Thriving in a disruptive world

September 19, 2017

Minister for Industry Innovation and Science, Senator the Hon Arthur Sinodinos, on innovation in research and business.

Thriving in a disruptive world

First of all, let me say that I really jumped at the chance to speak to the summit when I was offered the opportunity because I think it’s a good topic, at the right time, and it’s very important that it’s being done by the Financial Review, which over decades has built up its reputation for being an economically rational voice in the Australian policy debate – and boy, do we really need those voices going forward.

And as Minister for Industry Innovation and Science, my job is to be a voice for rationality, to be a voice for articulating where we’re going in terms of the future, but I need your help. It’s a coalition of the willing and I want to talk a bit about that today.

So for me, when I became Industry Minister at the beginning of this year I said I wanted to make collaboration a hallmark of my efforts in the portfolio, and this summit is a really valuable opportunity for government, entrepreneurs and researchers to collaborate, to listen, and to formulate ideas on how to maximise the benefits of the age of disruption.

Innovation by degrees

I labelled my talk – a footnote almost – Thriving in a Disruptive World, because that’s what Australians will do. I’m relentlessly optimistic about this. I don’t buy the line that we can’t do it. I don’t necessarily believe we can do it the American way, the Israeli way, the Chinese way, the Singaporean way; we’ve got to do it the Australian way, building on our own attributes and on the strengths we have as a country.

And, yes, it means being clear-eyed about where we have problems and difficulties and confronting them, but also being, I think, to some extent charitable to ourselves and accepting there are things we are really good at, and how do we build on those to create what I believe can be one of the most technologically advanced and prosperous countries in the world? I think that’s very important from my point of view.

When I became Minister, I became Minister for Industry, for Innovation and for Science. I’ve got a threefold responsibility, and since becoming Minister I’ve worked to complete the transformation of the Industry part of the portfolio. Industry policy is no longer about protection, it’s not about shielding people from the forces of digital transformation or the work of the future, and I will have more to say about that later. Industry policy is about economic transformation through innovation, which takes many forms.

We’ve got to remember, innovation can be very incremental, it can be very straightforward in response to changes in market conditions, all the way through to the creation of new products, processes and services that maximise the benefits of our first-class scientific and research base.

The fourth revolution

Now, we are in the midst of a fourth industrial revolution. Bill Ferris today was right to talk about the fact that we’re in the middle of this revolution and we’ve got all of this competition going on, where markets and platforms are changing faster than ever before and technological transformation will change every job in every industry.

And we, as a government, are not pretending that we can put our heads in the sand and protect those jobs that are threatened by technological change. I saw a headline in the Fin Review the other day which sort of implied that. That was wrong. The Industry portfolio is moving on and the industry settings in this country are moving on.

Now, we can’t force entrepreneurs to make particular investments, just as we cannot order businesses to adopt specific technologies or command communities to embrace certain industries. We can, however, help to create the conditions for them to innovate, and this means engendering, principally, a culture of collaboration between business, academia, research bodies and government, and it means providing the platforms and the skills that enable Australians to transform their business. It means reshaping our business models to meet new competition, new markets, and new demands, and this is how we’re transforming the portfolio – industry policy in the 21st century.

Areas of innovation and change

It will be a surprise to some of you that- let me take a very prosaic example. Australia’s manufacturing industry is in many ways now becoming more of an exemplar of innovation and change. This is an industry in which big change is underway, particularly as we restructure the auto industry.

Now, that’s a big challenge, to take an industry which had been on the Government teat for 40 or 50 years and to take it through a process of transformation; to put behind car assembly and to say in the future we’re going to focus on high end design, we’re going to focus on smart manufacturing; and we’re doing this through government programs.

Where a government has provided protection over time, there is an obligation to help those industries to actually adjust and then become self-sustaining, and that’s what we’re doing.

We’re providing funds to businesses like Blown Plastics in Adelaide, which have literally transformed themselves from making car parts to supplying complex parts for medical devices. Companies like Marand Precision Engineering – a Melbourne-based company established by a former Holden worker.

Marand supplies advanced industrial precision tools to a range of industries: automotive, mining, aerospace, defence and more. So manufacturing in this country is looking different. It’s servicing global markets with complex goods and services, where the only way to compete successfully is to transform, to be ahead of global trends, and to integrate into global supply chains.

