a platform for production and building businesses scaled by investment, this framework provides a basis for policy

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development and action. Within it we have identified more than fifty priority actions, the details of which are outlined below.

Figure 2 Strategic imperatives and priorities for action

Strategic Imperatives Priorities for Action

Vision & Leadership An ICT StrategyOperational Issues

A Platform for Production Education, Skills & ProfessionalismInnovation (R&D funding, focus & linkages)The Institutional Settings for InnovationInfrastructure & RegulationE-commerce & the 'Digital Agenda'

Building Businesses Commercialisation & GrowthBusiness ImprovementLinkages & Cluster DevelopmentMarket Development & Access

Scaled by Investment Pro-active Investment AttractionAn Investment Fund (Braking the Mould)The Investment Environment

Vision and leadership

Government must recognise that having a local ICT research and production capability is essential for the rapid take-up and deployment of ICTs across the economy. Buying solutions off-the-shelf may enable businesses to be followers, but it leaves them running to keep up. To create sustainable competitive advantages it is necessary for them to work closely with technology and solutions developers in local developer–producer–user clusters.9 The notion that we must choose between producing and using ICTs is based on a false dichotomy. To be leading-edge users we must be leading producers, and to be leading-edge producers we must have leading-edge users. The future of ICTs in Australia depends upon encouraging developer–producer–user clustering, and thereby facilitating the development of marketable ICT-based business solutions – be they in the form of ICT products and services or the ICT-enabled products and services of firms in industries throughout the economy.

It is equally important to realise that ICT production and trade play a significant role in driving employment and productivity growth. OECD trade in ICT products grew at twice the rate of total merchandise trade over the decade 1990-2000, and the countries that participated as producers of ICTs have been major beneficiaries. During the 1990s, Ireland, Korea and Finland were the leading producers of ICTs (in terms of ICT share of business sector value add, ICT share of manufacturing trade and ICT trade surplus). These same countries enjoyed higher levels of labour and multifactor productivity growth during the 1990s than other OECD countries.10 The U.S. Department of

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Commerce recently noted that the ICT producing industries in the Unites States “continue to contribute disproportionately to overall economic growth.”11 Over the period 1996-99, the ICT producing sector accounted for an annual average of just 7 per cent of U.S. GDP, but was responsible for an annual average 29 per cent of the country’s overall real economic growth. During 2000, the ICT producing sector accounted for 8 per cent of U.S. GDP and 26 per cent of real economic growth.12

An ICT strategy

To grasp the future we need to articulate a vision for ICT in Australia and develop a joint industry-government agenda for action. It is up to the ICT industry and ICT professionals to take the lead.

For its part, government should:

Ensure that the recently established Broadband and ICT Future Framework advisory groups consult widely, so that all stakeholder interests are considered and all policy suggestions canvassed.13

Commit to implementing their recommendations, in order to encourage buy-in and ensure that the momentum is not lost.

Commit to maintaining an industry-government advisory group to oversee the implementation of the strategy, be it the current advisory group(s) or a specialist implementation group established specifically to oversee implementation and operation.

Ensure that the ICT Future Framework advisory group undertakes sufficient analysis to ground the strategy – including, for example, a study of Australia's ICT strengths, weaknesses, opportunities and threats, which goes beyond traditional industry and technology thinking and takes due account of the paradigm shift from 'technologies and boxes' to 'solutions and services'.14

Establish an ICT Industry Development Fund which is significant (eg. $1 billion over 10 years).15 This fund should be used to facilitate the pursuit of opportunities identified by the advisory group, and in the implementation of Future Framework initiatives. To that end it should be managed by the Future Framework advisory group or subsequent joint industry-government implementation group.

Ensure that there is a coordinated ICT industry development framework. The ICT industries are diverse, and a single Action Agenda of sufficient focus and detail may not be possible. However, it is essential that ICT industry sub-sector Action Agendas operate in a coherent and coordinated way. To that end, government should:

Harness the Electronics Industry Action Agenda for wider ICT industry development, and ensure the various industry agendas are integrated and coordinated with it;

Develop complementary Communications, IT Services and Software Industry Action Agendas to further ICT industry development, and integrate them into existing and proposed activities; and

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Accelerate and integrate the Digital Content Sector development initiative promised in the pre-election statement Putting Australia’s Interests First.

Operational issues

Much progress has been made in establishing appropriate operational arrangements, but there is still work to be done.

We call on government to:

Recommit to, and continue the focused government arrangements achieved over recent years, including:

A single cabinet level minister for ICT whose responsibilities include the information economy, telecommunications, broadcasting, multimedia, ICT procurement, and ICT industry development;

A single department or agency reporting to this minister with direct responsibilities for the ICT industry, and sufficient staffing and program funding to carry out its functions effectively. The sometimes blurred boundary between the Department of Communications, Information Technology and The Arts (DCITA) and the National Office for the Information Economy (NOIE), which sees responsibilities shifting back and forth, should be clarified and set;

Effective coordination of Commonwealth and State programs and policies to achieve a consistent national approach to ICT industry development and investment attraction; and

Renewed and revised commitments to getting government services on-line, to ensure that all government services are delivered on-line by the end of 2003 and that they feature transaction capabilities rather than simple information delivery.16

A platform for production

Success can only be built on a solid foundation. There must be an environment conducive to, and supportive of innovation, in which the institutions underpinning research and innovation are supportive and focused on developing their intellectual capital, where there is adequate infrastructure for development, where the regulatory environment supports and encourages development, and where there is a foundation for ongoing skilling and professionalism.

Education and skills

It is the scientific, technical, managerial and entrepreneurial flair of Australians than will provide the foundation for prosperity in the 21st century. Considerable progress has been made in increasing university and school places through Backing Australia's Ability and in the establishment of the IT Skills Hub, but we cannot rest on our laurels. 17

Governments and industry must commit to challenging targets focusing on both the quantity and quality dimensions of education, skilling and professionalisation.

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Increase funding for education to ensure that Australia at least keeps up with increases in the OECD average (in terms of funding of education as a percentage of GDP), and target increases in excess of average.

Give greater attention to ICT related skills development, including skilling for researcher, producers and users. Responses to date have not fully grasped the scale of the issue in terms of either the number of places or the level of skills required.

Ensure that recruitment, promotion and remuneration for ICT teaching staff become more flexible at secondary, vocational education and training (VET) and tertiary levels to ensure adequate educator staffing of the highest standard.

Support greater integration of technical and management and marketing skills, to enable Australia's ICT users to more fully integrate ICT systems into their business functions and adapt their business functions to maximise the benefits of their ICT investments and enable Australia's ICT producers to better understand their clients' businesses and move from producing technologies to delivering solutions.18

Give greater emphasis to the importance of professionalism in the ICT industry and in ICT occupations throughout the economy by, for example, encouraging professional accreditation – just as quality accreditation has been pursued in the past.

Encourage more joint education-industry initiatives by, for example, recognising skilling as an industry development activity and allowing more favourable taxation treatment of education and training related activities and expenses.

Ensure that Australia's immigration system has flexible and streamlined entry arrangements to allow the entry of skilled ICT managers and professionals, and develop promotional programs to encourage appropriately skilled people to come to Australia.

Follow through on election promises relating to the taxation treatment of international workers and investors by, for example, taking a more flexible approach to the treatment of the foreign source income of expatriates resident in Australia for less than 5 years, and exempting temporary residents from Foreign Investment Fund (FIF) rules.

Ensure that experienced people returning to Australia after working overseas are not discouraged by the taxation implications of doing so.

Innovation and its institutional settings

Innovation is the engine of economic development. While much progress has been made, and we welcome initiatives outlined in Backing Australia's Ability, government should commit to ambitious targets in order to drive forward.

Government and industry should:

Facilitate a sustained increase in business expenditure on R&D (BERD) to ensure that Australia moves steadily towards the OECD average (in terms of

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BERD as a percentage of GDP). Business expenditure on R&D in Australia is low by international standards and has slowed in recent years. Government and industry should jointly develop a program of incentives (including tax concessions, tax credits, grants or whatever it takes) to increase BERD and move Australia towards the OECD average.

Ensure that government R&D expenditure increases announced in Backing Australia's Ability are sufficient to put Australia above the OECD average (in terms of Government expenditure on R&D (GERD) as a percentage of GDP) by the end of 2005, and if they are not, fund further increases to enable Australia to reach that target.

Set broad allocative targets for all R&D grant funding, to ensure that it is spent in areas of national priority – rather than simply reinforcing areas of historical activity and running the risk of committing Australia to a slow growth path dependence. These targets should ensure that funding is focused on areas with commercial development potential. We welcome the recent move to target Australian Research Council (ARC) funding into key areas and the current discussion process on Developing National Research Priorities.19 These must be made to work effectively.

Ease access to innovation support and reduce compliance costs. There has been a drift towards grant-based funding and away from entitlements-based funding. This has introduced costs, delays and uncertainty and should be reversed, with greater focus placed on automatic qualification based on meeting key performance criteria.

Commit to funding the ICT Centre of Excellence beyond the five years outlined in Backing Australia's Ability (subject to a review of its operations after 3-5 years), and explore the possibility of establishing additional related centres over the next five years. These should build out from the established core, rather than being duplicative.

Expand the ICT focus of the Cooperative Research Centres (CRC) Program. The limited number of ICT related CRCs and of funding flowing to ICT related activities are points of widespread concern, and should be addressed through setting strategic allocative targets within the CRC Program.

Foster improved clustering and R&D transfer between multinationals, small to medium enterprises (SMEs) and research institutions by, for example, supporting joint activities and exchanges, and acting as facilitator.

Regulation and infrastructure

Connectivity, communication, the protection of intellectual property, privacy and the integrity of transactions are crucial foundations for an information economy. Australia's communications infrastructure and related regulatory framework are advanced by international standards, but we must ensure that they are absolutely leading edge and that we do not fall behind in such areas as broadband take-up. To that end we call on government to:

Ensure access to affordable bandwidth. 'Light-handed' regulation of telecommunications has not delivered price competitive bandwidth in Australia.

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Australia took a positive step by unbundling the local loop, but has yet to make it work. The establishment of a Broadband Advisory Group is welcomed. Telecommunications requires strong regulation, strong competition, or both. In the absence of vigorous competition in some key areas, government must ensure that stronger regulation is introduced and that the possibilities for appeals and delays in interconnect access are reduced. Adopting recent Productivity Commission recommendations and enhancing the powers of the Australian Competition and Consumers Commission (ACCC) would be a first step, but more will be required. The Broadband Advisory Group should seek out innovative solutions to what is now a long-standing problem, and Government must be prepared to change track.

Ensure as open a regime as possible for content. People do not want cables, they want services and content. In order to encourage the take-up of broadband, media and communications regulation must focus on opening avenues for the delivery of more diverse forms of content and seek to overcome existing bottlenecks.

Ensure that all regulations relating to ICT are technology neutral, so as not to hinder the development and use of new technologies.

Ensure that radiofrequency spectrum is allocated in an effective, efficient and equitable manner.

Much progress has been made in establishing elements of the infrastructural base for ICT production, with the emergence of Software Engineering Quality Centres, High Performance Computing Centres, the Advanced Networks Program, and Testing and Conformance Infrastructures. To build on this base and maintain momentum, government should:

Commit to continued funding support for these initiatives at a level that reflects a development path for them.

Seek innovative ways in which to facilitate and support the emergence of such key ICT infrastructures in the future, as needs arise.

Internet and e-commerce

Trust in the protection of intellectual property, in the privacy of personal data and the security of online transactions are critical barrier issues. Building trust through appropriate regulation and enforcement is vital. Government has pushed forward in key areas of copyright reform, privacy and the 'Digital Agenda', and great progress has been made. Nevertheless, there is scope for further reform and refinement.


Continue to work towards an open and supportive framework for e-commerce, avoiding the introduction of counterproductive and unenforceable regulations.

Implement the recommendations of the House of Representatives Standing Committee on Legal and Constitutional Affairs on strengthening copyright enforcement, as outlined in their report Cracking Down on Copycats.20

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Push forward on the repeal of parallel importation restrictions relating to computer software, which provide an unjustifiable monopoly over distribution of content-based products and are anomalous in a globalised economy.21

Increase the resourcing of those charged with detecting and preventing the importation of counterfeit and pirate products, to ensure that parallel importation does not lead to increases in copyright infringement.

Ensure that 'electronic' crime detection is adequately resourced, and that penalties are equivalent to those imposed for other property crimes.

Extend privacy legislation to all businesses, both large and small, to ensure consumer confidence.

Provide resources and education programs to enable ICT companies to understand and comply with the new privacy regulations and be in a position to implement appropriately complying information systems into their clients' businesses.

