ict development in australia

ICT Developmentin Australia

A Strategic Policy Review

Australian Computer Societywww.acs.org.au

http://www.acs.org.au/

This report has been prepared for the Australian Computer Society.

Copies can be obtained from The Australian Computer Society National Office:

PO Box Q534, Queen Victoria Building, Sydney NSW 1230Phone: (02) 9299 3666Fax: (02) 9299 3997Email: [email protected]: http://www.acs.org.au

Copyright © 2002, Australian Computer Society Inc.

General permission to republish, but not for profit, all or part of this material is granted,provided that the ACS's copyright notice is given and that reference is made to thepublication, to its date of issue, and to the fact that reprinting privileges were granted bythe Australian Computer Society Inc.

National Library of Australia Cataloguing-in-publication data:

Australian Computer Society.ICT Development in Australia: A Strategic Policy Review

Bibliography.ISBN 0 90992 599 2

1. Information Technology. 2. Communications3. Policy. 4. Australian Computer Society

mailto:[email protected]

http://www.acs.org.au/

Foreword

As we move into a new century, Australia’s ability to harness ICT for the collectivenational benefit has been questioned.

The Australian Computer Society commissioned Professor John Houghton from theCentre of Strategic Economic Studies to draw together the most recent performance dataon Australia’s participation in ICT as both a user and producer. ACS also askedProfessor Houghton to review the various Australian government policy initiativesimplemented since the first pro-active ICT programs were applied in the mid 1980s, andprovide a perspective of the current gaps in ICT policy.

Professor Houghton has brought these two inquiry paths together into a strategic policyframework for ICT. The result is a three-tiered strategy that groups over 50 detailedpolicy options and priority actions. The three interdependent elements of that strategyare:

Platform for Production – support to stimulate Australian-based production in bothICT producing and using industries

Building Businesses – initiatives aimed at enterprise improvement, finding ways toexpand and develop Australian firms, creating linkages between companies andforming enterprise clusters

Achieving Scale Through Investment – creating the competitive environment inAustralia for foreign ICT investment.

Our objective in releasing this report is to raise the level of debate among the keystakeholders and influencers – ICT companies, ICT professionals, institutions andpublic policy makers. Clearly, bold policy initiatives are necessary to address currentnegative trends.

Professor Houghton’s report warns of decline in a range of economic measures ofnational ICT ‘well-being’:

at the end of the 1990s there were fewer ICT manufacturing businesses in Australiathan at the beginning

employment in specialist ICT industries has been in decline in the latter years of thedecade

Australia has been spectacularly unsuccessful in growing medium to largeindigenous ICT companies, despite nearly two decades of policy support

ICT equipment exports are now lower than they were at the beginning of the 1990s

our reliance on overseas ICT has ballooned, producing a trade deficit of around $16billion in 2001

our ranking on a range of OECD national technology penetration measures has seenAustralia slip down the OECD country pile.

In March 2002, at the World Congress on Information Technology in Adelaide, PrimeMinister Howard announced the formation of an important industry-government-institutions advisory group to develop an ICT Framework For The Future. The ACS haswelcomed this initiative and now offers this report as one of the first detailedcontributions to the Framework process.

We would also like to see this debate extend beyond industry boundaries and become apublic issue. The reality is that what we do or don’t do in relation to ICT over the nextfive years will impact on the wealth and well-being of all Australians.

Richard G. HoggPresidentAustralian Computer Society

June 2002

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Executive Summary

Taking stock and moving forwardThe Commonwealth Government recently established a Broadband Advisory Group anda joint industry-government advisory group to develop an ICT Framework for theFuture. The Australian Computer Society (ACS) welcomes these initiatives. As an inputto discussions the ACS commissioned a review of policy reports in order to distil andsynthesise the key strategic directions and policy suggestions emerging from recentanalysis. Our aim in releasing this summary is to contribute to policy debate. We seek tobuild on what has already been learned and achieved, and to move forward by buildingconsensus for a bipartisan approach to the development of ICT in Australia.

Major insights

Recent policy reports contain a number of insights, which provide an essential input ifwe are to learn from experience and build on past achievements. They include:

Australia’s information and communication technology (ICT) industry is not fullycompetitive – because of small local firm size, because Australian capital marketsare not competitive for technology companies (beyond early stage financing),because there is limited electronics production, and because multinational firmstend to be oriented to the domestic market rather than exporting;1

Competitive advantages in high-technology industries around the world have beencreated through combinations of attracting multinational firms to establishmanufacturing plants, building the national skills base, and strengthening R&D inkey areas;2

It is not sufficient for Australia to be a fast user of other nations’ technology: wemust have leading edge capabilities so that we can develop pioneering technologiesthat will ensure the competitiveness of our industry in the global marketplace of thefuture;3 and

Australia will struggle to maintain its strong economic performance if we do nothave a focused effort to continually up-date domestic capacity in ICT innovationand production. Without ICT research and production capabilities we may well losethe capability to be intelligent purchasers of ICT goods, let alone pioneers.4

Elements of a strategy

Recent policy reports have different foci and use different terminology, but certainthemes are common. The key elements of a strategy are clear:

We need to take a strategic approach, which entails adopting a longer-termperspective and focussing on key points of leverage;

We need vision and leadership to energise and direct the process;

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We must understand that education, skills and professionalism will be the keyingredients;

We must realise that the process will be one of continual upgrading and renewal,and commit to a coordinated and sustained business improvement program;

We must understand that investment is the key to realising outcomes, and make theinvestment climate and pro-active investment attraction top priorities;

We must ensure that the business environment and regulatory frameworks aresupportive;

We must understand that linkages facilitate innovation, and make clusterdevelopment a focus for action;

We must ensure that policy initiatives are adequately resourced; and

We must develop a sense of urgency to drive the process forward.

Priorities for actionThis report outlines more than fifty detailed priority actions, three of which areidentified as flagship initiatives.