Show me the money

And, yes, we’ve had to put money into this. You have to grease the wheels of change. But that’s how industry policy and that’s how innovation actually occurs on the ground: you provide the conditions and you help companies through.

We can’t help every company, and we’ve actually got Bill Ferris looking at the effectiveness of the assistance we already provide, because, of course, you can’t provide assistance to every company, nor should you have to. We ultimately want companies to stand on their own feet, but we need to find ways that government best assists by providing the right platforms and the right infrastructure.

Now, where is all this leading? Why are we doing all this? Why do we transform industry sectors? Why do we bother? Isn’t it easier politically to just prop a sector up? And even in sectors like steel or rail, where we’re looking at what the future holds for them, we’re saying to them: we’ll help you, we’ll assist you – whether it’s Arrium in Adelaide, whether it’s rail procurement and manufacturing in Australia – if you can become globally competitive. That is the sine qua non of this, that assistance is provided to help transform these industries and to provide the basis for globally competitive activities.

The innovation mindset

Now, what is the vision with this innovation culture that I’m talking about here? I really want it to be the analogue of the adjustment process that we’ve established over the last 20 or 30 years through decades of micro reform. See, what happened with micro reform over the last 20 or 30 years is that we created a very powerful adjustment mechanism in the economy which means that the booms and the busts of the ’80s and ’90s – Michael will remember them well; he was writing about this stuff in Canberra in the Press Gallery.

Remember, every time, inflation would go up, wages would go up, interest rates would go up, the economy would crash. That’s gone. Through the Asian Financial Crisis, through the resources boom of the last few years, look at the way we have accommodated those changes.

There is a powerful adjustment mechanism in the economy, but there’s another adjustment mechanism I want in the economy, and that is the shift to this innovation mindset with a global outlook. So that when we are looking at how we diversify our economy, we’re creating companies and enterprises and entrepreneurs and risk-takers who command a premium in the marketplace because they are producing something no one else can produce, they’re ahead of the curve – very important for us to be able to do that.

And that can help to offset some of the oscillations and the ups and downs we’ve seen of the commodity economy. We ultimately want an economy where overseas people say, this is an economy based on innovation. Yes, we’ll have our resources still, we’ll have our agriculture, we’ll have our services, but across the economy we will be known for being innovative and smart in all of those areas. That’s why I now talk about smart manufacturing; I don’t talk about manufacturing anymore, it’s smart.

Now, there’s been criticism about the Government’s rhetoric around innovation ever since the election, and this is a fair point that we took a bit of a shellacking in the election, there’s no doubt about it, about the term innovation. And people said, oh, that’s equated with people losing their jobs. People are frightened. And people were right to say that when you talk about something in the broad and there’s lots of people out there making lots of money, but making all sorts of predictions about all sorts of jobs that could be lost because of technological change and everything else that’s happening.

We’ve been hearing this for decades, for generations – I’ll come back to it – my point is this: and it’s true that the word innovation, unless you give it some specificity, can worry people because until people see that innovation is actually all the things I’ve said before- and this is how we try and explain it on the ground these days. We don’t explain it by talking about the general concept; we talk about the specifics of how innovation works to make things better for your company, for your community, for your business, your industry. And this is how we have to sell it to our fellow Australians and we have to take our fellow Australians with us.

A time for optimism

And you’ll have lots of talk from the Opposition and others in high-minded ways, talking about the work of the future and the future of work and all these big numbers. Well, I’m very optimistic. I’m a technological optimist. I’m an economic rationalist and a technological optimist, and I believe that we will benefit mightily from the changes that are coming, but we have to take people with us, no doubt about it.

All those communities that feel somehow they’re going to miss out on change, that’s part of the role of government, to make sure that people know they’ll get a fair crack of the whip. They’ll get a fair crack of the whip because we’ll make sure structural adjustment programs, we’ll make sure the education and training system, our systems of training and re-training, learning and re-learning, adapt to the new world. Is that hard work? The longer I stay in this portfolio, the more I see those issues around education and training as germane to everything else we’re trying to do. And yes, it is hard work.

We’re a federation; we don’t control all the levers. And yes, we’ve got immigration policy, the states have got vocation, education and training; we’ve got to make sure everything works in tandem. And through various COAG, industry and skills councils, my colleagues and I at the federal level are working with the states to get that greater coordination going on. But we are here to help people through the transition. So for me, I do lie awake worrying about the future of work, but only in the sense that I want to make sure every Australian is reassured we are going to take them on the journey.

