Slow trends

There’s an implicit assumption in policy that countries progress and improve over time. Yet we know that’s not inevitable. Nor are rich, well-off nations immune to slippage. Usually, in their case, slippage is short term: wealthy countries have deep pockets. Sometimes, the slippage is longer term but disguised by the fact that growth remains positive, though relatively underachieving compared to international standards. Prosperity, like democracy, is not automatic; it requires effort and diligence.

In Australia’s case, on all generally accepted measures of development—economic size, per capita GDP, literacy, life expectancy—Australia qualifies as an affluent Western, educated, industrialised democracy. Moreover, it’s getting its own nuclear submarine capability. What’s there not to like?

Often, it’s the slower, deeper trends and behaviours that shape our future more than the fast-changing, ephemeral items that compete for our attention in the news and social media. Let’s consider a few that may constrain Australia’s posture and ability to compete.

One recent measure of development is that of economic complexity. Economic complexity focuses on two drivers of performance: the knowledge content of goods and services produced; and relatedness, which is the extent to which activities and systems share a similar set of knowledge or competencies. Typically, more complexity and diversity across the spectrum of those goods and services correlates with economic prosperity.

Australia is increasingly dependent on a comparatively narrow base of raw material industries—resources grown or dug up and shipped offshore for processing into manufactured goods. Its economic policy has done little to translate prosperity from those extractive ventures into new areas of value. That’s going to leave Australia in an ever more problematic position. Its apparent competitive advantages—the commodities being mined or produced—are being challenged by global trends and technological development.

Take beef cattle. As economies develop, so does their demand for meat, especially protein- and iron-rich beef.  That’s served Australia well: Australian red meat and livestock accounts for over $17 billion in exports (2018-19), employing over 400,000 people.

However, livestock—cattle especially—produce methane, a major contributor to global warming. The development of meat-like, protein-rich, plant-based alternatives, such as Beyond Meat and Impossible Foods, are driven by environmental, climate change and animal welfare concerns.  It’s early days, but with population growth, increasing urbanisation, and concern over supply chains, the development of plant-based meat alternatives can reduce dependency on traditional meat producers.

Climate change policies are driving disinvestment in fossil fuel industries. Coal, the most polluting form of energy, contributed $67 billion to Australia’s GDP in 2018, its second largest export industry. While demand remains strong, divestment will increase capital costs, risk, and uncertainty. Reputable, capable companies such as BHP are pulling back, resulting in more questionable deals such as with Adani.

Australia’s position as a competitor in a technology-driven world is under pressure. Prior to COVID, its R&D performance was commensurate with a wealthy, educated population, though low — at around 1.8 per cent of GDP in 2018, considerably below the OECD average of close to 2.5 per cent of GDP — and trending down. Its performance is likely to worsen given the sustained job losses within the university sector, the source of most of its basic research, research training and high technology education.  

Australia has always struggled to translate research into development and viable, successful companies.  Not only do we lack a broad base in deep tech but the business acumen, ecosystem and patent capital that helps translate ideas into products and services and thence into companies and industries.  We’ve seen breakthroughs migrate offshore and leads dissolve, the value chains captured elsewhere.  That’s been the case in, for example, hypersonic scramjets, developed at the University of Queensland, wifi by the CSIRO, and efficient solar cells at UNSW.  It may yet happen in another hyper competitive field, quantum computing.  

Overall, Australia as a nation is a technology taker, not a maker or a shaper. Even where there’s considerable capital investment in areas of competitive or sovereign values, such as in mines and naval shipbuilding, the technology base and infrastructure are imported, with little success in building out a local, deep tech ecosystem.  ‘Technology not taxes’ rolls trippingly off the tongue, but without capable institutions, statecraft and sound mechanisms for investment, slogans may do more to encourage rent-seekers than to help realise capability and economic development.

The ongoing weakening of Australian institutions—of which universities are simply the latest—does not bode well. Australia is not a particularly strong democracy—it has no bill of rights, for example. The government’s response to the pandemic has exposed fractures in the Commonwealth and generated expenditure and debt that will inherently limit future government capacity. It continues to weaken and undermine its own public service, lessen transparency, and avoid accountability while continuing to institute ever more expansive security legislation.

Individually, none of those trends are determinants of Australia’s future. Combined, they are a tad worrying.  Still, Australia—the 15th largest economy in the world, a democracy, and largely well-educated—remains comparatively well placed to manage them. That is, if it has the vision, the intestinal fortitude, and the statecraft to do so.

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