Continue e-commerce awareness and support activities, to enable Australian public and private sector organizations to more fully realise the potential benefits of ICT applications.

Building businesses

The rewards from innovation will be reaped through building businesses. This can be fostered by supporting the creation and emergence of start-ups, helping them develop the necessary business and marketing skills, helping them attract investors to enable them to grow, encouraging greater attention to market awareness, market development strategies and marketing, encouraging the development of market and solution oriented clusters, and easing access to export markets through reducing barriers to trade and facilitating outward investment. One of the keys will be to develop innovative, solutions oriented clusters.

Commercialisation and growth

Recent years have seen considerable progress in respect to establishing the conditions for commercialisation, with solid achievements in such areas as venture capital and incubators. These should be further developed and complemented with renewed attention to a range of business improvement and cluster development initiatives.

We call on government and industry to:

Focus on cluster development, by adopting a cluster-based development framework. For example:

Make cluster development a key element of the ICT future framework, beginning from the identification and analysis of existing and nascent clusters involving researchers, developers, producers, users and regulators, and focus initiatives on their facilitation and development;22

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Identify key vertical markets for ICT solutions, and develop a series of vertical market cluster initiatives;

Identify key technology strengths with real commercial potential, and develop a series of technology commercialisation cluster initiatives;

Develop a leading edge users program, to bring together users and producers, support the development and take-up of innovative business oriented solutions and act as demonstrator and reference sites (ie. leading edge user-based clusters);

Enhance and extend networking and alliance support, to enable the development of R&D, commercialisation, supply-chain, marketing and market access alliances; and

Enhance and encourage the integration of multinational firms (MNCs) into the local economy, embedding their activities and investments by encouraging 2-way skills and technology transfers and furthering opportunities for the development of strategic R&D, commercialisation, supply-chain and market alliances.

Revisit, renew and rationalise business improvement programs. Existing business improvement programs lack the focus, coordination and funding necessary to really make a difference. Government should revise and expand its business improvement program, putting increased emphasis on management, marketing, networking and cluster development.

Commit to funding the Building on IT Strengths (BITs) program beyond the five years outlined at its launch in 1999, and increase program funding in order to build further momentum in the commercialisation of Australian innovations.

Harness government procurement for development, and bring it into the leading edge users program where appropriate. To this end the Australian Information Industries Association (AIIA) has suggested that government should:

Avoid watering down industry development plans in purchasing, outsourcing and telecommunications carrier licensing;

Limit industry development obligations to activities generating investments that are commercially viable;

Simplify and scale the procurement process to ensure that the costs of procurement to all parties are less than 5% of the value of the contract;

Remove uncommercial government contract specifications, such as unlimited liability;

Prevent the creation or renewal of individual agency supply panels, by ensuring that endorsed supplier arrangements are the only pre-qualification required;

Mandate the use of GITC4 by all government agencies; and

Develop a comprehensive database to promote the capabilities of SMEs to government agencies and other potential business partners.

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Market development, marketing and market access

Developing Australia's productive capacity will only lead to prosperity if our products, services and solutions reach world markets. Many industry stakeholders now see marketing and market development as a critical barrier.

In order to further develop marketing and markets, and enable the globalisation of Australian industry, government and industry should:

Commit to supporting ICT trade access activities, including those of the Department of Foreign Affairs and Trade (DFAT) and Austrade, and the range of international promotional activities (eg. CeBit), to at least their current levels, and explore the cost-benefit of expanding these activities.

Commit to maximising market access and minimising trade barriers by, for example, supporting reciprocal trade agreements, pursuing all opportunities for export access, and working with industry to identify and overcome barriers to trade.

Establish an initiative focusing on an evolving set of vertical markets for solutions which the Australian ICT industry can supply (eg. in such fields as education, health, mining and resources), featuring targeted promotion of Australia ICT-enabled solutions into vertical markets (eg. through non-ICT industry trade fairs, etc.).

Support the further development of shared facilities for SMEs in target markets (eg. serviced office accommodation), to enable them to establish a presence in overseas markets using facilities on a fee-for-services basis (ie. the international marketing equivalent of technology incubators).

Provide greater support for outward direct investment by Australian-based firms, in order to enable them to expand into international markets. Direct investment is particularly important in the services sector, where there are inherent and regulatory barriers to cross-border trade, and greater need to expand operations into overseas markets.

Support local subsidiaries in their quest for global and/or regional mandates by providing practical and responsive support for their efforts to 'win business' within their global organizations.

Support SME sales to/through multinationals with a finance-insurance scheme equivalent to Export Finance & Insurance Corporation (EFIC) in the export arena, in order to align the perceived risks of purchasing from large and small suppliers.

Support industry participation in international standards development activities, building upon and extending the work of Standards Australia's CITEC board and other initiatives currently operating.


While significant progress has been made, many industry stakeholders believe that large scale investment remains one of the critical 'missing ingredients'. Major direct investment into the ICT industry, and the 'organic approach' of local R&D and its

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commercialisation, are both paths to ICT industry development. To date, the major focus of policy has been on innovation and its commercialisation – the 'organic approach'. While this is welcomed, it should be recognised that it is a much slower development path, and leaves largely unanswered the critical issues of scale, branding and rapid access to global markets.

Australia should continue to focus on R&D and commercialisation initiatives, as well as enhance production, market development and marketing capabilities through cluster development and business improvement programs (as outlined above). These are necessary, but they are not sufficient. Large scale foreign direct investment is required to build momentum now, and to provide the immediate, established linkages to global markets required in order to reap the maximum rewards from products, services and solutions with relatively short life-cycles. Australia must, therefore, engage in pro-active investment attraction, strategically targeting major investments.

Investment attraction

More coordinated and pro-active investment attraction is essential. In the run-up to the 2001 election the Government promised to introduce an enhanced ICT Investment Attraction Strategy. We welcome the initiative, and in pushing forward its implementation we call on Government to:

Ensure the full implementation of the structural reforms outlined in the 'Blackburne Review', including:

Establishing Invest Australia as a single prescribed agency charged with a whole-of-nation investment attraction agenda and led by a high profile Chief Executive;

Developing a whole-of-nation strategy for proactively promoting and attracting direct investment into Australia; and

Promoting a coherent Australian brand image for investment and trade.

Adopt a cluster-based approach to identifying and developing strategic investment targets, which takes account of the strengths and weaknesses of the Australian ICT industry, global market opportunities and threats, the paradigm shift from 'technologies and boxes' to 'solutions and services', and the advantages of close developer–producer–user relations in vertical markets. Australia can learn much from overseas experience of cluster-based investment attraction (eg. Scotland, Ireland and Singapore).

Take full account of the strategic and spillover benefits in investment attraction and facilitation assessments. Project assessments should take into account the strategic value of the ICT sector for future prosperity, and ensure that the strategic and spillover benefits are not ignored simply because they are more difficult to quantify.

Shift the focus of investment attraction and facilitation towards centres of excellence and centres of expertise, to build on skill development and innovation initiatives and further embed international investments into the fabric of the Australian economy.23

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An investment fund and special deal

Both the scale and nature of the investment attraction necessary to break the mould will be different from that available to date. To break out of the 'straight-jacket' and overcome the problem of scale government should:

Establish an Investment Fund of at least $1 billion over 10 years to bring scale and focus to investment attraction and promotion activities.24

Create a special deal, over and above existing Invest Australia activities, in which:

The special deal would be available for a limited 5-10 year window;

It would be available only for large scale projects in strategic areas, targeted for attraction following in-depth analysis;

A minimum level of investment would be set (eg. $500 million within five years) below which the project would not qualify for special treatment;

It would not favour either domestic of foreign multinationals, being available to any project that meets the strategic and scale criteria;

The agreement would involve making a dedicated fund available for that project (eg. 10% of the investment), which would be used to make the investment work;

It would not be a cash handout, but rather a fund set aside and immediately available for any activity that would overcome potential problems or barriers to making the investment work.

Such an approach would be a win-win: not a handout, but a way to reduce the investment risk and ensure the success of the project, while at the same time focusing the upgrading of the Australian economy in areas that 'the market' has identified as opportunities.

(See Appendix E for details)

The investment environment

Although it is no longer a sufficient condition, establishing and maintaining a competitive and open business environment is necessary for growth and prosperity. Government must commit to maintaining a competitive investment environment, and press ahead with outstanding taxation reforms.

To that end we call on government to:

Continue to work to ensure the ready availability of venture capital and seed funding, ensuring that existing initiatives are sufficient and are continued for as long as they are required.

Push forward on some of the detailed areas of taxation reform which still require attention, in order to encourage investment in the sector (as promised in Putting Australia’s Interests First).

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Improve the tax treatment of Employee Share Ownership Plans (ESOPs) in order the facilitate risk sharing and access to capital during growth – by, for example, deferring the tax liability until realisation and treating any increased share value as capital gain rather than income (as promised in Putting Australia’s Interests First).

The way ahead

Government must recognise that having a local ICT research production capacity enables the rapid take-up and deployment of ICTs across the economy. It is equally important to realise that ICT production and trade play a significant role in driving productivity and employment growth.

By joining with industry in providing vision and leadership, focusing on establishing and maintaining a platform for production and on building businesses scaled by investment, governments can underpin ICT development in Australia. By failing to do so, they can undermine it.

The ACS calls upon governments and other industry stakeholders to join forces, constructively develop and debate policy options, build on the lessons of the past and strive for a brighter future.

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Appendices

Appendix A: Do we need to review the current settings?

There have been many developments over recent years, with encouraging signs in regard to the productivity impacts of ICT use. However, recent statistics raise some concerns in regard to local industry development. For example, since the mid-1990s there appears to have been a decline in the number of specialist ICT manufacturing enterprises in Australia and a slowing of growth, even decline of locally produced ICT equipment exports. Given this performance the recently established review of ICT related policy is both timely and welcome.

Growing the domestic industry

There were around 20 340 ICT businesses operating in Australia in 1998-99, more than double the number reported in 1992-93. Both information and communication services have experienced strong growth in the number of businesses, but equipment manufacturing and distribution are in decline. From 4 383 businesses in 1992-93, the number of equipment manufacturing and distribution business grew to 5 207 in 1995-96, but has since declined to 4 130. Consequently, there were fewer ICT manufacturing businesses in Australia at the end of the 1990s than there head been at the beginning.25

Similarly, while there was considerable growth in employment in Australia's ICT industry during the early 1990s, employment has since declined. Specialist ICT businesses created up to 77 000 additional jobs in Australia between 1993 and 1996, but lost almost 2 500 jobs (net) between 1996 and 1999 – a remarkable decline in what are supposed to be high growth industries.26

Achieving global scale

There are a number of large enterprises in telecommunications, manufacturing and services, but the ICT industry is dominated by small businesses. In 1999, 96% of all specialist ICT businesses operating in Australia employed less than 20 people. Less than 1% of businesses in the industry employed 100 or more people, and only 3% employed between 20 and 99 people.

One of the aims of ICT industry development policies in Australia has been to grow businesses, in order for them to gain the advantages of scale and enable them to be global players. And yet, in 1999 small businesses (ie. those with less than 20 employees) accounted for a larger share of businesses in the ICT industry than they had in earlier years.27 Perhaps more importantly, the industry appears to be hollowing out. The share of medium sized businesses in the ICT industry increased during the first have of the 1990s, but has declined since then.

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The trade deficit

Closing the importexport gap or becoming a net exporter of ICT goods and services has often been seen as a primary goal for policy, the achievement of which would indicate that the Australian ICT industry was indeed innovative, competitive, export oriented and realising its potential to contribute to national prosperity. During the early 1990s, Australia's deficit on trade in ICT goods and services was growing. Encouragingly, however, exports were growing faster than imports. This is no longer the case.

Australia’s total deficit on ICT trade reached $15.6 billion in 2000-01, and it has grown at a compound annual rate of 9% since 1995-96.28 The deficit on trade in ICT equipment reached $16 billion in 2000-01, up from $9.5 billion in 1995-96 and growing at a compound annual rate of 11%. Trade in ICT services realised a surplus of $425 million in 2000-01, having been in deficit to $543 million in 1995-96. However, discounting the one-off impact of the Sydney Olympics on exports of audiovisual content (ie. TV rights) the deficit on trade in ICT services would have been around $580 million.

Table A1 Australia’s ICT trade balance, 1990-91 to 2000-01 ($m)

1990-91 1995-96 2000-01 CAGR1995-96

to 2000-01ICT Equipment -4,915 -9,521 -16,060 11.0ICT Related Services - -543 425 -Total ICT Trade - -10,064 -15,635 9.2

Impact of Sydney Olympics - - 1,003 -

Total ICT Trade (excluding the Olympics) - -10,064 -16,638 10.6Notes: All data are current values. CAGR is compound annual growth rate.Source: Houghton, J.W. (2001) Australian ICT Trade Update 2001, Centre for Strategic Economic Studies, Melbourne, p31 (updated with more recent Balance of Payments data).