The other point I would make going through is that in the period since Malcolm Turnbull launched the National Innovation and Science Agenda, we’ve actually gotten on with implementing it. Whether it’s new tax incentives for early stage investors; changing the rules surrounding venture capital limited partnerships; $200 million CSIRO Innovation Fund for new spin-off companies; half a billion dollar Biomedical Translation Fund to commercialise our great medical discoveries; the money we’re putting into science, technology, engineering and maths at the school level, STEM; the various proposals we’ve got around to support greater women’s participation in STEM as part of all of that; there’s a whole series of things that we’ve done.

We’ve largely implemented that agenda. The bits that are still outstanding – crowd-funding got done the other day finally, wasn’t that great, that was fantastic. Now, it took a bit longer than I would have hoped, but that’s the way the legislative sausage machine works in this country.

The bit that’s still outstanding from my point of view is I’d like to see more done around bankruptcy. I want to make it easier for us to structure and re-structure companies in this country because I think we do it harder than countries like the US, and that’s something we’re working on with the Attorney-General and his people. We’re already seeing results: venture capital investment has reached a record high since our reforms came into effect; investment in early stage venture capital limited partnerships has risen 80 per cent in the last year.

The vibe

There is actually a vibe out there, you can feel it among the start-ups and you can feel it when it comes to the funding. There is a vibe and this is the window of opportunity, and I take the point from those members of the audience who say when you’re on the crest of a wave this is the time to capitalise on it – and you’re right, this is the time to capitalise on it.

We’re also seeing a significant lift in collaboration between business and research communities. Now, I never tire of saying this, Bill Ferris never tires of saying this, Alan Finkel is here: we really punch above our weight when it comes to knowledge creation as a country. This is one of the great secrets of this country and one of the ways in which we will succeed the Australian way. It’s our knowledge creation and the base that provides. But it’s the collaboration, getting that collaboration done between the various sectors – to me that is the big cultural change that has to happen in this country, we are still too siloed.

We did work in NISA 1 with the universities around the incentives for them when it comes to their research grants to be more commercially oriented, more focused on translation of research. But there is a lot more to do, and as one of your speakers alluded to before, government can’t do it all. But the important thing is we look around and I see great models to build on.

I look at what Macquarie Uni have done with their business parks where they are helping to build and reinforce some of our biggest brands, like Cochlear. The University of Wollongong established an Advantage SME program specifically to develop relationships with small business – a one stop shop for SME’s looking to access research capability. I’ve established an advisory committee to look at opportunities for university and innovation precincts. If collaboration is important, apart from the organic collaboration and precincts that we’ve seen develop across this country, what policy measures do we take to really reinforce that if that is the best way, or one of the best ways to get collaboration?

Bill Ferris, I know has some other ideas. I have no doubt he will tell you about them later, but my point is I’m looking at this in a very excited way. The Australian Nuclear Science & Technology Organisation is an exemplar; it’s leading the way with its planned innovation precinct, enabled by legislation I got through the Parliament last week that will see scientific partners, businesses and graduates crowding around Australia’s Centre of Nuclear Capability and Expertise at Lucas Heights. There’ll be a graduate institute, a technology park, and the world’s first nuclear science and technology innovation incubator. Think about that, the world’s first, and that’ll be at Lucas Heights, and they’ll look at how they roll this out across the country.

Now, there’s a lot more that has to happen. Bill Ferris, his hair has gone prematurely grey because he’s been asked to produce by later this year a plan, a strategic plan for our innovation, science and research system to 2030.

As I alluded to before, part of that plan is about how do we get the best value out of all the money we’re spending already, whether it’s the R&D tax incentive which we’ve been having a look at, whether it’s the way we spread money across industry capability, whether it’s through our entrepreneurs programs, accelerating commercialisation, the ways in which we provide money to industry for research and commercialisation. Are we doing it the best way? Is it the most effective? Are we getting the best value-add?

But Bill will also be looking at what the system looks like in 2030, and also what does that mean in terms of the resource base for the sector by 2030. We’re also looking at whether we have national missions which actually allow us to crystallise and bring together various parts of the innovation and science system to work on big themes, as a way to not only achieve big things, but also to make sure that that brings the rest of the system with it and actually encourages the sort of collaboration and change that we’re talking about.