1. Establishing a platform for production to support both ICT producing and usingindustries – by fostering innovation, developing the necessary infrastructure andregulatory framework, and enhancing skills and professionalism;

2. Building businesses – by fostering business improvement, enabling market accessand expansion, and actively facilitating cluster development; and

3. Achieving scale – by creating an attractive investment environment, establishing aninvestment fund and engaging in pro-active investment attraction.

Government must recognise that having a local ICT research and production capacityenables rapid take-up and deployment of ICTs across the economy. It is equallyimportant to realise that ICT production and trade play a significant role in drivingemployment and productivity growth. By joining with industry in providing vision andleadership, governments can underpin ICT development in Australia. By failing to doso, they can undermine it.

The ACS calls upon governments and other industry stakeholders to join forces,constructively develop and debate policy options, build on the lessons of the past andstrive for a brighter and more prosperous future.

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Contents

EXECUTIVE SUMMARY .............................................................................................I

ICT DEVELOPMENT IN AUSTRALIA..................................................................... 1

TAKING STOCK............................................................................................................... 1Major insights ........................................................................................................... 1Elements of a strategy............................................................................................... 1

A STRATEGIC FRAMEWORK............................................................................................ 2

PRIORITIES FOR ACTION ................................................................................................. 3Vision and leadership ............................................................................................... 4A platform for production ......................................................................................... 6Building businesses................................................................................................. 10Scaled by investment ............................................................................................... 13

THE WAY AHEAD.......................................................................................................... 15

APPENDICES............................................................................................................... 17

APPENDIX A: DO WE NEED TO REVIEW THE CURRENT SETTINGS? .......................... 17APPENDIX B: HOW DID WE GET HERE? .................................................................. 24APPENDIX C: WHAT MAJOR INSIGHTS HAVE EMERGED? ........................................ 39APPENDIX D: WHAT ARE THE ELEMENTS OF A STRATEGY?.................................... 42APPENDIX E: WHAT CAN BE DONE? ...................................................................... 49APPENDIX F: PRIORITIES FOR ACTION ................................................................... 54APPENDIX G: REPORTS REVIEWED & CONSULTED................................................. 55

NOTES AND REFERENCES ..................................................................................... 55

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ICT Development in Australia

Taking stock The Commonwealth Government recently established a Broadband Advisory Group anda joint industry-government advisory group to develop an ICT Framework for theFuture. As an input to discussions the Australian Computer Society (ACS)commissioned a review of policy reports in order to distil and synthesise the keystrategic directions and policy suggestions emerging from recent analysis and debate.

Major insights

Recent policy reports contain a number of insights, which provide an essential input ifwe are to learn from experience and build on past achievements. They include:

Australia’s information and communication technology (ICT) industry is not fullycompetitive – because of small local firm size, because Australian capital marketsare not competitive for technology companies (beyond early stage financing),because there is limited electronics production, and because multinational firmstend to be oriented to the domestic market rather than exporting;5

Competitive advantages in high-technology industries around the world have beencreated through combinations of attracting multinational firms to establishmanufacturing plants, building the national skills base, and strengthening R&D inkey areas;6

It is not sufficient for Australia to be a fast user of other nations’ technology: wemust have leading edge capabilities so that we can develop pioneering technologiesthat will ensure the competitiveness of our industry in the global marketplace of thefuture;7 and

Australia will struggle to maintain its strong economic performance if we do nothave a focussed effort to continually up-date domestic capacity in ICT innovationand production. Without ICT research and production capabilities we may well losethe capability to be intelligent purchasers of ICT goods, let alone pioneers.8

(See Appendix C for details)

Elements of a strategy

Recent policy reports have different foci and use different terminology, but certainthemes are common. The key elements of a strategy are clear:

We need to take a strategic approach, which entails adopting a longer-termperspective and focussing on key points of leverage;


ICT Development in Australia: A Strategic Policy Framework

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We must understand that linkages facilitate innovation, and make clusterdevelopment a focus for action;

We must ensure that policy initiatives are adequately resourced; and


(See Appendix D for details)

A strategic frameworkAt its simplest, a strategy for the development of ICT in Australia must be: built on asolid infrastructure through innovation, skill and professionalism; focused oncommercialisation and building businesses; scaled by investment; and driven by visionand leadership.

Figure 1 A Strategic Framework for ICT development in Australia

Building BusinessesCommercialisation

Business ImprovementClustering & Linkages

Market Access

Scaled by InvestmentStrategic

Large-scale Targeted

Funded to Make It Work

Platform for ProductionInnovation

Institutional EnvironmentInfrastructure & Regulation

Skills & Professionalism

VisionLeadership

Australian Computer Society

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Establishing a platform for production

The platform for production must support leading edge ICT production for both sale andown use (ie. support both the ICT producing and ICT using industries). Key elementswill include the funding supports for ICT related innovation, the institutional settingsfor that innovation, and the necessary infrastructure to underpin innovation in ICTproduction and use. It will also be necessary to ensure that the regulatory environmentencourages e-commerce and e-business development, and that there is an adequatesupply of skilled and professional people.

Building businesses

The rewards from innovation will be reaped through building businesses. This can befostered by supporting the creation and emergence of start-ups, helping them developthe necessary business and marketing skills, helping them attract investors to enablethem to grow, easing access to export markets through reducing barriers to trade andfacilitating outward investment to enable them to reach and serve international markets.One of the keys will be to develop innovative, solutions oriented clusters.

Scaled by investment

Scale remains a critical 'missing ingredient'. Historically, from barrier protectionthrough purchasing leverage, Australian ICT industry development policies havefocused on activities scaled to the domestic market. If Australia is to realise its globalambitions we must break through the scale barrier by encouraging, facilitating andsupporting large scale, strategic investments. The centralisation of investmentpromotion and facilitation within Invest Australia (following the Blackburne review) isa first step. However, breaking the mould will require a major initiative, over and aboveexisting investment attraction activities, for which it will be necessary to make asubstantial strategic investment fund available to support the facilitation of large scale,strategic investments.