In short, Australia’s ICT imports have grown faster than exports since the mid 1990s, and the deficit on trade in ICTs is blowing out. Most disturbingly, especially given the low dollar, Australia’s (domestically produced) ICT equipment exports are now lower than they were in the mid 1990s.29 Australia is one of only two OECD countries in which ICTs accounted for a lower share of total merchandise exports in 2000 than they had in 1995.

The balance of trade in ICT equipment per capita indicates the extent of national dependence upon imported ICT equipment and how much ICT imports are costing. During 1999, Australia ranked 24th among 28 OECD countries, with Australia’s deficit on trade in ICT equipment costing USD 325 per head of population. The average for OECD countries was a deficit of USD 36 per head of population.

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Figure A1 ICT equipment surplus/deficit per 1 000 population, 1999 (USD)

Source: SourceOECD. Available at www.sourceoecd.org, accessed November 2001.

Competing at home

The shares of income derived from domestic production and imports indicate how competitive local products are with equivalent imported products. Services are not highly traded, so the share of income derived from domestic production in the services sector remains high. Local production accounted for 91% of industry income in IT services, and 90% in communication services. However, in other sectors imports account for a major share of income. In 1998-99, imports accounted for 52% of the income derived from sales of packaged software, 60% of the income derived from sales of communication hardware, and 74% of the income derived from sales of computer hardware.

Disturbingly, domestic production has declined significantly since the mid-1990s. In 1995-96, domestic production accounted for more than 51% of income from the sale of packaged software in Australia. By 1998-99, it accounted for just 29%. Similarly, domestic production accounted for almost 30% of income from ICT equipment sales in 1995-96, but by 1998-99 it accounted for just 22%.30 This suggests that Australian ICT producers are not holding their own against competition from imports.

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Contributing to the Australian economy

In 1998-99:

Australia ranked last among the 18 OECD countries for which data are available in terms of the contribution of the ICT industry to the national economy – at 4.1% of business sector value added, compared to an OECD average of 7.4%;

Australia ranked 21st of 24 OECD countries in terms of the contribution of the ICT industry to business sector employment – at 2.6% of total business sector jobs, compared to an OECD average of 3.6%; and

Australia ranked 22nd of 28 OECD countries in terms of the contribution of ICTs to exports – with ICT exports accounting for 4.4% of total merchandise exports, compared to an OECD average of 12.5%.

Figure A2 Share of ICT industry value added in total business sector value added in OECD countries, circa 1998 (%)

Source: OECD (2000) Measuring the ICT Sector, OECD, Paris.

On any measure, the ICT industry is not contributing anything like as much as it could be to the Australian economy.

ICTs and productivity

There is an increasing number of studies that show productivity benefits from the use of ICTs. This has led some to suggest that Australia can simply be a user of ICTs, and should not worry about being a producer. However, realising the benefits of being a

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user of ICTs should not blind us to the potential benefits of being a producer. The recently published OECD report, Science, Technology and Industry Scoreboard 2001, presents some interesting statistics on ICT production and productivity.31

Looking at productivity growth for the decade of the 1990s (adjusted for the business cycle) the OECD reveal that those countries with the largest growth in GDP per hour worked (ie. labour productivity) were Korea, Ireland and Luxembourg. Australia ranked 9th and the United States 12th, both well behind the leading three. Ireland and Finland experienced the highest multifactor productivity growth during the 1990s, well ahead of all other OECD countries.

Looking at ICT production the OECD reveal that the three countries with the highest share of ICT value added in business sector value added in 1999 (ie. of ICT production in total production) were Ireland, Finland and Korea; the top two countries in terms of ICT equipment share of manufacturing trade were Ireland and Korea; and the three countries with the highest trade surplus in ICTs were Ireland, Korea and Finland.

Table A2 ICT production and productivity performance

Highest labour productivity growth during 1990s Korea Ireland Luxembourg

Highest multifactor productivity growth during 1990s Ireland Finland Belgium

Highest ICT value add in economy Ireland Finland Korea

Highest ICT share of manufacturing trade Ireland Korea -

Highest ICT trade surplus Ireland Korea Finland

Source: OECD (2001) Science, Technology and Industry Scoreboard 2001, Paris.

Obviously, Finland, Korea and, to a lesser extent, Ireland are advanced users of ICTs. But is it a coincidence that the leading producers of ICTs during the last decade have experienced the highest labour and multifactor productivity growth during the decade? There is emerging evidence of the productivity benefits of being an ICT user, but the benefits of being an ICT producer should not be overlooked.32 The U.S. Department of Commerce recently noted that the ICT producing industries in the Unites States “continue to contribute disproportionately to overall economic growth.”33 Over the period 1996-99, the ICT producing sector accounted for an average of just 7 per cent of U.S. GDP, but was responsible for an average 29 per cent of the country’s overall real economic growth. During 2000, the ICT producing sector accounted for 8 per cent of U.S. GDP and 26 per cent of real economic growth.34

Can we simply be users?

There is some evidence that Australia’s formerly strong record on ICT adoption has recently flagged, relative to other OECD countries. For example:

In July 1995, Australia ranked 7th among OECD countries in terms of internet hosts per 1 000 population, but by July 2001 Australia’s ranking had slipped to 10th;35


In July 1998, Australia ranked 9th among OECD countries in terms of web sites per 1 000 population, but by July 2000 Australia’s ranking had slipped to 13th;36 and

In June 2000, Australia ranked 13th among OECD countries in terms of the penetration of broadband (with 0.59 adopters per 100 population, compared to an OECD average of 1.96 and Korea's 13.9), but by June 2001, just one year later, Australia's ranking had slipped to 16th.37

Figure A3 Broadband penetration per 100 population, June 2001

Source: OECD (2001) The Development of Broadband Access in OECD Countries, Paris, p14.

Harvard University's Center for International Development recently ranked Australia 14th in the world on its 'Network Readiness Index', which is a composite indicator based on infrastructure, technology and policy factors. Within the composite 'readiness' index, Australia ranked 20th in terms of internet access costs, 21st in terms of education levels and the extent to which ICTs are incorporated into learning systems, and 32nd in terms of ICT opportunities – this latter putting Australia below such countries as Estonia, Greece, Portugal, Brazil, Costa Rica, the Czech Republic and Chile.38

These trends and rankings suggest that without a vibrant ICT producing industry it is becoming more difficult for Australia to keep up with the leading countries in terms of adoption and use of ICTs.39 This is because ICT producers and users are highly inter-dependent. As the Chief Scientist recently noted:

"It is not sufficient for Australia to be a fast user of other nations’ technology. We must have leading edge capabilities so that we can develop pioneering

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technologies that will ensure the competitiveness of our industry in the global marketplace of the future."40

Similarly, the Prime Minister’s Science, Engineering and Innovation Council recently noted that: Australia will struggle to maintain its strong economic performance if we do not have a focused effort to continually up-date Australia's domestic capacity in ICT innovation and production. [Without ICT research and production capabilities] we may well lose the capability to be intelligent purchasers of ICT goods, let alone pioneers.41

Is it too late?

Some argue that ICTs are mature technologies. But few people would predict that there will be less information processing and communication in the future – indeed most would predict more. It is notable that studies of patenting activity reveal that ICT related patenting continues at a faster rate than many other areas of science – comparable to biotechnology.42 This is not a characteristic of mature technologies: quite the opposite. So, far from being mature technologies, the ICT revolution is set to continue. There are still many opportunities awaiting ICT producers in the future.

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Appendix B: How did we get here?

This section presents a brief review of recent policy developments, because it is only by understanding how we got here that we can learn from experience and build on past achievements.

Partnerships for Development

The major ICT industry program operating during the 1990s was the Partnerships for Development (PfD) program, which emerged from a reformulation of civil offsets in 1987. The Partnerships Program focused on using government purchasing leverage to encourage multinational companies (MNCs) in the ICT industry to invest in a range of production activities in Australia. Under the program MNC suppliers of ICT goods and services to Governments were invited to deepen their involvement in the Australian economy by:

entering into 7 year agreements to increase their level of R&D activity to 5% of turnover;

increasing exports to 50% of their imports; and

increasing the local value added of those exports to 70%.

The underlying rationale was 'information failure', based on the belief that once the MNCs realised that Australia was a good base for business they would drive industry development through further investment. The PfD program was later extended, with similarly focused Fixed Term Agreements (FTAs) for smaller, locally-based firms and by telecommunications carrier Industry Development Plans (IDPs), which sought an orderly transition for carrier purchasing.

It was widely believed that these programs had a positive impact.43 Investment increased, local production and exports began to expand at a faster rate, and employment in the ICT industry increased. It was also widely believed that this increase in activities made a positive contribution to prosperity, not only directly, but also by shifting the structure of production towards elaborately transformed manufactures (ETMs).44 Nevertheless, when a new government came to office in 1996 a thorough review of what was by then a decade old policy framework was due.

A timely review

A wide ranging review of business programs was conducted by a team led by Mr David Mortimer (then Chairman and Chief Executive of TNT) and supported by a secretariat drawn from a number of Commonwealth Government Departments. The Review's findings were released in Going for Growth: Business Programs for Investment, Innovation and Export (the 'Mortimer Report') in June 1997.

A National Information Industries Taskforce, chaired by Professor Ashley Goldsworthy, was also convened in late 1996 to develop a strategy specifically for the ICT industry.

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Announcing the creation of the Information Industries Taskforce, the then Minister for Industry, Science and Tourism suggested that: The Government recognised the size and importance of the information technology and telecommunications industries, but believed that the policies aimed at developing the industries had not kept pace with the advancement of the information industries. The Minister suggested that the 1987 Information Industries Strategy was out dated, and that in recent years policies had developed on an ad-hoc basis. He called for a new national approach, which considers the interests of industry and users, which has the commitment and support of the State and Territory Governments and which adopts a long-term strategic view.45 The Taskforce's findings were release in The Global Information Economy: The Way Ahead in July 1997.

These two reports formed the principal inputs to the Howard Government policy statement, Investing for Growth: The Howard Government's Plan for Australian Industry, which was launched in late 1997, and the subsequent Information Industries Action Agenda.46 Since then there have been a number of reviews and reports looking at various aspects of policies and programs relating to the ICT industry.47 Elements of these were picked up by government in its recent statement, Backing Australia's Ability: An Innovation Action Plan for the Future, which was released in January 2001. A brief review of these reports and responses provides a basis for understanding how ICT industry policy has evolved.

The 'Mortimer Report': Following a wide ranging review of business programs, the 'Mortimer Report' concluded that: programs did not operate within a clear policy framework; there was little guidance as to the correct role of, or expenditure on business programs; program objectives were often poorly specified, and reviews usually found it hard to determine whether to increase, amend or cancel programs; programs appeared ad hoc or too small for the specified task, and many programs appeared ineffective.

The Mortimer Review suggested that government should set a growth target and harness business programs for growth by focusing on five key areas – boosting business investment, encouraging innovation, expanding exports, enhancing competitiveness and ensuring sustainability. It called on government to:

adopt a whole of government industry policy, with the central aim of doubling Australia’s GDP growth per head of population (to 3.4% pa over 10 years);

collapse the current range of business programs to a suite of five, with more funding certainty;

determine that all business programs must conform to key principles;

establish Invest Australia, and allocate an additional $1 billion funding over five years for investment incentives;

standardise all innovation programs;

retain, but adjust, the main export programs;

consolidate business competitiveness programs;


target sustainable resource management programs towards measurable objectives; and

focus program delivery through fewer delivery agencies, and apply the purchaser/provider model.48

The report also outlined detailed costings showing how this could be done within the overall limits of existing business program expenditure (estimated to have been $2.8 billion in 1997-98).

The 'Goldsworthy Report': Focusing more specifically on the ICT industry, the 'Goldsworthy Report' suggested that to prosper in the 21st century Australia must be a leading user and producer of ICTs, because experience suggests that leading edge producers and leading edge users form mutually reinforcing relationships. The report also suggested that: capital was becoming more mobile, so we must compete for investment; there was a need to affect a transition from leverage-based to incentive-based industry policies; there was a need for greater recognition within governments of the size and importance of the information industries; and there was a need for governments to show a sense of urgency about information industry issues and national leadership in their resolution. The Taskforce concluded that:

the information industries play a key role in enabling businesses in all industries across the economy to raise their productivity and compete internationally;

communication and information technologies can lead to employment problems and opportunities new opportunities emerge as old activities die;

current trends in information and communication technology production and consumption were likely to lead to trade deficit problems;

in many areas of the ICT and user industries Australia was simply not choosing to compete managements were too domestically focused;

there was too little policy appreciation of the nature of competition in the real world, and too much reliance on textbook theory;

to be a significant player in the information industries global scale is required;

there is strong international competition for investment capital and Australia was uncompetitive at attracting global investment in the information industries;

the taxation regime was anti-growth and far too complex;

a competitive business environment is a necessary, but not a sufficient condition for investment and success in the information industries; and

most developed countries already had major information society initiatives which featured leadership, focus and coordination.

