The under-indexing of science-based technology companies in Australia’s industrial landscape is clear in the data. Reserve Bank research published last year by Jonathan Hambur and Keaton Jenner showed that non-mining firms had invested less in R&D over the past decade relative to their output than they did over the previous two decades. This decline in investment intensity has been broad-based across multiple firms and across many industrial sub-sectors.
This should matter to the Prime Minister and Treasurer because falling investment correlates with weakening long-term labour productivity and therefore decreasing living standards, real wages, and real asset prices relative to other parts of the world. This issue will ultimately catch up at the ballot box.
The government should be thinking about super-powering midsized companies that have potential to take a leading position globally.
Speaking at the National Press Club last month, RBA governor Philip Lowe noted that despite the strong fundamentals, there was no denying we have “significant issues”. He said one of the things that keeps him awake at night is our weak productivity growth, noting that the numbers had been very weak since the apex of the mining boom. “My fear is the economy is becoming less dynamic,” he said.
But there’s a problem with Lowe’s comments. It is not the job of monetary policy to solve this problem. He is effectively calling on the government to step up to the plate and think forwardly about fiscal policy and structural reforms to address these concerns head on.
CSL has also joined the chorus. It has argued for the Morrison government to do more and with greater consistency. Despite the various R&D policy reviews and proposals, the Morrison government has not done anything that really moves the dial.
What’s a concrete move that the Morrison government could make?
Ultimately, the government should be thinking about super-powering midsized companies that have potential to take a leading position in a global market, and making it very easy for them to do business in Australia. That means looking at everything from how they attract finance to how they get taxed, attract talent, and manage their operating costs.
A second extremely fruitful path is to start attracting world-leading overseas companies to open R&D facilities in Australia. This is a policy no-brainer and it needs a national vision and spokesperson – much like Donald Trump, Xi Jinping and Boris Johnson are doing for their countries.
Global companies need Australia because of the steady and large stream of talent we can offer at scale through our universities and mobile workforce, many of whom speak multiple languages.
We also have a stable business environment, strong rule of law, and pleasant and relatively affordable living conditions. If Austrade were to target 10 such companies – with each of them committing to bringing 5000 employees to our shores over the next decade – the long-term benefits would be immense.
The politics here should be straightforward – these would be all-new jobs, so they would not be displacing any existing work. And these are jobs that would inevitably go to Canada, Singapore, China or wherever else that offers them attractive packages around taxation, treatment of employee equity, relocation costs and affordable real estate. We should be clearer around what we can offer these companies or what they need to make it worth their while.
Although some pockets of government are rising to the challenge – like LaunchVic, working to attract headquarters and operational offices – it needs all hands on deck, much like the post-Brexit approach of the British government.
It needs to start at the top with Scott Morrison, but all levels of government should be tripping over themselves to attract the best and most technologically advanced companies to our shores. This will have pay-offs not only in direct employment but also indirectly by benefiting our retail economy, restaurants, universities and so on.
CSL is a great success story, but it also points to Australia’s economic Achilles heel. The next generation of voters should put politicians on notice that they need to tackle the productivity problem in Australia. Attracting global science and technology companies and building home-grown midsize successes is our only path forward.