Driven by vision and leadership

Government must recognise that having a local ICT production capacity is essential forthe rapid take-up and deployment of ICTs across the economy. It is equally important torealise that ICT production and trade play a significant role in driving employment andproductivity growth. By joining with industry in providing vision and leadership,governments can underpin ICT development in Australia. By failing to do so, they canundermine it. (See Appendix E for details)

Priorities for actionBy focusing attention on establishing and maintaining a platform for production andbuilding businesses scaled by investment, this framework provides a basis for policy


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development and action. Within it we have identified more than fifty priority actions,the details of which are outlined below.

Figure 2 Strategic imperatives and priorities for actionStrategic Imperatives Priorities for Action

Vision & Leadership An ICT StrategyOperational Issues

A Platform for Production Education, Skills & ProfessionalismInnovation (R&D funding, focus & linkages)The Institutional Settings for InnovationInfrastructure & RegulationE-commerce & the 'Digital Agenda'

Building Businesses Commercialisation & GrowthBusiness ImprovementLinkages & Cluster DevelopmentMarket Development & Access

Scaled by Investment Pro-active Investment AttractionAn Investment Fund (Braking the Mould)The Investment Environment

Vision and leadership

Government must recognise that having a local ICT research and production capabilityis essential for the rapid take-up and deployment of ICTs across the economy. Buyingsolutions off-the-shelf may enable businesses to be followers, but it leaves them runningto keep up. To create sustainable competitive advantages it is necessary for them towork closely with technology and solutions developers in local developer–producer–user clusters.9 The notion that we must choose between producing and using ICTs isbased on a false dichotomy. To be leading-edge users we must be leading producers,and to be leading-edge producers we must have leading-edge users. The future of ICTsin Australia depends upon encouraging developer–producer–user clustering, andthereby facilitating the development of marketable ICT-based business solutions – bethey in the form of ICT products and services or the ICT-enabled products and servicesof firms in industries throughout the economy.

It is equally important to realise that ICT production and trade play a significant role indriving employment and productivity growth. OECD trade in ICT products grew attwice the rate of total merchandise trade over the decade 1990-2000, and the countriesthat participated as producers of ICTs have been major beneficiaries. During the 1990s,Ireland, Korea and Finland were the leading producers of ICTs (in terms of ICT share ofbusiness sector value add, ICT share of manufacturing trade and ICT trade surplus).These same countries enjoyed higher levels of labour and multifactor productivitygrowth during the 1990s than other OECD countries.10 The U.S. Department of


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Commerce recently noted that the ICT producing industries in the Unites States“continue to contribute disproportionately to overall economic growth.”11 Over theperiod 1996-99, the ICT producing sector accounted for an annual average of just 7 percent of U.S. GDP, but was responsible for an annual average 29 per cent of thecountry’s overall real economic growth. During 2000, the ICT producing sectoraccounted for 8 per cent of U.S. GDP and 26 per cent of real economic growth.12

An ICT strategy

To grasp the future we need to articulate a vision for ICT in Australia and develop ajoint industry-government agenda for action. It is up to the ICT industry and ICTprofessionals to take the lead.

For its part, government should: Ensure that the recently established Broadband and ICT Future Framework

advisory groups consult widely, so that all stakeholder interests are considered andall policy suggestions canvassed.13

Commit to implementing their recommendations, in order to encourage buy-inand ensure that the momentum is not lost.

Commit to maintaining an industry-government advisory group to oversee theimplementation of the strategy, be it the current advisory group(s) or a specialistimplementation group established specifically to oversee implementation andoperation.

Ensure that the ICT Future Framework advisory group undertakes sufficientanalysis to ground the strategy – including, for example, a study of Australia'sICT strengths, weaknesses, opportunities and threats, which goes beyond traditionalindustry and technology thinking and takes due account of the paradigm shift from'technologies and boxes' to 'solutions and services'.14

Establish an ICT Industry Development Fund which is significant (eg. $1 billionover 10 years).15 This fund should be used to facilitate the pursuit of opportunitiesidentified by the advisory group, and in the implementation of Future Frameworkinitiatives. To that end it should be managed by the Future Framework advisorygroup or subsequent joint industry-government implementation group.

Ensure that there is a coordinated ICT industry development framework. TheICT industries are diverse, and a single Action Agenda of sufficient focus and detailmay not be possible. However, it is essential that ICT industry sub-sector ActionAgendas operate in a coherent and coordinated way. To that end, governmentshould:

Harness the Electronics Industry Action Agenda for wider ICT industrydevelopment, and ensure the various industry agendas are integrated andcoordinated with it;

Develop complementary Communications, IT Services and SoftwareIndustry Action Agendas to further ICT industry development, andintegrate them into existing and proposed activities; and


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Accelerate and integrate the Digital Content Sector developmentinitiative promised in the pre-election statement Putting Australia’sInterests First.

Operational issues

Much progress has been made in establishing appropriate operational arrangements, butthere is still work to be done.

We call on government to: Recommit to, and continue the focused government arrangements achieved

over recent years, including:

A single cabinet level minister for ICT whose responsibilities include theinformation economy, telecommunications, broadcasting, multimedia,ICT procurement, and ICT industry development;

A single department or agency reporting to this minister with directresponsibilities for the ICT industry, and sufficient staffing and programfunding to carry out its functions effectively. The sometimes blurredboundary between the Department of Communications, InformationTechnology and The Arts (DCITA) and the National Office for theInformation Economy (NOIE), which sees responsibilities shifting backand forth, should be clarified and set;

Effective coordination of Commonwealth and State programs andpolicies to achieve a consistent national approach to ICT industrydevelopment and investment attraction; and

Renewed and revised commitments to getting government services on-line, to ensure that all government services are delivered on-line by theend of 2003 and that they feature transaction capabilities rather thansimple information delivery.16

A platform for production

Success can only be built on a solid foundation. There must be an environmentconducive to, and supportive of innovation, in which the institutions underpinningresearch and innovation are supportive and focused on developing their intellectualcapital, where there is adequate infrastructure for development, where the regulatoryenvironment supports and encourages development, and where there is a foundation forongoing skilling and professionalism.