The Taskforce outlined seven key challenges facing Australia: recognising the size, impact and strategic importance of the information industries, and the need for a National Information Industries Strategy; national leadership; proactive investment attraction; going global exporting information and communication technology to the

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world; enabling and empowering users across the economy; enhancing skills formation, education and training; and enhancing research, development and innovation. The Taskforce put forward more than 50 detailed policy recommendations which aimed to enable Australia to meet these challenges. They included:

that there be a cabinet level Minister and single Department responsible for ICT development;

government should establish an information economy development fund pointing to the sale of Telstra and radiofrequency spectrum as possible sources of revenue to underwrite such a fund;

governments should establish mechanisms for CommonwealthState cooperation and coordination in the pursuit of a national strategy;

governments should use outsourcing to maximise industry development potential;

there should be a single agency for nationally focused, proactive investment attraction;

there should be a range of initiatives intended to increase the availability of venture capital, and to ensure that firms are 'investor ready';

there should be fundamental tax reform to ensure that Australia is a competitive location for investment;

there should be greater efforts towards trade liberalisation, and ensuring that firms are 'export ready';

government should provide concessional support for infrastructure exports, and extend the Export Market Development Grants Scheme (EMDG);

government should support local MNCs gaining global mandates, and encourage alliances and export partnerships;

government should enable and empower ICT users, by kick-starting electronic commerce and ensuring that Australia has a leading edge and competitively priced communications infrastructure;

government should establish a model framework for regulation of the information economy;

government should enhance skills formation by means of a range of initiatives in tertiary, VET and schools education, and greater linkages between education and industry; and

government should act to enhance research, development and innovation by introducing a more competitive R&D tax concession, providing greater support for major projects and R&D related infrastructure, and ensuring that there is greater focus on ICT related R&D.49

Government's response

Investing for Growth: The Commonwealth Government's response to the 'Mortimer' and 'Goldsworthy' reports was encapsulated in, Investing for Growth: The Howard


Government's Plan for Australian Industry, which took up many, but by no means all of the recommendations put forward.

In response to the 'Mortimer Report' recommendations, the Government announced that it was:

setting a GDP growth target of 4% pa average over the decade to 2010;

substantially increasing targeted support for innovation with the provision of $1 billion over the four years from 1998-99 (with a shift from entitlement-based to grant-based allocation with no increase in the R&D tax concession, which had been reduced to 125% in 1996);

more proactively promoting Australia's advantages as an investment location through the establishment of Invest Australia;

no new investment fund was allocated, but the Government did commit to the provision of specific incentives in limited and special circumstances to attract strategic investment projects to Australia;

extending the Export Market Development Grants Scheme (EMDG), at a cost of $150 million per year for the years 2000-01 and 2001-02 (a steady nominal rate, which implied a real decline);

introducing a new system of Manufacture in Bond (MiB) and consolidating existing Duty Drawback and Tariff Export Concession schemes into one integrated and simplified scheme to be known as TRADEX;

introducing a range of taxation measures to increase the attractiveness of Australia as a financial centre, at a cost to revenue of $80 million over four years; and

adopting a broad ranging Information Industries Action Agenda to foster the development of the information industries (see below).

The budgetary impact of the Investing for Growth initiatives was $1.26 billion over the four years to 2001-02, of which just over $47 million was directed at ICT sector specific initiatives.50

The Government chose not to rationalise and focus business programs, as recommended in the 'Mortimer Report'. Nor did it establish an investment attraction fund. While progress was made towards the separation of policy development and delivery and the creation of a limited number of delivery agencies, there remains a bewildering array of small programs operating through many agencies, and investment attraction remains poorly resourced.

The Information Industries Action Agenda: Investing for Growth also contained the outline of the Government's response to the 'Goldsworthy Report'. It stated that the Government is rising to meet these challenges by:

providing strong leadership, including through the establishment of a Ministerial Council to further develop a National Information and Online Services Strategy and through the appointment of Senator Alston as Minister for Communications, the Information Economy and the Arts;

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encouraging business and consumer confidence by setting a light-handed regulatory framework to support and encourage private sector led development of the information economy;

getting Australia online by encouraging Australia's governments, businesses, communities and education sector to move online; and

fostering the development of the information industries to capitalise on employment growth and export opportunities.

Table B1 Summary of funding initiatives from Investing in Growth, 1997 ($m)

1997-98 1998-99 1999-00 2000-01 2001-02 Total

Mortimer Responses:R&D Start 0.0 43.2 114.7 182.0 215.9 555.8

Innovation Investment Fund 0.0 0.0 11.5 15.4 16.4 43.3

Technology diffusion 0.0 0.0 17.0 27.0 27.7 71.7

Invest Australia 0.0 3.0 3.0 11.0 11.0 28.0

EMDG 0.0 0.0 0.0 150.0 150.0 300.0

TradeStart and Export Access 0.0 1.4 4.0 4.0 4.0 13.4

APEC Market Integration/ Industrial Collaboration 0.0 4.4 4.4 4.4 4.4 17.6

TRADEX 0.0 15.0 30.0 30.0 30.0 105.0

Australia as a financial centre 1.0 14.0 22.0 22.0 22.0 81.0

Subtotal 1.0 81.0 206.6 445.8 481.4 1,215.8

Goldsworthy Responses:

Additional 50 Australian postgraduate awards 0.0 0.6 1.8 3.0 3.3 8.7

Surplus computer equipment for schools 0.1 0.1 0.1 0.0 0.0 0.3

Community access to information technology 0.3 0.3 0.0 0.0 0.0 0.6

Online community awareness campaign 1.3 1.7 0.0 0.0 0.0 3.0Subsidy for replacement of digital receivers and retransmitters

3.2 0.0 0.0 0.0 0.0 3.2

Online access for the disabled 0.0 1.7 1.7 0.0 0.0 3.4Software engineering quality and testing and conformance infrastructure

0.0 7.0 7.0 7.0 7.0 28.0

Subtotal 4.9 11.4 10.6 10.0 10.3 47.2

Total 5.9 92.4 217.2 455.8 491.7 1,263.0

Source: CofA (1997) Investing for Growth: The Howard Government's Plan for Australian Industry, AGPS, Canberra, p95.

Within this framework, major initiatives, included:

facilitating electronic commerce through commitments to removing tariffs on information industries inputs, ensuring goods ordered and delivered electronically remain customs duty free and that there will be no ‘bits' tax on the Internet (ie. there will be no tax based on the amount of information transmitted across the Internet), and conducting a comprehensive review of the legal and regulatory framework;

developing a range of programs aimed at encouraging business and community take up of ICTs, improving access for the disabled and those in remote areas, and enhancing the IT related skills of students and workforce;


establishing the government as a leading edge user through the adoption of new technologies for access to government information and services; and

establishing a national network of Software Engineering Quality Centres to ensure industry has access to appropriate testbed and conformance facilities, removing tariffs on inputs to manufacture of ICT equipment, maximising industry development through procurement and outsourcing programs and facilitating the licensing of rights for intellectual property developed within government contracts to Australian-based firms for commercialisation.51

It was also suggested that the information industries would benefit from access to the Government's R&D, investment incentives and venture capital initiatives available to all sectors.

Many of the recommendations of the 'Goldsworthy Report' were taken up, and have been progressed. However, some recommendations were ignored and the achievements under others have been disappointing. For example:

the Government did not establish an Information Economy Development Fund;

the extent to which government outsourcing has led to industry development is, perhaps, somewhat disappointing;

the Commonwealth Government has not pursued incentive led investment attraction as vigorously as asked, and chose to appoint an outside coordinator rather than show direct leadership; and

the Government has not fully supported outward investment, an export ready program, concessional loans for infrastructure exports, the established a leading edge users program, or the adopted skills enhancement measures of the size and scope of those recommended.

The Information Industries Action Agenda evolved through a number of phases and rewrites, as responsibility for it transferred from the Industry to Communications portfolio. In its first revised form the 'key priorities' were listed as:

Access to capital through the Innovation Investment Fund (IIF) outlined in Investing for Growth (43 million over 3 years);

Formation of intellectual property through the R&D Start program outlined in Investing for Growth ($556 million over 4 years);

Commitment to quality through the Software Engineering Quality Centres and Testing and Conformance Infrastructure initiatives outlined in Investing for Growth ($28 million over 4 years);

Developing global scale through investment attraction, PfDs, IDPs, outsourcing, etc;

Orientation towards global markets through the Manufacturing in Bond, abolition of tariffs on inputs to manufacturing, extension of EMDGs and the introduction of TRADEX (a consolidation of the former duty drawback and tariff concession schemes); and

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Fostering a domestic environment conducive to competitiveness, employment and growth (for which there were no specific initiatives).52

A further evolution took place with the adoption of responsibility for the Information Industries Strategy by the Department for Communication, Information Technology and The Arts (DCITA). The new Minister's 'strategic priorities for the information economy' were listed as efforts to:

Maximise opportunities for all Australians to benefit from the information economy;

Deliver the education and skills Australians need to participate in the information economy;

Advance the growth of a world class infrastructure for the information economy;

Increase significantly the use of electronic commerce by Australian business;

Develop a legal and regulatory framework to facilitate electronic commerce;

Promote the integrity and growth of Australian content and culture in the information economy;

Develop the Australian information industries;

Unlock the potential of the health sector;

Influence the emerging international rules and conventions for electronic commerce; and

Implement a world class model for delivery of all appropriate government services online.53

Among these, only number seven focused on industry development issues. The initiatives identified as 'key areas for action' were, in essence, those previously outlined by the Department of Industry, Science and Resources (ISR). As at 14 th January 2002, the Department's website listed the Information Industries Action Agenda as "all initiatives implemented".

Further program developments: Since 1998 there have been a number of ICT related program initiatives, including: Commercialising Emerging Technologies (COMET); Building on IT Strengths (BITS); and Strategic Partnership Industry Development Agreements (SPIDA).

COMET: In November 1999, the Commonwealth Government announced the Commercialising Emerging Technologies (COMET) Program, which aims to support the commercialisation of innovative products, processes and services by providing tailored support packages for up to 2 years for working with business advisors (up to a maximum of $100,000), and developing management skills (up to a maximum of $5,000). COMET currently involves a commitment of up to $40 million a year.

BITS: In June 1999, the Commonwealth Government announced the Building on IT Strengths (BITS) Program, which aims to build the strength and competitiveness of ICT


businesses, foster much stronger commercialisation linkages with R&D organizations and create clusters of innovative activity. BITS seeks to:

increase the rate of new SME formation in the Australian information industries (especially from R&D organizations), and foster linkages and networking between participants in the information industries sector;

facilitate the availability and use of leading edge network technologies by the information industries sector, in recognition of the role that these networks can play in the development of the information industries and of the broader economy; and

develop further an internationally competitive ICT sector in Tasmania, building on existing Tasmanian Government initiatives and the research capacity of Tasmania's tertiary education sector.

BITS committed $158 million over 5 years to: Incubator Centres to assist ICT SMEs ($78 million), Advanced Networks and Test-beds ($40 million), and Developing Tasmania as an 'Intelligent Island' ($40 million).54

SPIDA: Following the 'Humphry Review' of government IT outsourcing a number of changes were made to the industry development arrangements associated with government purchasing. The Partnerships for Development (PfD) program was replaced by the Strategic Partnership Industry Development Agreements (SPIDA) program. Recognising the importance of reference sites for SMEs selling overseas the government reaffirmed a commitment to source at least 10% of its purchases from SMEs – reporting that in 1999-2000, 27% of the value of Commonwealth contracts went to SMEs (worth approximately $2.6 billion). However, the government also acted to remove specific industry development requirements from all contracts valued at less than $5 million and streamline requirements for larger contracts.55

Recent policy reviews

More recently innovation and the National Innovation System have been examined in a number of reports and reviews, including two with particular relevance for innovation and commercialisation in the ICT industry. Namely: The Prime Minister's Science, Engineering and Innovation Council's Australia's ICT Research Base and the Chief Scientist's The Chance to Change, both released in November 2000. These reports provided key inputs to the Government's major innovation statement, outlined in Backing Australia's Ability: An Innovation Action Plan for the Future, which was released in January 2001.