Leading by example

Now, government has to lead by example. Government can talk about it, government can speak, government can disperse money, but a very important way that we can lead by example is actually create customers in the private sector.

So for example, for this cultural change that we’re talking about for ICT, government leading by example includes the Digital Transformation Agency under the leadership of Angus Taylor. He’s been doing good work when it comes to how the Government uses digital products and processes.

The Government is targeting an increase of 10 per cent in value of ICT contracts going to SMEs. That’ll be $650 million of extra money flowing to innovative Australian companies, because the best assistance for an SME is to get a contract.

The same is happening with what we’re doing around our defence spending – $195 billion over the next 10 years. I want to squeeze every last dollar of national benefit out of that money. We want to get world-first capability, but we also want to get world-first spin-offs for the rest of Australian industry.

Look at the way in which American defence spending, American space spending powered the American economy. This defence spending, which includes a major portion of next generation innovation programming, which includes cooperative research centres focused on defence projects and all the rest of it, which includes an innovation hub and a new industry defence capability centre, that provides us with a powerful mechanism, along with the demand that will come from the naval shipbuilding program and the other elements of capability development, for us to create the basis of really smart manufacturing.

And what we’re about is, where possible with industry policy, to actually create new industries, new opportunities. The Government will have more to say about this next week in relation to the space industry, which we see as an immense opportunity for growth. We’ve been reviewing our space industry capability; it’s underway now, and the review will provide a framework for our sector to grow. It’ll report over the next little while.

But my point is this: I look at space, I look at defence, I look at cyber-security and I see industries of the future where we can be global leaders – not in every aspect; we choose our niches.

The other thing I look at – and it comes back to my technological optimism about the Australian way – is that we actually do big science in this country really well, and as a result of the National Innovation and Science Agenda we’ve committed 2.3 billion over 10 years to critical research infrastructure, like the Australian Synchrotron in Melbourne, which is part now of ANSTO, which is creating great cancer-zapping drugs, for example – I can put it no more technically than that – which is creating all sorts of nuclear science and medicine, which is world-leading.

The Square Kilometre Array, we’re putting up to $300 million towards that. Our fantastic astronomy project which will complement the work we did in the Budget, where we put over a hundred million into the European Southern Observatory for more astronomy work, which with instrumentation and the capabilities that go with that create great global opportunities for collaboration.

Because countries overseas want to cooperate with scientists and researchers who have access to globally competitive infrastructure, and that’s what we’re doing here. We’re creating globally competitive infrastructure which attracts those scientists, those researchers who want to work here. That is one of our great attributes.

I put out a national science statement in March at the Press Club. One of the points I made there was our commitment to basic science. As a country, one of our strengths is basic science, and basic science is blue sky. Even when science fails, you learn something.

The important point about basic science is you don’t know what it leads to, what opportunities it leads to. As a country, we have great attributes in basic science. So part of my job as Innovation Minister is to make sure appropriate resources go to basic science, and then we are linking it up in the way that Bill and others are talking about in terms of commercialisation and translation.

Quantum computing

I want to talk briefly about the quantum computing company, Silicon computing company that I launched the other day. I had hoped it would be a $100 million company; it’s an $83 million company at the moment. Any of you got an extra $17 million; we will gladly take it at this stage. Federal Government, state government, Telstra, CBA, University of New South Wales, a consortium of other universities, are working on quantum computing. This is a bet that Malcolm Turnbull took in the National Innovation Science Agenda.

We said we’d put money behind this, because if we can be world leaders in quantum computing, think of the opportunities that come with that. And if you link that up with what the University of Sydney are doing with their alliance with Microsoft, which is looking at creating an ecosystem around quantum computing in the Sydney Basin; that is about how you establish world-leading research and applied capability and the spin-offs that go with that.

But you’ve got to do the science; you’ve got to understand the science. You can’t be just a fast follower or a fast adopter; you’ve actually got to do the science, and if you do the science you’ll get the results. So again, this is a big bet for this country. The amounts initially sound modest, but it’s a big bet for this country.

What do I lie awake at night worrying about? Well, many things I suppose, but in this portfolio I really want to nail the digital economy. I really want to nail this because there’s no doubt in my mind that we’ve got more to do. I really want to nail Industry 4.0, the industrial internet, the internet of things, whatever you want to call it.