Education and skills

It is the scientific, technical, managerial and entrepreneurial flair of Australians thanwill provide the foundation for prosperity in the 21st century. Considerable progress hasbeen made in increasing university and school places through Backing Australia'sAbility and in the establishment of the IT Skills Hub, but we cannot rest on our laurels.17


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Governments and industry must commit to challenging targets focusing on both thequantity and quality dimensions of education, skilling and professionalisation.

We call on government to: Increase funding for education to ensure that Australia at least keeps up with

increases in the OECD average (in terms of funding of education as a percentage ofGDP), and target increases in excess of average.

Give greater attention to ICT related skills development, including skilling forresearcher, producers and users. Responses to date have not fully grasped the scaleof the issue in terms of either the number of places or the level of skills required.

Ensure that recruitment, promotion and remuneration for ICT teaching staffbecome more flexible at secondary, vocational education and training (VET) andtertiary levels to ensure adequate educator staffing of the highest standard.

Support greater integration of technical and management and marketing skills,to enable Australia's ICT users to more fully integrate ICT systems into theirbusiness functions and adapt their business functions to maximise the benefits oftheir ICT investments and enable Australia's ICT producers to better understandtheir clients' businesses and move from producing technologies to deliveringsolutions.18

Give greater emphasis to the importance of professionalism in the ICT industryand in ICT occupations throughout the economy by, for example, encouragingprofessional accreditation – just as quality accreditation has been pursued in thepast.

Encourage more joint education-industry initiatives by, for example, recognisingskilling as an industry development activity and allowing more favourable taxationtreatment of education and training related activities and expenses.

Ensure that Australia's immigration system has flexible and streamlined entryarrangements to allow the entry of skilled ICT managers and professionals, anddevelop promotional programs to encourage appropriately skilled people to come toAustralia.

Follow through on election promises relating to the taxation treatment ofinternational workers and investors by, for example, taking a more flexibleapproach to the treatment of the foreign source income of expatriates resident inAustralia for less than 5 years, and exempting temporary residents from ForeignInvestment Fund (FIF) rules.

Ensure that experienced people returning to Australia after working overseasare not discouraged by the taxation implications of doing so.

Innovation and its institutional settings

Innovation is the engine of economic development. While much progress has beenmade, and we welcome initiatives outlined in Backing Australia's Ability, governmentshould commit to ambitious targets in order to drive forward.


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Government and industry should: Facilitate a sustained increase in business expenditure on R&D (BERD) to

ensure that Australia moves steadily towards the OECD average (in terms ofBERD as a percentage of GDP). Business expenditure on R&D in Australia is lowby international standards and has slowed in recent years. Government and industryshould jointly develop a program of incentives (including tax concessions, taxcredits, grants or whatever it takes) to increase BERD and move Australia towardsthe OECD average.

Ensure that government R&D expenditure increases announced in BackingAustralia's Ability are sufficient to put Australia above the OECD average (interms of Government expenditure on R&D (GERD) as a percentage of GDP) by theend of 2005, and if they are not, fund further increases to enable Australia to reachthat target.

Set broad allocative targets for all R&D grant funding, to ensure that it is spentin areas of national priority – rather than simply reinforcing areas of historicalactivity and running the risk of committing Australia to a slow growth pathdependence. These targets should ensure that funding is focused on areas withcommercial development potential. We welcome the recent move to targetAustralian Research Council (ARC) funding into key areas and the currentdiscussion process on Developing National Research Priorities.19 These must bemade to work effectively.

Ease access to innovation support and reduce compliance costs. There has beena drift towards grant-based funding and away from entitlements-based funding. Thishas introduced costs, delays and uncertainty and should be reversed, with greaterfocus placed on automatic qualification based on meeting key performance criteria.

Commit to funding the ICT Centre of Excellence beyond the five years outlinedin Backing Australia's Ability (subject to a review of its operations after 3-5 years),and explore the possibility of establishing additional related centres over the nextfive years. These should build out from the established core, rather than beingduplicative.

Expand the ICT focus of the Cooperative Research Centres (CRC) Program.The limited number of ICT related CRCs and of funding flowing to ICT relatedactivities are points of widespread concern, and should be addressed through settingstrategic allocative targets within the CRC Program.

Foster improved clustering and R&D transfer between multinationals, small tomedium enterprises (SMEs) and research institutions by, for example, supportingjoint activities and exchanges, and acting as facilitator.

Regulation and infrastructure

Connectivity, communication, the protection of intellectual property, privacy and theintegrity of transactions are crucial foundations for an information economy. Australia'scommunications infrastructure and related regulatory framework are advanced byinternational standards, but we must ensure that they are absolutely leading edge and


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that we do not fall behind in such areas as broadband take-up. To that end we call ongovernment to:

Ensure access to affordable bandwidth. 'Light-handed' regulation oftelecommunications has not delivered price competitive bandwidth in Australia.Australia took a positive step by unbundling the local loop, but has yet to make itwork. The establishment of a Broadband Advisory Group is welcomed.Telecommunications requires strong regulation, strong competition, or both. In theabsence of vigorous competition in some key areas, government must ensure thatstronger regulation is introduced and that the possibilities for appeals and delays ininterconnect access are reduced. Adopting recent Productivity Commissionrecommendations and enhancing the powers of the Australian Competition andConsumers Commission (ACCC) would be a first step, but more will be required.The Broadband Advisory Group should seek out innovative solutions to what isnow a long-standing problem, and Government must be prepared to change track.