Australia's ICT Research Base: The Prime Minister's Science, Engineering and Innovation Council (PMSEIC) presented an in depth analysis of the base for ICT related innovation in Australia, and stressed its importance in underpinning both ICT production and use. It suggested that the Australian ICT industry is weak because basic ICT related R&D is underfunded and, therefore, weak. It also pointed out that competitive advantages in high-technology industries around the world have been created through combinations of: attracting MNCs to establish manufacturing plants; building the national skills base; and strengthening R&D (including training capability)

32


in key areas. The report also pointed to the need to set priorities in order to overcome path dependence, which in the absence of specific priority setting simply reproduces the historical industry structures.56

The PMSEIC recommended that government:

increase the level and quality of public sector ICT R&D and enhance the scope for commercialisation of research outcomes – through the establishment of two major ICT Research Centres of Excellence, the creation of 20 ICT Research Chairs, the creation of 35 ICT Research Fellowships, and the introduction of 5 ICT Demonstrator Programs (at a total cost of $555 million over 5 years);

improve the capability of Australia’s ICT research and development infrastructure – through significant and sustained investment in high performance computing systems, advanced optical communication networks, digital libraries, three Microelectronic Technology Centres and a national support centre, and increased participation in national and international standardisation (at a total cost of $161 million over 5 years); and

increase the level and quality of private sector ICT research and development – through using Government negotiating power to encourage MNC’s to undertake more R&D in Australia, strengthening the R&D requirements in telecommunication carrier Industry Development Plans, and development and implementation of a program to facilitate Australian ICT SME’s to achieve a significant global presence (at a total cost of $30 million over 5 years).

In addition to these core recommendations the PMSEIC endorsed recommendations relating to SME cash out of the R&D tax concession, expansion of the BITS and COMET programs, establishment of Innovation Centres (including an ICT-specific Centre), and providing an additional 2 000 student places from 2002. The Working Party also endorsed the need for action in response to stakeholder requests to:

streamline immigration procedures to access overseas skills pools and encourage foreign students with high level ICT qualifications to remain in Australia, and, in particular, to offer permanent residence to individuals with very recent PhDs;

improve on priority setting by government funding agencies, including the Australian Research Council (pointing out that ICT is an important but weak area, and the Council needs relevant policies to remedy the weakness);

improve the university teaching system to cater for greater intakes of ICT undergraduates without adversely affecting ICT research;

make computer science postgraduate funding consistent with engineering and science postgraduate students; and

ensure DETYA’s research funding formula includes recognition of external income from equity or income from the sale of equity in spin-off companies.

The Chance to Change: In 2000, the Commonwealth Government called upon the Chief Scientist to assess the capabilities of Australia's science, engineering and technology (SET) base to meet the needs of Australians in the 21st century. His report,


The Change to Change, concluded that it is not sufficient for Australia to be a fast user of other nations’ technology: we must have leading edge capabilities so that we can develop pioneering technologies that will ensure the competitiveness of our industry in the global marketplace of the future.57 The Chief Scientist noted that our competitors in other countries are showing the way, with their governments viewing the systems that generate and translate knowledge into wealth as the primary focus for sustainable economic development.

The major recommendations for enhancement of the SET base to emerge from the Chief Scientist's Review were:

1. People and Culture:

Provide 200 HECS scholarships for students undertaking combined science/education qualifications and 300 for students of the enabling sciences.

Increase the number of Australian postdoctoral fellowships – doubling would be appropriate. These would be tenable at universities, government-funded research agencies and internationally recognised institutes.

The Commonwealth Government fund the establishment of Federation Industry Chairs in universities or a research entity affiliated with a university on a competitive basis for five years.

Redesign and expand R&D Start Graduate to place SET graduates in SMEs.

The Commonwealth Government show leadership and initiative to raise the importance and profile of science awareness. Activities with a high public profile, such as National Science Week, should be expanded.

2. Ideas:

Implement a priority review process of R&D funding across the Commonwealth Government.

Over five years, double funding for the Australian Research Council’s competitive grants and related infrastructure activities, consistent with the commitments already made for increased funding of health and medical research.

CSIRO, ANSTO and AIMS be given access to competitive R&D funding mechanisms, including commercial loans, be assessed against outputs, and reform incentives for researchers to encourage new business creation.

Consideration of intellectual property be prominent in assessing ARC grant applications, similar to the NHMRC process.

Expand the funding for university research infrastructure and provide a commensurate increase in support for research infrastructure at non-university institutions eligible to receive ARC and NHMRC research grants.

Develop a pilot scheme to test a national site license concept between higher education institutions, government-funded research agencies and publishers in an attempt to keep the price of journals down.

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Commonwealth Government fund 50% of the cost of creating new major research facilities on a competitive basis in conjunction with the States and Territories, publicly-funded research institutions and commercial interests.

Government-funded research agencies, CRCs, and RDCs have access to the initiatives outlined in this report, including Major Research Facilities, pre-seed funds and Innovation Centres.

3. Commercialisation:

Create a cash-out option under the R&D tax concession for R&D expenditure by SMEs and provide suitable incentives to attract significant R&D projects to Australia.

ARC and the NHMRC develop stronger guidelines on commercialisation of research.

Expand the CRC program to encourage greater SME access and to facilitate stronger networks between the SET base and industry, nationally and internationally.

Establish Innovation Centres to provide universities and government-funded research agencies with support in commercialising research.

Establish a pre-seed capital fund for universities, Innovation Centres and government-funded research agencies, such as CSIRO, RDCs and CRCs.

Universities and government-funded research agencies review opportunities for researchers to better share in the benefits of commercialisation with particular encouragement for formation of start-up and spin-off companies.

Universities and government-funded research agencies adopt a more strategic approach to the management of intellectual property.

4. General:

Any additional funding for the SET base should be closely linked to measurable performance indicators.

A Science Capability Implementation Group be established to implement the recommendations endorsed by Government.

Blackburne Review: In August 2001, Dr Ian Blackburne presented a report to the Prime Minister entitled Wining Investment: Strategy, People and Partnership's, which contained a review of the Commonwealth's investment promotion and attraction activities. Recommendations focused on:

creating a one-stop-shop agency, Invest Australia, as an autonomous prescribed agency bringing together the current disparate Commonwealth investment attraction activities;

establishing a Prime Minister's Investment Council (PMIC);

formalising Commonwealth-State coordination by forming a National Investment Advisory Board (NIAB);


develop a coherent national branding / marketing image for Australia;

develop a national strategic plan for investment attraction and promotion;

focus industry specific promotion on those sectors in which Australia has comparative advantage and/or excellent potential; and

fund the activities to at least the current total level (approximately $20 million per annum for commonwealth activities).58

Government's current agenda

The Government's response to these recommendations was outlined in Backing Australia’s Ability, which provided $2.9 billion over five years to fund initiatives intended to stimulate innovation. These included:

providing an additional $736 million for Australian Research Council (ARC) competitive grants, doubling funding by 2005-06;

boosting research infrastructure funding by $583 million;

committing an additional $176 million for world class Centres of Excellence in the key enabling technologies of ICTs and biotechnology;

providing $155 million to support investments in major national research facilities;

continuing the R&D Start Program with funding of $535 million over five years;

reforming the R&D tax concession, including the provision of a premium rate of 175% for additional R&D activity, and a tax rebate for small companies;

expanding the Cooperative Research Centres (CRC) Program with an additional $227 million, and encouraging greater access by small and medium enterprises;

increasing funding to universities by $151 million to create 2 000 additional university places each year, with priority given to ICT, mathematics and science – to be backed by adjustments to existing immigration arrangements to attract more migrants with ICT skills; and

delivering $130 million to foster scientific, mathematical and technological skills and innovation in government schools in those States where the Enrolment Benchmark Adjustment (EBA) is triggered.59

While ignoring a number of the PMSEIC's recommendations, these measures went a long way towards meeting the key demands emerging from the Innovation Summit and the Chief Scientist's review. Among the main omissions from the PMSEIC's recommendations were ICT research chairs, ICT demonstrator programs and specific allocations for High Performance Computing and Advanced Optical Communications Networks in R&D infrastructure funding. However, Backing Australia's Ability included other related measures, such as continuing R&D START, and a range of initiatives aimed at fostering science and engineering education in schools.

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Policy statements for Election 2001

The Knowledge Nation: A key part of Labor's platform for the 2001 election campaign was its agenda for Australia as a 'Knowledge Nation'. Among the wide ranging agenda was a set of proposals for the development of key industries, including ICTs. The Taskforce suggested that The Commonwealth should make it an urgent national priority that all Australian households and businesses have the option of access to digital broadband. This could be done by:

Using the array of Commonwealth power, capacity and influence to expand broadband access. This will include improving the current regulatory arrangements and maintaining majority government ownership of Telstra.

Upgrading the current standard telephone service, which mandates minimum levels of voice telephony service, to a standard communications service that mandates minimum levels of data transmission.

Improving the competitive and regulatory environment to ensure fair access to the Customer Access Network and to ensure that broadband networks are open, digitised and inter-connectable as soon as possible.

Providing incentives, including investing in broadband networks, for the take up of broadband technology.

Making government a leader in the use of broadband technology, including innovative online government services.

Ensuring that all Australians, particularly those in regional areas, have the opportunity to access fixed-price untimed calls nationwide, for both voice telephony and data services.

Removing the existing restrictive and failed datacasting regime and opening up a new digital spectrum to the exciting, potential new services of the future.

Building a national strategy around the growth and development of Australia’s software and digital content sector, including a comprehensive capability inventory.

Using improved government procurement policies to encourage the further development of an Australian ICT industry.

Closing the digital divide by using community and regionally based strategies to improve skill levels and assure affordable Internet access.60

Putting Australia's Interests First: The Coalition's election commitments were outlined in Putting Australia's Interests First: Securing Australia's Prosperity, released in October 2001. It stated that: A Coalition Government will… deliver further improvements in living standards through continuing increases in real incomes and employment. And we will further strengthen the competitive position of Australian businesses… Attention will be specifically given to:

improve the governance, efficiency and effectiveness of the statutory authorities having an impact on business;

review legislation and administrative processes that affect business competitiveness;


address the challenge of the “branch office economy” in the global environment; and

strengthen our active efforts to encourage overseas direct investment in Australia.

The Coalition committed to a range of initiatives aimed a refining the taxation system in order to encourage international investment and skills availability by removing any disincentives within the system, and to adopting and implementing the recommendations of the 'Blackburne Review' into investment facilitation activities.61

In the related Information Industries for the 21st Century action plan, the Government outlined its current initiatives. New initiatives promised for the third term included:

an enhanced investment attraction effort;

a comprehensive digital content strategy; and

the completion and implementation of an electronics industry action agenda.62

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Appendix C: What major insights have emerged?

This section presents a brief note on the insights emerging from some of the major analytical and policy reports produced over the last few years. These highlight key issues and critical dimensions for policy consideration, and provide an essential input to framing a strategy.X

The 'Competitiveness Study': Allen, Allen and Buckeridge's report Spectator or Serious Player provided a major input to the deliberations of the Information Industries Taskforce during 1996-97. It concluded that Australia's ICT industry was not competitive, due to:

small local firm size too small to have a global impact;

Australian capital markets not being competitive with major international stock markets for technology companies (beyond early stage financing);

limited electronics production; and

MNC vendors being oriented to the domestic market, not towards exporting.

Key recommendations included strengthening investment attraction, ensuring the availability of venture capital, and reforming taxation to make Australia a competitive location in which to do business.63

The 'Mortimer Report': The Mortimer Review concluded that programs did not operate within a clear policy framework; little guidance was provided as to the correct role of, or expenditure on, business programs; program objectives were often poorly specified, and program reviews usually found it hard to determine whether to increase, amend or cancel programs; programs often appeared ad hoc or too small for the specified task; and many programs appeared ineffective. The report suggested that government should focus on five key areas – boosting business investment, encouraging innovation, expanding exports, enhancing competitiveness and ensuring sustainability.

The 'Goldsworthy Report': The Goldsworthy Taskforce suggested that to prosper in the 21st century Australia must be a leading user and producer of ICTs, because experience suggests that leading edge producers and leading edge users form mutually reinforcing relationships – rarely does one exist in isolation from the other. It was also suggested that:

to be a significant player in the information industries global scale is required;

there is strong international competition for investment, and Australia is uncompetitive at attracting global investment in the information industries;

government must deal with global industry leaders, as it does with political leaders;

the taxation regime was anti-growth and far too complex; and

there was a need to affect a transition from leverage-based to incentive-based industry policies.


