Economics and finance, Government and governance, Trade and industry, Science and technology | Australia

18 November 2019

Australia is not doing enough to encourage innovation, but investment in education and support for those institutions that do innovate can create a fairer and more prosperous society, Joshua Gans and Andrew Leigh write.

Australia has an innovation problem. Just eight per cent of Australian firms say they produce innovations that are new to the world – down from 11 per cent in 2013. Innovation collaboration is especially woeful.

Across a sample of around 30 OECD nations, Australia ranked fourth-last for the share of large businesses collaborating on innovation, sixth-last in businesses collaborating with suppliers, and second-last in collaboration between businesses and universities.

More on this: Ideas boom or innovation bust?

Compared with the leading countries, the uptake of automation technologies in Australia is only half as large. The Harvard Atlas of Economic Complexity recently ranked Australia 93rd for the diversity of its economy. The three countries ahead of it were Morocco, Uganda, and Senegal.

Yet the bottlenecks in Australia’s innovation system haven’t delivered a fairer society.

Since the early 1980s, Australia has seen an increase in income inequality and wealth inequality. The homeownership rate is now as low as it has been since the 1950s. Egalitarianism is at risk.

In our new book, Innovation + Equality: How to Create a Future That Is More Star Trek Than Terminator, we argue that it is a mistake to suppose that societies must make a choice between growth and fairness. Creating more entrepreneurs isn’t about increasing the size of the pot of the gold at the end of the rainbow – it’s about removing barriers that stand in the way of would-be start-ups.

More on this: The local dimension to innovation

Part of this challenge is cultural. Surveys conducted by the Global Entrepreneurship Monitor found that 41 per cent of Australians say that they would be deterred from starting a business by the fear of failure.

This is higher than the average in other advanced countries, including the UK, where only 36 per cent are deterred by fear of failure, and the United States, where the fear deters only 33 per cent.

But it’s also about getting the institutions right. For instance, encouraging firms to collaborate with universities on research and innovation would help students get more practical insights, and ensure that firms were doing more to stay on the leading edge of technology.

Creating pathways for young people from disadvantaged backgrounds to try entrepreneurship ensures that society is getting the benefits from talent everywhere, not just in the leafiest postcodes.

This could involve non-traditional strategies, like prize-based competitions. When government or philanthropists are looking for breakthroughs, prizes can attract unconventional innovators who might not otherwise have the track record to win a regular research grant.

Those who think that inequality can be the engine of growth haven’t spent enough time studying the creative process of entrepreneurs. The University of Toronto’s Creative Destruction Lab does this, bringing together innovators and funders to create a market for judgment.

Start-up founders have no shortage of great ideas, but those who fund them –  often successful entrepreneurs themselves – can offer a sense of judgment about which products will find a niche and succeed in the market, and places for these people to come together are crucial.

From materials science to artificial intelligence, the Creative Destruction Lab has fostered relationships and built products that change lives for the better.

Innovation cannot be an exclusive process. If the history of invention teaches us anything, it’s that terrific ideas often emerge in unexpected places. The more opportunities Australia creates to encourage innovation among women, ethnic minorities, and people with disabilities, the more fresh inventions will emerge.

To put a ceiling on innovation talent is to limit the growth potential that can come from those ideas. By investing in education, fostering innovative institutions and encouraging collaboration, Australia can become more innovative, and more equal.

Andrew and Joshua’s new book Innovation + Equality: How to Create a Future That Is More Star Trek Than Terminator was published in October by MIT Press.

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