Ensure as open a regime as possible for content. People do not want cables, theywant services and content. In order to encourage the take-up of broadband, mediaand communications regulation must focus on opening avenues for the delivery ofmore diverse forms of content and seek to overcome existing bottlenecks.

Ensure that all regulations relating to ICT are technology neutral, so as not tohinder the development and use of new technologies.

Ensure that radiofrequency spectrum is allocated in an effective, efficient andequitable manner.

Much progress has been made in establishing elements of the infrastructural base forICT production, with the emergence of Software Engineering Quality Centres, HighPerformance Computing Centres, the Advanced Networks Program, and Testing andConformance Infrastructures. To build on this base and maintain momentum,government should:

Commit to continued funding support for these initiatives at a level that reflectsa development path for them.

Seek innovative ways in which to facilitate and support the emergence of suchkey ICT infrastructures in the future, as needs arise.

Internet and e-commerce

Trust in the protection of intellectual property, in the privacy of personal data and thesecurity of online transactions are critical barrier issues. Building trust throughappropriate regulation and enforcement is vital. Government has pushed forward in keyareas of copyright reform, privacy and the 'Digital Agenda', and great progress has beenmade. Nevertheless, there is scope for further reform and refinement.

We call on government to: Continue to work towards an open and supportive framework for e-commerce,

avoiding the introduction of counterproductive and unenforceable regulations.


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Implement the recommendations of the House of Representatives StandingCommittee on Legal and Constitutional Affairs on strengthening copyrightenforcement, as outlined in their report Cracking Down on Copycats.20

Push forward on the repeal of parallel importation restrictions relating tocomputer software, which provide an unjustifiable monopoly over distribution ofcontent-based products and are anomalous in a globalised economy.21

Increase the resourcing of those charged with detecting and preventing theimportation of counterfeit and pirate products, to ensure that parallelimportation does not lead to increases in copyright infringement.

Ensure that 'electronic' crime detection is adequately resourced, and thatpenalties are equivalent to those imposed for other property crimes.

Extend privacy legislation to all businesses, both large and small, to ensureconsumer confidence.

Provide resources and education programs to enable ICT companies tounderstand and comply with the new privacy regulations and be in a position toimplement appropriately complying information systems into their clients'businesses.

Continue e-commerce awareness and support activities, to enable Australianpublic and private sector organizations to more fully realise the potential benefits ofICT applications.

Building businesses

The rewards from innovation will be reaped through building businesses. This can befostered by supporting the creation and emergence of start-ups, helping them developthe necessary business and marketing skills, helping them attract investors to enablethem to grow, encouraging greater attention to market awareness, market developmentstrategies and marketing, encouraging the development of market and solution orientedclusters, and easing access to export markets through reducing barriers to trade andfacilitating outward investment. One of the keys will be to develop innovative, solutionsoriented clusters.

Commercialisation and growth

Recent years have seen considerable progress in respect to establishing the conditionsfor commercialisation, with solid achievements in such areas as venture capital andincubators. These should be further developed and complemented with renewedattention to a range of business improvement and cluster development initiatives.

We call on government and industry to: Focus on cluster development, by adopting a cluster-based development

framework. For example:

Make cluster development a key element of the ICT future framework,beginning from the identification and analysis of existing and nascent


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clusters involving researchers, developers, producers, users andregulators, and focus initiatives on their facilitation and development;22

Identify key vertical markets for ICT solutions, and develop a series ofvertical market cluster initiatives;

Identify key technology strengths with real commercial potential, anddevelop a series of technology commercialisation cluster initiatives;

Develop a leading edge users program, to bring together users andproducers, support the development and take-up of innovative businessoriented solutions and act as demonstrator and reference sites (ie. leadingedge user-based clusters);

Enhance and extend networking and alliance support, to enable thedevelopment of R&D, commercialisation, supply-chain, marketing andmarket access alliances; and

Enhance and encourage the integration of multinational firms (MNCs)into the local economy, embedding their activities and investments byencouraging 2-way skills and technology transfers and furtheringopportunities for the development of strategic R&D, commercialisation,supply-chain and market alliances.

Revisit, renew and rationalise business improvement programs. Existingbusiness improvement programs lack the focus, coordination and funding necessaryto really make a difference. Government should revise and expand its businessimprovement program, putting increased emphasis on management, marketing,networking and cluster development.

Commit to funding the Building on IT Strengths (BITs) program beyond thefive years outlined at its launch in 1999, and increase program funding in order tobuild further momentum in the commercialisation of Australian innovations.

Harness government procurement for development, and bring it into the leadingedge users program where appropriate. To this end the Australian InformationIndustries Association (AIIA) has suggested that government should:

Avoid watering down industry development plans in purchasing,outsourcing and telecommunications carrier licensing;

Limit industry development obligations to activities generatinginvestments that are commercially viable;

Simplify and scale the procurement process to ensure that the costs ofprocurement to all parties are less than 5% of the value of the contract;

Remove uncommercial government contract specifications, such asunlimited liability;

Prevent the creation or renewal of individual agency supply panels, byensuring that endorsed supplier arrangements are the only pre-qualification required;

Mandate the use of GITC4 by all government agencies; and


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Develop a comprehensive database to promote the capabilities of SMEsto government agencies and other potential business partners.

Market development, marketing and market access

Developing Australia's productive capacity will only lead to prosperity if our products,services and solutions reach world markets. Many industry stakeholders now seemarketing and market development as a critical barrier.

In order to further develop marketing and markets, and enable the globalisation ofAustralian industry, government and industry should:

Commit to supporting ICT trade access activities, including those of theDepartment of Foreign Affairs and Trade (DFAT) and Austrade, and the range ofinternational promotional activities (eg. CeBit), to at least their current levels, andexplore the cost-benefit of expanding these activities.