The IPAC Report: A National Policy Framework for Structural Adjustment suggested that the ICT sector is too diverse for a single sector strategy, and concluded that the policy framework should focus on ICTs as an infrastructure like transport or energy.64

Noting the diversity of the ICT sector was an important insight. However, the fact that we have transport policy does not prevent us having industry development policies for the automotive industry (which produces the vehicles to run on our roads) or the building and construction industry (which builds our roads). Similarly, the fact that we have energy policy does not prevent us having a Sustainable Energy Industry Action Agenda. Communications infrastructure policy is important, and there have been significant developments in communications and media policy and in the development of a 'Digital Agenda'. However, these are not a substitute for ICT industry development policy. Unfortunately, the IPAC report appears to have misled some into thinking that they are.

Australia's ICT Research Base: The PMSEIC's report, Australia's ICT Research Base: Driving the New Economy, suggested that Australia's ICT industry is weak because basic ICT related R&D is underfunded and weak; that we need to set priorities in order to overcome path dependence; and that competitive advantages in high-technology industries around the world have been created through combinations of attracting MNCs to establish manufacturing plants, building the national skills base and strengthening R&D (including training capability) in key areas. Importantly, the report concluded that being a leading user is not enough: Australia must also be a leading producer.

PMSEIC members stated that: Australia will struggle to maintain its strong economic performance if we do not have a focussed effort to continually up-date Australia's domestic capacity in ICT innovation and production, because close relationships between leading edge users and suppliers of ICT are important, as are the skills to implement ICT innovations. There is a “first mover” advantage in ICT which underpins the development of competitiveness across all industries, but particularly the services industry. Innovation in new economy sectors such as ICT relies heavily on interaction between users, producers and the science and research system. ICT is becoming increasingly important to the international competitiveness of established products. Weakness in ICT research will reduce Australia's capacity to differentiate goods and services from those of competitors and weaken Australia's overall competitiveness and export performance. Without ICT R&D and production capabilities we may well lose the capability to be intelligent purchasers of ICT goods, let alone pioneers. Purchasing the right solutions cost-effectively requires detailed understanding of ICT.65

The Chance to Change: The Chief Scientists report, The Chance to Change, also concluded that it is not sufficient for Australia to be a fast user of other nations’ technology: we must have leading edge capabilities so that we can develop pioneering technologies that will ensure the competitiveness of our industry in the global marketplace of the future.66 The Chief Scientist noted that our competitors in other countries are showing the way, with their governments viewing the systems that generate and translate knowledge into wealth as the primary focus for sustainable

40


economic development. He also noted that business expenditure on R&D (BERD) is very low in Australia, and must be a focus for attention, and that overseas science and technology linkages are vital for small countries like Australia because much of the technology we use will be imported.

Knowledge Nation: The underlying premise of the Knowledge Nation report was that there is a 'knowledge investment crisis'. The Taskforce clearly stated the belief that Australia could not simply be a user of ICTs; concluding that the impact of ICT occurs through two main channels the rapid adoption and use of information technology goods and services across all industries, and the rapid growth in output and employment in the information industries themselves. The Taskforce suggested that consigning Australia’s economic future to that of just being a good diffuser of technology merely reflects a poor understanding of the nature of technological change. It is increasingly becoming accepted that the productivity jumps associated with the new economy have been most visible in those sectors that heavily use new technology and in those sectors engaged in the production of new technology. Developing a production sector in ICT is fundamentally about value-adding to our existing industries, developing new products and processes, and, importantly, developing our content generation and services sector.67 The Taskforce also stressed the importance of getting the key elements of R&D, innovation and investment attraction working in unison.

Putting Australia's Interests First: The Coalition's election commitments, promised to: improve the governance, efficiency and effectiveness of the statutory authorities having an impact on business; review legislation and administrative processes that affect business competitiveness; address the challenge of the “branch office economy”; and strengthen efforts to encourage overseas direct investment into Australia. In doing so, it placed a clear emphasis on the problems of competitiveness and the need for enhanced investment attraction.68

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Appendix D: What are the elements of a strategy?

Recent policy reports have different foci and use different terminology, but certain themes are common. Distilling those themes gives us the elements of a strategy.

A strategic approach is required

There have been repeated calls for a more strategic approach to industry development. While the meaning of strategic is multifaceted, elements of what is intended are clear.

Taking a long term perspective

The most common feature is a demand for a longer-term perspective that goes beyond the short-termism of Australia's electoral and business cycles. It seems widely accepted that strategic means having a vision about the future, working out how to get to where we want to go, setting targets and working systematically towards them until they are achieved. Criticism of the short-termism of Australian politics and business, and demands for policy and funding time horizons of 10 or even 20 years, rather than the all too common 2 or 3 years, are common.

Focusing on key points of leverage

Another common feature is a demand for a more focused approach, often contrasted with what is seen as the 'scatter gun' approach that characterises much Australian policy. There are calls to:

Focus on a few key sectors of the economy which offer the greatest opportunity for growth in the future;

Focus on Australia's strengths in education, skills, resources and rapid technology adoption;

Focus on value not costs, in order to move up the value chain, rather than engaging in an impoverishing race to the bottom;

Focus on value-adding rather than on the more politically immediate issue of job creation;

Focus business programs on a few key areas in order to bring greater attention to critical issues and marshal limited resources where they can have most impact; and

Focus the delivery of business programs by creating a one-stop-shop in order to reduce search and compliance costs, and make the programs easier to find and access.

Leadership is required

Also common are demands for leadership – for government and/or combined industry-government groups to demonstrate leadership, create a vision of the future, articulate and communicate the strategy for its realisation, set targets, ensure that the necessary resources are mobilised and oversee the processes of implementation. Frustration with

42


the 'conventional wisdom' that the government has no role in the economy beyond setting the base conditions is common. Many suggest that establishing an open and competitive business environment is a necessary, but no longer a sufficient condition. As one leading international analyst put it:

Governments – both national and local – have new roles to play. They must ensure the supply of high-quality inputs such as educated citizens and physical infrastructure. They must set the rules of competition – by protecting intellectual property and enforcing antitrust laws, for example – so that productivity and innovation will govern success in the economy. Finally governments should promote cluster formation and upgrading and the build-up of public or quasi-public goods that have a significant impact on many linked businesses.69

Governments must now play 'active hosts' to increasingly mobile investment, ensure that the conditions are right for the development of clusters, and promote the development of linkages within clusters of developers, producers and users.

Key inputs include education, skills and intellectual property

It is now almost universally accepted that education and skills are going to be key inputs in the emerging knowledge-based economy of the 21st century, and that intellectual property will be the most important form of property.

Investing in education and ensuring the timely availability of the high-level skills necessary to facilitate constant innovation, drive upgrading and renewal, and increase value adding is the single most important investment that governments can make. As British Prime Minister, Tony Blair, put it: "education is our best industry policy." Investing in the creation, development, transfer and commercialisation of intellectual property, through investments in R&D activities and in the national innovation system, are also critical investments for governments to make.

Setting the regulatory environment for the protection of intellectual property and privacy, in order to engender trust in the online world and ensure that businesses which develop and market high value, knowledge-intensive products and services can realise fair economic returns on their investments, is also becoming an increasingly important area for government action.

The process is one of continuous upgrading

Whether it is called innovation or reform, there is widespread agreement that the process must be one of continuous upgrading. It is no one-off adjustment that is required, but rather a continuous process of improvement, driven by ever faster technological change and increasingly intensive global competition.

In addition to creating and maintaining an underlying business environment that encourages investment and entrepreneurship, governments must facilitate and support a full range of business improvement initiatives to ensure continued competitiveness and productivity improvement. This involves such things as:


Supporting and leveraging business expenditure on R&D;

Facilitating and supporting cooperative and collaborative development of technologies and solutions;

Facilitating and supporting technology transfer and diffusion, both internationally and domestically, between public and private sectors and between academia and business;

Facilitating and supporting skills development, enhancement and renewal, for workers and managers, on shop-floors and in boardrooms; and

Generally facilitating and supporting the further development of initiatives focusing on business improvement and competitiveness.

Investment is crucial

Upgrading progresses at the pace of investment, or is limited by it. Upgrading skills requires investment in education and training, upgrading technology requires investment in R&D, and its commercialised depends upon investment in upgrading plant and the productive capacity of enterprises throughout the economy. There is an old adage about the Three 'i's – invention, innovation and investment. Commercial success requires all three.

Much of the recent policy discussion points to the need to:

Ensure that there is a competitive investment environment;

Ensure that seed and venture capital are available for investment in the commercialisation of new technologies and solutions; and

Engage in pro-active investment attraction to maintain and enhance foreign direct investment in Australia.

Framework conditions must be supportive

None of the recent policy reports call for a return to protection or for special favours, assistance or 'business welfare'. Rather, they call for open, transparent business and regulatory environments, which set Australian businesses on an equal footing with international competitors, enable and encourage them to compete with the world's best.

Regulation can be an inhibitor or a driver. Getting the regulatory environment right, and constantly monitoring and updating it are key activities for government. Increasingly important in the emerging knowledge-based economy are such areas as:

Competition policy, in setting the ground rules and ensuring fair and free competition;

Consumer protection, in giving confidence to consumers;

Intellectual property rights and the framework for the development and exploitation of intellectual property;

Regulation of information, including such areas as the security and privacy of online transactions, the internet and e-commerce; and

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Regulation of communications, the media and content industries to ensure the timely and affordable availability of broadband access with the attractive content necessary to encourage and drive adoption.

Linkages make it work

The idea that it is all about linkages is expressed in a variety of ways, such as cooperation, collaboration, alliances and clustering. Nevertheless, the underlying notion that linkages are crucial is all but universal, as are calls for greater policy attention to facilitating, developing and leveraging linkages.70

There are a number of reasons for heightened attention to linkages. Firstly, there is increasing recognition that one of the differences between a traditional industrial economy and the emerging knowledge-based economy is the greater significance of externalities and knowledge spillovers. The dynamic of a knowledge-based economy is not only about the creation of new knowledge, but also about knowledge distribution and the capacity of organizations throughout the economy to access, assess and absorb new ideas. Consequently, the linkages that facilitate the transfer and distribution of knowledge are as important for realising its value as are the researchers, developers and R&D centres that create it. Co-location and clustering are vital enablers of the transfer of high-value, tacit knowledge of the kind which often creates and supports sustainable competitive advantages.

Secondly, global deregulation of capital markets, transport, trade and, to a lesser extent, labour markets, has greatly increased the international mobility of capital, with investment becoming increasingly footloose. The development of synergistic linkages, alliances and clusters of innovation and production help to embed direct investment into local economies and reduce the risk of its departure.

Thirdly, the increasing rate of technological and organisational change and the increasing intensity of global competition mean that business models are becoming more varied and are evolving more rapidly. It is becoming more difficult to identify the key point in a product or service value chain at which value can be realised, with rapid changes in the location of value in the chain. Consequently, capturing as much of the value chain as possible is becoming one key to competitive advantage. This can be done by vertically integrating activities into ever larger multinational firms, and is one of the drivers of their growth. Alternatively, capturing larger segments of the value chain can be achieved through cooperation, collaboration, alliances and clustering. Such alliances and clusters reduce competitive risks by ensuring that wherever value is in the value chain it can be realised by alliance or cluster members, and by the nations in which they locate.

Forging linkages, therefore, facilitates knowledge transfers, innovation, upgrading and renewal; increases the ability of firms to capture value from their activities; and reduces the mobility of multinational investment by embedding it in local clusters. Developing clusters and facilitating more intensive and extensive linkages between suppliers and their clients (be they between local SME suppliers and major MNEs, or between local


suppliers and their customers in key vertical markets, such as health, education, mining or resources) should become a key focus for policy initiatives.

Resourcing must be adequate

There is a widespread sense that business programs are often too small and inadequately resourced to really make a difference. Everyone understands that resources are finite, but well designed and targeted programs that support growth should be seen as an investment, not an expenditure. As individuals we understand that when things are tight we must either learn to live within our means or find another job which enables us to earn more and support the lifestyle we desire. It is really no different nationally. Making cuts to balance the budget should not be the be-all and end-all of economic policy. Rather, we must combine sound economic management with industry development initiatives so that, collectively, Australia can 'get a better job' and enjoy a higher standard of living.

Large scale privatisations, such as that of Telstra, offer a once in a lifetime opportunity to make a significant investment in upgrading the Australian economy. They provide the means to establish a 10 to 20 year economic redevelopment fund with which to underwrite Australia's future prosperity, without jeopardising the record of sound economic management that Australia has achieved.