I’m working with my colleague Angus Taylor, who’s looking at smart cities and how they operate in the context of the internet of things. We recently signed an agreement with Germany’s Platform Industrie 4.0 which ensures Australia takes a proactive role in developing and adopting international standards.

We need to be ahead of the curve in adopting these standards for our businesses to have access to global value-chains and remain competitive. This is what governments do best, this sort of stuff – get in on the ground floor, help develop the standards, and those standards then govern how these technologies are used, and you’re in on the ground floor of that, you can take advantage of that.

I mentioned cyber-security earlier, which is related to this. We have both a challenge in terms of cyber resilience across the economy, and we are working on that through our cyber-security strategy we released last year. But on top of that, I want Australia – because of our capabilities – to be, if not number one, one of the top countries in the world when it comes to cyber-security. Yes, there’s Israel, there’s China, there’s Russia, there’s America. They’re all doing things, but we can do it really well.

And I go around, I see the work of the Cyber Security Growth Network under the former head of security at Atlassian, and I look at the work that they do and I know they’re on the right track. They’re focused on how do we make sure the public dollars contribute to this, that they’re not fragmented; how do we make sure we’re appropriately skilling the country and we’ve got the right sort of regulations and framework?

The digital economy

So I want to nail the digital economy, and later today, we’re releasing a paper about what are the next steps when it comes to digital economy. We want a conversation with the public about that, and where do we take it next? This is not a top-down approach. I don’t believe in people coming along, giving you a lecture about what should happen, when; I believe in the wisdom of crowds, that’s one of the reasons I’m here today. It’s very important for us to draw on your knowledge about where you think things should go.

On the future of work, my colleague Michaelia Cash and I are working within Government on a more articulated set of policies around how we address the sort of issues I mentioned earlier, and that will include more and more of our colleagues. I haven’t gone out there and spoken much about it, because frankly I think we’ve got to do the work and we’ve got to listen to people and their perspectives more. But what is important to me about this, as I said before, is we take everybody with us when it comes to the future of work.

And the other point I want to make about the future of work is I don’t want this to be a new frontier for warfare over industrial relations. I want us to work in a way which goes with the grain of market forces, which facilitates disruption, but in a way which helps to look after people. I don’t want it to be an excuse for further re-regulation of the labour market. Yes, we’ve got to look after people, but in a way which is consistent with the grain of market forces so we maximise the benefits of the change. As I said before, this portfolio’s not about protection anymore, it’s about going forward.

Now, ladies and gentlemen, I’ve probably overtaxed you. I want to conclude on this note: I was reading- no, I was watching a TED Talk, and then I said I must get the book. It was by Tom Friedman – great writer. He’s just written a book about thanks for being late, which is a bit like, you know, you should pause to reflect.

I won’t explain the title any more than that. But the point he made is, you know, we’ve got this exponential increase in our capabilities across the economy, across the society. We can all feel it. There’s a lot going on. We can feel the pace. You know, the industrial revolution, the steam revolution, you go through all the revolutions, even though they were pretty quick, they were pretty fast, this feels really fast.

He said, you know what? We also need to lift our human capabilities, and that’s a much bigger task. It’s a much bigger task. And part of the task, as I see it, in lifting our human capabilities is that we all take leadership, whether it’s government leading by example where it can, you in the business sector leading by example.

My advice to you in dealing with issues where you’re seeking to get support is look at your stakeholders; who are your stakeholders; who are your coalition of the willing and how do you work with them to get what you’re talking about?

We hear a lot of talk in Australia that we don’t have a burning platform, we’re too complacent – 26 years of growth, we’ve made it through, employment’s growing, manana, we can worry about all this tomorrow. Well, you know, Winston Churchill used to talk about the fact that an optimist sees the opportunity in every difficulty and a pessimist sees the difficulty in every opportunity. I’m relentlessly an optimist.

You’re here today because you are optimists and because you want us – all of us – to live up to the highest levels of the human spirit, and that spirit is one of inquiry, it’s one of hope, it’s about how we work relentlessly to improve the human condition.

So ladies and gentlemen, Government is doing what it can. It can do more. It can always do more, and you can do more, but ultimately let’s create that sense of urgency, that sense of cultural change, because without that cultural change – in an Australian way; I’m not saying we change our culture – but in an Australian way, let’s create that platform for the future and make what is the best country in the world even better.

Thank you.

Text of this speech was originally posted on the website of the Minister for Innovation, Industry and Science. 

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