Commit to maximising market access and minimising trade barriers by, forexample, supporting reciprocal trade agreements, pursuing all opportunities forexport access, and working with industry to identify and overcome barriers to trade.

Establish an initiative focusing on an evolving set of vertical markets forsolutions which the Australian ICT industry can supply (eg. in such fields aseducation, health, mining and resources), featuring targeted promotion of AustraliaICT-enabled solutions into vertical markets (eg. through non-ICT industry tradefairs, etc.).

Support the further development of shared facilities for SMEs in targetmarkets (eg. serviced office accommodation), to enable them to establish apresence in overseas markets using facilities on a fee-for-services basis (ie. theinternational marketing equivalent of technology incubators).

Provide greater support for outward direct investment by Australian-basedfirms, in order to enable them to expand into international markets. Directinvestment is particularly important in the services sector, where there are inherentand regulatory barriers to cross-border trade, and greater need to expand operationsinto overseas markets.

Support local subsidiaries in their quest for global and/or regional mandates byproviding practical and responsive support for their efforts to 'win business' withintheir global organizations.

Support SME sales to/through multinationals with a finance-insurance schemeequivalent to Export Finance & Insurance Corporation (EFIC) in the export arena,in order to align the perceived risks of purchasing from large and small suppliers.

Support industry participation in international standards developmentactivities, building upon and extending the work of Standards Australia's CITECboard and other initiatives currently operating.


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While significant progress has been made, many industry stakeholders believe that largescale investment remains one of the critical 'missing ingredients'. Major directinvestment into the ICT industry, and the 'organic approach' of local R&D and itscommercialisation, are both paths to ICT industry development. To date, the majorfocus of policy has been on innovation and its commercialisation – the 'organicapproach'. While this is welcomed, it should be recognised that it is a much slowerdevelopment path, and leaves largely unanswered the critical issues of scale, brandingand rapid access to global markets.

Australia should continue to focus on R&D and commercialisation initiatives, as well asenhance production, market development and marketing capabilities through clusterdevelopment and business improvement programs (as outlined above). These arenecessary, but they are not sufficient. Large scale foreign direct investment is requiredto build momentum now, and to provide the immediate, established linkages to globalmarkets required in order to reap the maximum rewards from products, services andsolutions with relatively short life-cycles. Australia must, therefore, engage in pro-active investment attraction, strategically targeting major investments.

Investment attraction

More coordinated and pro-active investment attraction is essential. In the run-up to the2001 election the Government promised to introduce an enhanced ICT InvestmentAttraction Strategy. We welcome the initiative, and in pushing forward itsimplementation we call on Government to:

Ensure the full implementation of the structural reforms outlined in the'Blackburne Review', including:

Establishing Invest Australia as a single prescribed agency charged witha whole-of-nation investment attraction agenda and led by a high profileChief Executive;

Developing a whole-of-nation strategy for proactively promoting andattracting direct investment into Australia; and

Promoting a coherent Australian brand image for investment and trade.

Adopt a cluster-based approach to identifying and developing strategicinvestment targets, which takes account of the strengths and weaknesses of theAustralian ICT industry, global market opportunities and threats, the paradigm shiftfrom 'technologies and boxes' to 'solutions and services', and the advantages ofclose developer–producer–user relations in vertical markets. Australia can learnmuch from overseas experience of cluster-based investment attraction (eg. Scotland,Ireland and Singapore).

Take full account of the strategic and spillover benefits in investment attractionand facilitation assessments. Project assessments should take into account thestrategic value of the ICT sector for future prosperity, and ensure that the strategic


14

and spillover benefits are not ignored simply because they are more difficult toquantify.

Shift the focus of investment attraction and facilitation towards centres ofexcellence and centres of expertise, to build on skill development and innovationinitiatives and further embed international investments into the fabric of theAustralian economy.23

An investment fund and special deal

Both the scale and nature of the investment attraction necessary to break the mould willbe different from that available to date. To break out of the 'straight-jacket' andovercome the problem of scale government should:

Establish an Investment Fund of at least $1 billion over 10 years to bring scaleand focus to investment attraction and promotion activities.24

Create a special deal, over and above existing Invest Australia activities, in which:

The special deal would be available for a limited 5-10 year window;

It would be available only for large scale projects in strategic areas,targeted for attraction following in-depth analysis;

A minimum level of investment would be set (eg. $500 million within fiveyears) below which the project would not qualify for special treatment;

It would not favour either domestic of foreign multinationals, beingavailable to any project that meets the strategic and scale criteria;

The agreement would involve making a dedicated fund available for thatproject (eg. 10% of the investment), which would be used to make theinvestment work;

It would not be a cash handout, but rather a fund set aside andimmediately available for any activity that would overcome potentialproblems or barriers to making the investment work.

Such an approach would be a win-win: not a handout, but a way to reduce theinvestment risk and ensure the success of the project, while at the same time focusingthe upgrading of the Australian economy in areas that 'the market' has identified asopportunities.

(See Appendix E for details)

The investment environment

Although it is no longer a sufficient condition, establishing and maintaining acompetitive and open business environment is necessary for growth and prosperity.Government must commit to maintaining a competitive investment environment, andpress ahead with outstanding taxation reforms.


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To that end we call on government to: Continue to work to ensure the ready availability of venture capital and seed

funding, ensuring that existing initiatives are sufficient and are continued for aslong as they are required.

Push forward on some of the detailed areas of taxation reform which stillrequire attention, in order to encourage investment in the sector (as promised inPutting Australia’s Interests First).

Improve the tax treatment of Employee Share Ownership Plans (ESOPs) inorder the facilitate risk sharing and access to capital during growth – by, forexample, deferring the tax liability until realisation and treating any increased sharevalue as capital gain rather than income (as promised in Putting Australia’sInterests First).

The way aheadGovernment must recognise that having a local ICT research production capacityenables the rapid take-up and deployment of ICTs across the economy. It is equallyimportant to realise that ICT production and trade play a significant role in drivingproductivity and employment growth.