A sense of urgency is required

Calls for a greater sense of urgency permeate recent policy debate. Australia seems to be paralysed by a deep-seated, almost cultural risk aversion, or, perhaps, by the national delusion that 'she'll be right'.

There are many indicators of economic performance, but few go as directly to the value of Australia's output on world markets and its ability to create wealth as do the exchange rate and growth in GDP per capita. Financial deregulation in the early 1980s marks the point at which Australia truly entered the global economy. Since 1981 the Australian dollar has devalued by 50% against the U.S. dollar (Figure D1) and Australia has slipped from 13th to 26th in the World Bank's ranking of countries in terms of GNP per capita.71 The message is clear: the world no longer values the things we are producing as highly as it did, and other countries are better than Australia at creating wealth.

The well known Australian economist, Saul Eslake, recently said that talk of the declining dollar making Australia more competitive is nonsense: adding that if a continually declining currency were the route to national prosperity, then Turkey, Indonesia, and Bolivia would be the richest countries in the world.72 One of the World's foremost industry analysts, Michael Porter, wrote:

“Cheap labour and a ‘favourable’ exchange rate are not meaningful definitions of competitiveness... The process of expanding exports from more productive industries, shifting less productive industries abroad through foreign investment, and importing goods and services in those industries where the nation is less

46


productive, is a healthy one for national prosperity... The expansion of exports because of low wages and a weak currency, at the same time as the nation imports sophisticated goods that its firms cannot produce with sufficient productivity to compete with foreign rivals, may bring trade into balance but lowers the nation’s standard of living.”73

A scenario which seems to resonate eerily with Australia's recent economic performance, with growing commodity exports on the back of a weak dollar and a burgeoning ICT trade deficit.

Figure D1 Australian-U.S. dollar exchange rate, 1970-2000

Notes: Value of USD against AUD, annual average exchange rates. Trendline added.Sources: OECD and Reserve Bank of Australia.

In order to resist such a slide, Australia must shift its structure of production towards those things for which world demand is growing (eg. by producing ICT products and services), and enhance its wealth creation capacity through a process of upgrading and renewal (eg. through innovatively using ICTs in industries throughout the economy). Australia’s traditional structure of production relies too heavily upon industries that face fundamental limits to their expansion (eg. the environmental sustainability of expanded agricultural production in the face of declining water resources), or decreasing marginal returns (eg. the expansion onto ever more marginal land), or both. We must shift the structure of production towards those industries which do not face fundamental environmental limits, which enjoy increasing marginal returns (eg. knowledge-based

$0.50

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$0.70

$0.80

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70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

US

D

and content industries) and which can both generate and absorb increasing knowledge spillovers.

Summarising the elements of a strategy

The key elements of a strategy emerging from recent policy analysis are clear:



1 See Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia's Information Industries, Allen Consulting, Melbourne, March 1997. Available http://www.isr.gov.au/itt/tskforce/allen/.

2 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.

3 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo, Canberra, November 2000. Available http://www.isr.gov.au/science/review/.


5 See Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia's Information Industries, Allen Consulting, Melbourne, March 1997. Available http://www.isr.gov.au/itt/tskforce/allen/.


7 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo, Canberra, November 2000. Available http://www.isr.gov.au/science/review/.


9 See, for example, Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo, Canberra, November 2000, p9; and PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000, pp1-6 and pp15-16.

10 OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris. There are also important employment implications, with process technologies often being job destroying and product technologies job creating (ie. the typical first round effect of producing ICTs is to create new jobs, while that of using ICTs is often to destroy administrative jobs).

48

http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm

http://www.isr.gov.au/science/review/


http://www.isr.gov.au/itt/tskforce/allen/









11 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce, Washington DC, p23.

12 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce, Washington DC, pp25-26.

13 There is some concern that the advisory groups are not broadly representative. See, for example, The Australian Computer Society (2002) ‘ACS Calls for More Balance in Government Policy Development,’ ACS Press Release, Thursday 28 March 2002. (Available www.acs.org.au). It will be necessary for them to consult widely in order to overcome this perception and ensure widespread stakeholder support.

14 In the past, there has been a tendency to focus too much on technology and what we can produce, rather than focusing on business problems and solutions and what we can sell.

15 The partial privatisation of Telstra and radio frequency spectrum auctions have generated significant revenue streams for government over recent years. There is ample scope to return 2 or 3 per cent of what has been taken out of the sector to support ICT industry development initiatives.

16 A recent report from Accenture noted that: Australia may have met its promise to have all appropriate federal services online by December 2001, but its failure to provide greater levels of interactivity has kept it from ranking alongside the world’s e-government stars. See Nicholas, K. and Bryan, M. (2002) ‘Wanted: a citizen-friendly line,’ Australian Financial Review, April 30, 2002, p31.

17 A recent study undertaken for the Australian Information Industries Association (AIIA) found that the shortage of ICT skills placed up to $5.3 billion of GDP at risk each year, and that Australia faced an ICT skills shortfall of 27 500 university graduates over the next 5 years. See CIE (2001) Breaking the Skills Barrier: Demonstrating the benefits of investment in ICT higher education in Australia, Report prepared for the AIIA, Centre for International Economics, Sydney & Canberra. See also Microsoft Australia (2002) Technology Policy Blueprint: The way forward, Microsoft Australia, Sydney, p31.

18 Project management skills and the capability to successfully deliver complex systems and solutions on budget and on time are critical to the success of both ICT producers and users, and marketing skills are essential for realising a return on investments.

19 See CofA (2002) Developing National Research Priorities: An Issues Paper, May 2002. Available http://www.dest.gov.au/priorities.

20 House of Representatives Standing Committee on Legal and Constitutional Affairs (2000) Cracking down on copycats: enforcement of

49

http://www.dest.gov.au/priorities


We must understand that linkages facilitate innovation, and make linkage policies and cluster development a focus for action;

Policy initiatives must be adequately resourced; and


__________

copyright in Australia, The Parliament of the Commonwealth of Australia, Canberra, November 2000. Available http://www.aph.gov.au/house/committee/laca/previnq.htm, accessed February 2002.

21 Adherence to the principle of territoriality is anachronistic in a globalised world, and the regulatory default should be competition with grants of monopoly given only for a limited time and where their net welfare advantage can be clearly demonstrated.

22 It will be important to think beyond the simple supply chain focus of some cluster analysis, and include all elements of the ICT product system. See, for example, Houghton, J.W. (2000) Innovation and Product Systems, presentation at The Australian ICT Industry Cluster Studies Design Workshop, Centre for Strategic Economic Studies, Melbourne, October 16, 2000. Available at www.cfses.com/documents/workshop/houghton_2/sld003.htm. Some of the papers from the workshop are available at www.cfses.com/clusters.htm.

23 See Thorburn, L., Langdale, J. and Houghton, J.W. (2002) Friend or Foe? Leveraging Foreign Multinationals in the Australian Economy, Australian Business Foundation, Sydney. Available www.abfoundation.com.au.

24 Large scale privatisations and the allocation of radiofrequency spectrum through auctions provide a once-in-a-lifetime opportunity to invest in Australia’s future. It is an opportunity we cannot afford to let slip.

25 Houghton, J.W. (2001) Information Industries Update 2001, Centre for Strategic Economic Studies, Melbourne. Available http://www.cfses.com/.



28 Excluding the one-off impact of the Sydney Olympics on content exports, the overall ICT deficit would have been more than $16.6 billion.

29 Houghton, J.W. (2001) Australian ICT Trade Update 2001, Centre for Strategic Economic Studies, Melbourne. Available http://www.cfses.com/.


31 OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris.

32 See, for example, McKinsey (2001) U.S. Productivity Growth 1995-2000: Understanding the contribution of Information Technology relative to other factors, McKinsey Global Institute, Washington, D.C. which

50

http://www.cfses.com/





http://www.abfoundation.com.au/

http://www.cfses.com/clusters.htm

http://www.cfses.com/documents/workshop/houghton_2/sld003.htm

http://www.aph.gov.au/%0Bhouse/committee/laca/previnq.htm

http://www.aph.gov.au/%0Bhouse/committee/laca/previnq.htm

Appendix E: What can be done?

Our review of recent policy debate and subsequent consultations provide the foundation for a revised strategic framework and updated proposals for action.

A strategic framework for action

At its simplest, a strategy for the development of ICT in Australia must be:

Built on a solid infrastructure, through innovation, skill and professionalism;

demonstrates that U.S. productivity growth in the second half of the 1990s was attributable to six sectors, of which three are ICT producing (ie. semiconductors, computer equipment and telecommunications).

33 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce, Washington DC, p23.

34 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce, Washington DC, pp25-26.

35 OECD (1997) Communications Outlook 1997, Paris, p58; OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris, p69; and Netsizer www.netsizer.com, accessed February 2002.

36 OECD (2001) Communications Outlook 2001, Paris; and OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris, p69.

37 OECD (2001) The Development of Broadband Access in OECD Countries, Paris, p14.

38 Center for International Development (2002) The Global Information Technology Report 2001-2002: Readiness for the Networked World, Harvard University, Boston. Available www.cid.harvard.edu/cr/gitrr_030202.html, accessed February 15, 2002.

39 Part of the relative decline in ICT use in Australia is likely to be attributable to the declining dollar, with Australia realising the lowest (harmonised) price declines for IT equipment, communications equipment and software investments over the period 1995-2000 of nine of the leading OECD countries. See Colecchia, A. and Schreyer, P. (2001) ICT Investment and Economic Growth in the 1990s: Is the United States a unique case? STI Working Paper 2001/7, OECD, Paris, p12.

40 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo, Canberra, November 2000, p9. Available http://www.isr.gov.au/science/review/.

41 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000, pp1-6 and pp15-16. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.

42 See, for example, PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000. Available http://www.dest.gov.au/science/pmseic/.

43 See, for example, BIE (1994) Information Technology and Telecommunications Industries: An evaluation of the partnerships for

51

http://www.dest.gov.au/science/pmseic/



http://www.cid.harvard.edu/cr/gitrr_030202.html

http://www.netsizer.com/

Focused on commercialisation and building businesses;

Scaled by investment; and

Driven by vision and leadership.

development and fixed term arrangements programs, Bureau of Industry Economics, AGPS, Canberra.

44 See, for example, Sheehan, P.J., Pappas, N. and Cheng, E. (1994) The Rebirth of Australian Industry: Australian Trade in Elaborately Transformed Manufactures 1979-1993, Centre for Strategic Economic Studies, Victoria University, Melbourne.

45 Goldsworthy, A. et al (1997) The Global Information Economy: The Way Ahead, Report of the National Information Industries Taskforce, DIST, Canberra, p96. Available http://www.isr.gov.au/itt/golds/.

46 Initially outlined in DIST (1998) Information Industries Action Agenda, DIST, Canberra; and later revised by the Department of Communication, Information Technology and The Arts (DCITA).

47 While there have been many relevant reports and reviews, perhaps the most significant in terms of their specific policy suggestions have been: IPAC (1997) A National Policy Framework for Structural Adjustment Within the New Commonwealth of Information, Information Policy Advisory Council, DCA, Canberra; DCITA (1999) The IT Engine Room: SMEs in Australia's IT&T Industry, DCITA, Canberra; PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, Canberra; and Batterham, R. (2000) The Chance to Change, Report from The Australian Science Capability Review, DISR, Canberra.

48 Mortimer, D. et al (1997) Going for Growth: Business Programs for Investment, Innovation and Export, (the 'Mortimer Report') DIST, Canberra, June 1997, p5. Available http://www.isr.gov.au/events/mortimer/.

49 See Goldsworthy, A. et al (1997) The Global Information Economy: The Way Ahead, Report of the National Information Industries Taskforce, DIST, Canberra. Available http://www.isr.gov.au/itt/golds/.

50 CofA (1997) Investing for Growth: The Howard Government's Plan for Australian Industry, AGPS, Canberra, pvii. Available http://www.isr.gov.au/growth/.

51 CofA (1997) Investing for Growth: The Howard Government's Plan for Australian Industry, AGPS, Canberra, pp65-66. Available http://www.isr.gov.au/growth/.

52 DIST (1998) Information Industries Action Agenda, DIST, Canberra, pp15-19.

53 DCITA (1998) A Strategic Framework for the Information Economy, DCITA, Canberra, p8.

54 See www.dcita.gov.au, accessed January 10, 2002.

52

http://www.dcita.gov.au/

http://www.isr.gov.au/growth/

http://www.isr.gov.au/growth/

http://www.isr.gov.au/itt/golds/

http://www.isr.gov.au/events/mortimer/

http://www.isr.gov.au/itt/golds/

Figure E1 A Strategic Framework for ICT development in Australia

55 See DCITA (2001) Inhibitors to SME participation in Commonwealth Government IT Outsourcing Contracts: Action Plan, October 2001. Available www.dicta.gov.au, accessed January 14, 2002.

