Australia prefers lazy speculation to innovation
at 11:12 am on January 13, 2017 | 1 comment
http://www.macrobusiness.com.au/2017/01/australia-prefers-lazy-speculation-innovation/
The monotonous tone from local economists is that rising house prices means rising wealth for all Australians. The reality is far different, as the rank laziness of that “profession” and Australian investors means that real prosperity is flagging.
Australians are purposely choosing to become a banana republic and forcefully turning away any attempts at getting off the endless spending, borrowing and speculating on property, backstopped by a Dutch Disease (soon to be renamed The Australian Ailment) relying solely on shovelling minerals at ever increasing rates to feed a developing giant, who will one day stop needing said minerals.
The front page of Bloomberg today should make all Australians wince with shame as it shows quite clearly that the rest of the world understands the dynamic between technology, venture capital funding and prosperity for all, while the locals only understand how to bid a shack at an auction, or dig up red dirt and chuck it on a boat.
From Bloomberg:
For the cost of a Sydney home, Paul Evans would be able to market an electric car engine that could help put Aussie innovation back on the map. In risk-averse Australia, most investors would prefer to buy a house.
The entrepreneur has been shunned by local venture capital funds in attempts to raise A$3 million ($2.2 million) for a product that’s been a decade in the works, despite what he describes as strong interest from some global carmakers. Now, after a series of fruitless investor meetings, he’s heading down the inevitable path: straight to the U.S.
“The private sector just won’t step up,” said Evans, 51, managing director of Sydney-based Evans Electric. “We’ve been pushed to the point where we’re going to Silicon Valley to raise funds. To me, that’s an unfortunate outcome because it’s a long way from here and we don’t really want to move there.”
Does this sound familiar? There are many MB readers here in a similar boat who have now moved offshore or given up their innovative ideas. And successive governments have not been able to provide any sort of environment to encourage such investment, when its so much easier to just grant tax breaks to mining companies and support the Megabank mortgage factories.
More:
In the past five years, Australian venture capital funding for industrial firms amounted to just $218 million, data compiled by Bloomberg show. U.S. peers raised about $15 billion in the same period. That’s a gaping chasm for Australian Prime Minister Malcolm Turnbull, who made innovation a flagship policy ahead of an election last year that returned him to power with a razor-thin majority. After offering incentives for early-stage investors and tax breaks on venture capital investment, even he had to acknowledge that Australians were a tough crowd. Australia slipped to 19th place on the 2016 Global Innovation Index, from a ranking of 17th the previous year, and was outdone in the Asia-Pacific region by Singapore, South Korea, Hong Kong, Japan and New Zealand.
The data is pretty clear for anyone looking in, as headline GDP growth slows, source: tradingeconomics.com
As the terms of trade start to fall back to their decade lows,
living standards for the country are stagnating, with lower wage growth, falling GDP per capita, mindless record high immigration, slumping productivity growth and underemployment/unemployment continues to rise for the younger cohorts, who are now seeing their parents dream of owning a house slip away.
Despite its small population on a continent rich in minerals and agriculture, Australia has a strong tradition of invention: black-box flight recorders, the electronic pacemaker and Wi-Fi technology to name a few. Yet most of these products were commercialized offshore, depriving Australia’s economy of high-paying jobs and the government of company tax revenue. In 2017, the need for innovation is an urgent one, with Australia’s aging population and commodity prices well down on the mining boom’s peak, warned veteran independent economist Saul Eslake. “Historically, Australia has not been a particularly innovative nation other than in a few areas where we have a comparative advantage” like agriculture and mining, he said. “Unless we lift the rate of productivity growth, we could well be facing the slowest growth in average Australian incomes since the 1930s.”
So as Australian’s all look forward to a day off celebrating their country’s diversity and culture, patting each other on the back and pointing to the ephemeral high value of their house while entertaining guests in an ever small backyard, the rest of the world shakes its head in wonder. The solution lies in completely revamping the research and development funding and venture capital sector, regulating the property market correctly to remove the speculative capital flow, changing the taxation system so that actual saving and investment is encouraged and rewarded, not punished. This will take ingenuity, hard work and tossing off of failed economic ideologies and rusted on philosophies about Australian exceptionalism. That requires a lot of risk taking and leadership, something very rare and thin on the ground in The Lucky Country.