By joining with industry in providing vision and leadership, focusing on establishingand maintaining a platform for production and on building businesses scaled byinvestment, governments can underpin ICT development in Australia. By failing to doso, they can undermine it.

The ACS calls upon governments and other industry stakeholders to join forces,constructively develop and debate policy options, build on the lessons of the past andstrive for a brighter future.

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Appendices

Appendix A: Do we need to review the current settings?There have been many developments over recent years, with encouraging signs inregard to the productivity impacts of ICT use. However, recent statistics raise someconcerns in regard to local industry development. For example, since the mid-1990sthere appears to have been a decline in the number of specialist ICT manufacturingenterprises in Australia and a slowing of growth, even decline of locally produced ICTequipment exports. Given this performance the recently established review of ICTrelated policy is both timely and welcome.

Growing the domestic industry

There were around 20 340 ICT businesses operating in Australia in 1998-99, more thandouble the number reported in 1992-93. Both information and communication serviceshave experienced strong growth in the number of businesses, but equipmentmanufacturing and distribution are in decline. From 4 383 businesses in 1992-93, thenumber of equipment manufacturing and distribution business grew to 5 207 in 1995-96, but has since declined to 4 130. Consequently, there were fewer ICT manufacturingbusinesses in Australia at the end of the 1990s than there head been at the beginning.25

Similarly, while there was considerable growth in employment in Australia's ICTindustry during the early 1990s, employment has since declined. Specialist ICTbusinesses created up to 77 000 additional jobs in Australia between 1993 and 1996, butlost almost 2 500 jobs (net) between 1996 and 1999 – a remarkable decline in what aresupposed to be high growth industries.26

Achieving global scale

There are a number of large enterprises in telecommunications, manufacturing andservices, but the ICT industry is dominated by small businesses. In 1999, 96% of allspecialist ICT businesses operating in Australia employed less than 20 people. Less than1% of businesses in the industry employed 100 or more people, and only 3% employedbetween 20 and 99 people.

One of the aims of ICT industry development policies in Australia has been to growbusinesses, in order for them to gain the advantages of scale and enable them to beglobal players. And yet, in 1999 small businesses (ie. those with less than 20employees) accounted for a larger share of businesses in the ICT industry than they hadin earlier years.27 Perhaps more importantly, the industry appears to be hollowing out.The share of medium sized businesses in the ICT industry increased during the firsthave of the 1990s, but has declined since then.


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The trade deficit

Closing the import−export gap or becoming a net exporter of ICT goods and serviceshas often been seen as a primary goal for policy, the achievement of which wouldindicate that the Australian ICT industry was indeed innovative, competitive, exportoriented and realising its potential to contribute to national prosperity. During the early1990s, Australia's deficit on trade in ICT goods and services was growing.Encouragingly, however, exports were growing faster than imports. This is no longerthe case.

Australia’s total deficit on ICT trade reached $15.6 billion in 2000-01, and it has grownat a compound annual rate of 9% since 1995-96.28 The deficit on trade in ICTequipment reached $16 billion in 2000-01, up from $9.5 billion in 1995-96 and growingat a compound annual rate of 11%. Trade in ICT services realised a surplus of $425million in 2000-01, having been in deficit to $543 million in 1995-96. However,discounting the one-off impact of the Sydney Olympics on exports of audiovisualcontent (ie. TV rights) the deficit on trade in ICT services would have been around $580million.

Table A1 Australia’s ICT trade balance, 1990-91 to 2000-01 ($m)1990-91 1995-96 2000-01 CAGR

1995-96to 2000-01

ICT Equipment -4,915 -9,521 -16,060 11.0ICT Related Services - -543 425 -Total ICT Trade - -10,064 -15,635 9.2

Impact of Sydney Olympics - - 1,003 -

Total ICT Trade (excluding the Olympics) - -10,064 -16,638 10.6Notes: All data are current values. CAGR is compound annual growth rate.Source: Houghton, J.W. (2001) Australian ICT Trade Update 2001, Centre for StrategicEconomic Studies, Melbourne, p31 (updated with more recent Balance of Payments data).

In short, Australia’s ICT imports have grown faster than exports since the mid 1990s,and the deficit on trade in ICTs is blowing out. Most disturbingly, especially given thelow dollar, Australia’s (domestically produced) ICT equipment exports are now lowerthan they were in the mid 1990s.29 Australia is one of only two OECD countries inwhich ICTs accounted for a lower share of total merchandise exports in 2000 than theyhad in 1995.

The balance of trade in ICT equipment per capita indicates the extent of nationaldependence upon imported ICT equipment and how much ICT imports are costing.During 1999, Australia ranked 24th among 28 OECD countries, with Australia’s deficiton trade in ICT equipment costing USD 325 per head of population. The average forOECD countries was a deficit of USD 36 per head of population.


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Figure A1 ICT equipment surplus/deficit per 1 000 population, 1999 (USD)

Source: SourceOECD. Available at www.sourceoecd.org, accessed November 2001.

Competing at home

The shares of income derived from domestic production and imports indicate howcompetitive local products are with equivalent imported products. Services are nothighly traded, so the share of income derived from domestic production in the servicessector remains high. Local production accounted for 91% of industry income in ITservices, and 90% in communication services. However, in other sectors importsaccount for a major share of income. In 1998-99, imports accounted for 52% of theincome derived from sales of packaged software, 60% of the income derived from salesof communication hardware, and 74% of the income derived from sales of computerhardware.

Disturbingly, domestic production has declined significantly since the mid-1990s. In1995-96, domestic production accounted for more than 51% of income from the sale ofpackaged software in Australia. By 1998-99, it accounted for just 29%. Similarly,domestic production accounted for almost 30% of income from ICT equipment sales in1995-96, but by 1998-99 it accounted for just 22%.30 This suggests that Australian ICTproducers are not holding their own against competition from imports.