56 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000, p8 and p37. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.


58 Blackburne, I. et al (2001) Wining Investment: Strategy, People and Partnerships, A review of the Commonwealth's investment promotion and attraction efforts, August 2001.

59 CofA (2001) Backing Australia's Ability: An innovation action plan for the future, DISR, Canberra. Available http://backingaus.innovation.gov.au/.

60 Knowledge Nation Taskforce (2001) An Agenda for the Knowledge Nation, Report of the Knowledge Nation Taskforce, Chifley Research Centre, Canberra, p2.

61 Coalition Government (2001) Putting Australia's Interests First: Securing Australia's Prosperity, October 2001, p2 and pp17-21. Available www.liberal.org.au, accessed January 15, 2002.

62 Coalition Government (2001) Putting Australia's Interests First: Our Future Action Plan – Information Industries for the 21st Century, Melbourne. Available www.liberal.org.au.

63 Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia's Information Industries, Allen Consulting, Melbourne, March 1997. See pp41-42. Available http://www.isr.gov.au/itt/tskforce/allen/.

64 IPAC (1997) A National Policy Framework for Structural Adjustment within the New Commonwealth of Information, DCA, Canberra. See p5.

65 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra, November 2000. See chapter 5. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.


67 Knowledge Nation Taskforce (2001) An Agenda for the Knowledge Nation, Report of the Knowledge Nation Taskforce, Chifley Research Centre, Canberra, pp26-27. Available http://www.alp.org.au/kn/.

53

Building BusinessesCommercialisation

Business ImprovementClustering & Linkages

Market Access

Scaled by InvestmentStrategic

Large-scale Targeted

Funded to Make It Work

Platform for ProductionInnovation

Institutional EnvironmentInfrastructure & Regulation

Skills & Professionalism

VisionLeadership

http://www.alp.org.au/kn/




http://www.liberal.org.au/


http://backingaus.innovation.gov.au/


Key elements of each of these are outlined in Figures E2, E3, and E4 (below). In each case the left-hand column indicates the key strategic foci, while other columns suggest existing or potential policy initiatives contributing to the outcome. They are indicative, rather than exhaustive lists of initiatives.

A platform for production

The platform for production must support leading edge ICT production for both sale and own use (ie. support both the ICT producing and ICT using industries). Key elements are the funding supports for ICT related innovation, the institutional settings for that innovation, and the necessary infrastructure to underpin innovation in ICT production and use. Governments and industry must support innovation, support the institutional settings for that innovation and support the infrastructure which provides the linkages for the transmission of innovation into commercial reality. Governments must also ensure that the regulatory environment encourages e-commerce and e-business development, and that there is an appropriate supply of skilled and professional people available to make it work (Figure E2).

68 Coalition Government (2001) Putting Australia's Interests First: Securing Australia's Prosperity, October 2001. Available www.liberal.org.au, accessed January 15, 2002.

69 Porter, M.E. (1998) 'Clusters and the new economics of competition,' Harvard Business Review, Nov/Dec 1998, pp89-90. As cited in Mathews, J.A. (1999) Encouraging Knowledge-Intensive Industries: What Australia can Draw from the Industrial Upgrading Experiences of Taiwan and Singapore, Australian Business Foundation, August 1999, p97. Available www.abfoundation.com.au.

70 It is notable that linkage policies and programs are the focus of the most recent World Investment Report. See UNCTAD (2001) World Investment Report 2001: Promoting Linkages, United Nations, New York and Geneva.

71 Based on annual average exchange rates reported by the OECD (2001) Communications Outlook 2001, p284; World Bank estimates using the World Bank Atlas method and reported in World Bank (2001) World Development Report 2000-01, p274; and Eslake, S. (2001) 'Australia’s Economy', Presentation to the Foundation for Young Australians Leadership Forum, Australian Maritime College, Launceston, 7 July 2001.

72 Eslake, S. (2001) 'Australia’s Economy', Presentation to the Foundation for Young Australians Leadership Forum, Australian Maritime College, Launceston, 7 July 2001. Available http://www.anz.com/go/economics, accessed January 2002.

73 Porter, M.E. (1991) The Competitive Advantage of Nations, The Free Press, New York, pp6-9. As paraphrased and cited in Eslake, S. (2001) 'Australia’s Economy', Presentation to the Foundation for Young Australians Leadership Forum, Australian Maritime College, Launceston, 7 July 2001.

54

http://www.anz.com/go/economics

http://www.abfoundation.com.au/


Figure E2 ICT infrastructure: supporting innovation, development and skilling

Support Skilling & Professionalism

ICT places in Schools & ICT

enabled learning

ICT places & and learning

in University & VET

Skilled Migration

Taxation of Temporary

Residents & Expatriates

Professional Development

& Accreditation

Support Infrastructure

Software Engineering

Quality Centres

Advanced Networks Program

High Performance Computing

Centres

Testing and Conformance Infrastructure

Standards (CITEC -

Standards Australia)

Support Regulation

Comms Regulation

Broadcasting & Radio Comms

Media, Cross-Media & Content

Digital Agenda

(IP)

Digital Agenda

(Privacy & Security)

Support Institutional Settings

ICT CRCs

ICTs at the CSIRO

ICT Centre of

Excellence

Innovation Access

Program

Technology Showcase

Support Innovation

Public R&D allocations

(ARC)

Public R&D allocations(START)

Targeting ICT in R&D Funding

R&D Tax Concession

Business ICT R&D

Spending

Many of the elements of a sustainable platform are already in place or in train. Existing elements should be brought together as a coherent platform with longer term commitments to funding, and further developed with new initiatives where gaps are identified and with greater resourcing where necessary. The issues of skilling and professionalism also require constant attention, as do the issues of skilled migration and the taxation treatment of expatriates and those returning from work overseas.

Building businesses

The rewards from innovation will be reaped through building businesses – through supporting the creation and emergence of start-ups, helping them develop the necessary business and marketing skills, helping them attract investors to enable them to grow, and easing access to export markets through reducing barriers to trade and facilitating outward direct investment (Figure E3). Key elements will be support for commercialisation (eg. venture capital and incubators), support for business improvement (eg. investor and market ready initiatives, and user-producer cluster development), support for growth (eg. through investment attraction, linkage formation and cluster development), and support for market access and global expansion (eg. trade and access agreements).

55


Figure E3 Building Businesses: supporting commercialisation, improvement and growth

Support Market Access & Development

Market Access

Initiatives

Bilateral & Multilateral

Agreements

EMDG &

EFIC

AusTrade(DFAT)

Missions, Conferences

& Visits

Support Growth: Linkage & Cluster Development

Clustering & Linkage

Programs

Solutions-based

Clusters

Strategic Alliances & Partnering

Global Mandates for

MNCs

Outward Investment Facilitation

Support Business Improvement

COMET,IT Online

Investor Ready

Market Ready

Business Networking

User / Producer

Interactions

Support Commercialisation

ICT Incubators

Innovation Investment

Fund

Pre-seed Fund

Pooled Development

Funds

Standard IP Agreements

Many of the elements of these business building and improvement activities are already in place. They should be brought together as a coherent program with longer term and higher level commitments to funding, and further developed with new initiatives where gaps are identified. It is time for a major commitment to business improvement and cluster development.


Scale remains a critical 'missing ingredient'. From barrier protection through purchasing leverage, Australian ICT industry development policies have focused on activities scaled to the domestic market. If Australia is to realise its global ambitions we must break through the scale barrier by encouraging, facilitating and supporting large scale, strategic investments.

Centralisation of investment promotion and facilitation within Invest Australia (following the Blackburne review) is a first step. There must also be adequate funding for in-depth analysis of strategic sectors in order to enable sophisticated and targeted investment attraction, as well as thorough analysis of the proposed projects themselves. However, breaking the mould will require a major one-off shock, over and above existing and currently proposed investment attraction activities, for which it will be necessary to make a substantial strategic investment fund available to support large scale, strategic investments in high growth sectors.

56


Figure E4 Breaking the mould - supporting large scale, strategic investments

Large Scale Regional or global market

mandate

Exporting >80% of Australian

output

>10% of world market for that

product or service

Reinvestment / growth plan for

the future

Strategic High value-adding activities

in target sectors

Large or emerging high growth markets

Major MNE that is a leader in its

field

Minimum 10 year

commitment to Australia

Nature of support Special deal - over and above

IA activitiesAvailable for 5-10 year window

Available only for large scale

projects(eg. $500m minimum)

Dedicated fund made available for that project(eg. 10% of the

investment)

Used to make the investment

workNot as a cash

handout

Both the scale and nature of the investment support necessary to break the mould will be different from that currently available. It will require a special deal, over and above existing and proposed Invest Australia activities. In order to achieve the break this special deal might be made available for a 5-10 year window. It would be available only for large scale projects in strategic areas, targeted for attraction following in-depth analysis. A minimum level of investment might be set (eg. $500 million) below which the project would not qualify for special treatment. It would not favour either domestic of foreign multinationals, being available to any project that meets the strategic and scale criteria. The agreement might involve making a dedicated fund available for that project (eg. 10% of the investment), which would be used to make the investment work.

It would not be a cash handout, but rather a fund set aside, available for immediate draw-down, and applicable to any activity that would overcome potential problems or barriers to making the investment work. For example, if the investors found that there were problems with skills supply or with the quality levels of local suppliers, then the fund could be used to enable a local university to work with the investors to develop suitable education and training courses, or to facilitate the necessary supplier improvements, upgrading and quality accreditation.

Such an approach would be a win-win: not a handout, but a way to reduce the investment risk and ensure the success of the project, while at the same time focusing the upgrading of the Australian economy in areas that 'the market' has identified as opportunities. Moreover, because it does not involve a direct subsidy it would be unlikely to conflict with Australia's commitment to free trade and investment.

__________


Appendix F: Priorities for action

Government must recognise that having a local ICT research production capacity enables the rapid take-up and deployment of ICTs across the economy. It is equally important to realise that ICT production and trade play a significant role in driving employment and productivity growth. By joining with industry in providing vision and leadership, governments can underpin ICT development in Australia. By failing to do so, they can undermine it.

This report outlines more than fifty detailed priority actions, three of which are identified as flagship initiatives.

1. Establishing a platform for production to support both ICT producing and using industries – by fostering innovation, developing the necessary infrastructure and regulatory framework, and enhancing skills and professionalism;

2. Building businesses – by fostering business improvement, enabling market access and expansion, and actively facilitating cluster development; and

3. Achieving scale – by creating an attractive investment environment, establishing an investment fund and engaging in pro-active investment attraction.

A complete list of recommendations is presented in the section ‘Priorities for Action’ on pages 3 to 15, above.

58


Appendix G: Reports reviewed & consulted

The primary reports reviewed and analysed are listed in Table G1 (below). A range of other reports were also consulted during the study. The review of these documents provided a foundation for consultations. Together, these provided a basis for the framework for ICT development and policy priorities outline above.

Table G1 Reports reviewed & consulted

Major Reports:

ACS A New Information Industries Strategy of the Nation Feb-97

Allen Consulting Spectator or Serious Player? (The 'Competitiveness Study') Mar-97

DIST (Mortimer) Going for Growth (The 'Mortimer Report') Jun-97

DIST (Goldsworthy) A Global Information Economy: The Way Ahead (The 'Goldsworthy Report') Jul-97IPAC (Cutler) A National Policy Framework for Structural Adjustment within the New

Commonwealth of Information Aug-97

Benson, et al The IT Engine Room: SMEs in Australia's IT&T industry 1999

PMSEIC Australia's ICT Research Base: Driving the New Economy Nov-00

Batterham The Chance to Change Nov-00

Houghton Information Industries Update 2001 Feb-01

ACS Impact of the ICT Industry in Australia May 01

Blackburne Wining Investment: Strategy, People and Partnerships Aug-01

Houghton Australian ICT Trade Update 2001 Oct 01

Microsoft Technology Policy Blueprint: The Way Forward Feb-02

Policy Responses:

CofA Investing in Growth Dec-97

DISR Information Industries Action Agenda ?-98

DCITA Strategy for the Information Economy - Issues Paper Jul-98

DCITA A Strategic Framework for the Information Economy Dec-98

CofA Backing Australia's Ability Jan-01

Federal ALP An Agenda for the Knowledge Nation Oct-01

Federal Coalition Putting Australia's Interests First Oct-01

DCITA Policy Briefs - www.dcita.gov.au Jan-02See notes and references for details.

http://www.dcita.gov.au/

Notes and References

55

Documents

Ict policy review (acs 2002)