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Contributing to the Australian economy

In 1998-99: Australia ranked last among the 18 OECD countries for which data are available in

terms of the contribution of the ICT industry to the national economy – at 4.1% ofbusiness sector value added, compared to an OECD average of 7.4%;

Australia ranked 21st of 24 OECD countries in terms of the contribution of the ICTindustry to business sector employment – at 2.6% of total business sector jobs,compared to an OECD average of 3.6%; and

Australia ranked 22nd of 28 OECD countries in terms of the contribution of ICTs toexports – with ICT exports accounting for 4.4% of total merchandise exports,compared to an OECD average of 12.5%.

Figure A2 Share of ICT industry value added in total business sector valueadded in OECD countries, circa 1998 (%)

Source: OECD (2000) Measuring the ICT Sector, OECD, Paris.

On any measure, the ICT industry is not contributing anything like as much as it couldbe to the Australian economy.

ICTs and productivity

There is an increasing number of studies that show productivity benefits from the use ofICTs. This has led some to suggest that Australia can simply be a user of ICTs, andshould not worry about being a producer. However, realising the benefits of being a user

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of ICTs should not blind us to the potential benefits of being a producer. The recentlypublished OECD report, Science, Technology and Industry Scoreboard 2001, presentssome interesting statistics on ICT production and productivity.31

Looking at productivity growth for the decade of the 1990s (adjusted for the businesscycle) the OECD reveal that those countries with the largest growth in GDP per hourworked (ie. labour productivity) were Korea, Ireland and Luxembourg. Australia ranked9th and the United States 12th, both well behind the leading three. Ireland and Finlandexperienced the highest multifactor productivity growth during the 1990s, well ahead ofall other OECD countries.

Looking at ICT production the OECD reveal that the three countries with the highestshare of ICT value added in business sector value added in 1999 (ie. of ICT productionin total production) were Ireland, Finland and Korea; the top two countries in terms ofICT equipment share of manufacturing trade were Ireland and Korea; and the threecountries with the highest trade surplus in ICTs were Ireland, Korea and Finland.

Table A2 ICT production and productivity performance

Highest labour productivity growth during 1990s Korea Ireland Luxembourg

Highest multifactor productivity growth during 1990s Ireland Finland Belgium

Highest ICT value add in economy Ireland Finland Korea

Highest ICT share of manufacturing trade Ireland Korea -

Highest ICT trade surplus Ireland Korea FinlandSource: OECD (2001) Science, Technology and Industry Scoreboard 2001, Paris.

Obviously, Finland, Korea and, to a lesser extent, Ireland are advanced users of ICTs.But is it a coincidence that the leading producers of ICTs during the last decade haveexperienced the highest labour and multifactor productivity growth during the decade?There is emerging evidence of the productivity benefits of being an ICT user, but thebenefits of being an ICT producer should not be overlooked.32 The U.S. Department ofCommerce recently noted that the ICT producing industries in the Unites States“continue to contribute disproportionately to overall economic growth.”33 Over theperiod 1996-99, the ICT producing sector accounted for an average of just 7 per cent ofU.S. GDP, but was responsible for an average 29 per cent of the country’s overall realeconomic growth. During 2000, the ICT producing sector accounted for 8 per cent ofU.S. GDP and 26 per cent of real economic growth.34

Can we simply be users?

There is some evidence that Australia’s formerly strong record on ICT adoption hasrecently flagged, relative to other OECD countries. For example:

In July 1995, Australia ranked 7th among OECD countries in terms of internet hostsper 1 000 population, but by July 2001 Australia’s ranking had slipped to 10th;35


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In July 1998, Australia ranked 9th among OECD countries in terms of web sites per1 000 population, but by July 2000 Australia’s ranking had slipped to 13th;36 and

In June 2000, Australia ranked 13th among OECD countries in terms of thepenetration of broadband (with 0.59 adopters per 100 population, compared to anOECD average of 1.96 and Korea's 13.9), but by June 2001, just one year later,Australia's ranking had slipped to 16th.37

Figure A3 Broadband penetration per 100 population, June 2001

Source: OECD (2001) The Development of Broadband Access in OECD Countries, Paris, p14.

Harvard University's Center for International Development recently ranked Australia14th in the world on its 'Network Readiness Index', which is a composite indicator basedon infrastructure, technology and policy factors. Within the composite 'readiness' index,Australia ranked 20th in terms of internet access costs, 21st in terms of education levelsand the extent to which ICTs are incorporated into learning systems, and 32nd in termsof ICT opportunities – this latter putting Australia below such countries as Estonia,Greece, Portugal, Brazil, Costa Rica, the Czech Republic and Chile.38

These trends and rankings suggest that without a vibrant ICT producing industry it isbecoming more difficult for Australia to keep up with the leading countries in terms ofadoption and use of ICTs.39 This is because ICT producers and users are highly inter-dependent. As the Chief Scientist recently noted:

"It is not sufficient for Australia to be a fast user of other nations’ technology. Wemust have leading edge capabilities so that we can develop pioneering

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technologies that will ensure the competitiveness of our industry in the globalmarketplace of the future."40

Similarly, the Prime Minister’s Science, Engineering and Innovation Council recentlynoted that: Australia will struggle to maintain its strong economic performance if we donot have a focused effort to continually up-date Australia's domestic capacity in ICTinnovation and production. [Without ICT research and production capabilities] we maywell lose the capability to be intelligent purchasers of ICT goods, let alone pioneers.41 Is it too late?

Some argue that ICTs are mature technologies. But few people would predict that therewill be less information processing and communication in the future – indeed mostwould predict more. It is notable that studies of patenting activity reveal that ICT relatedpatenting continues at a faster rate than many other areas of science – comparable tobiotechnology.42 This is not a characteristic of mature technologies: quite the opposite.So, far from being mature technologies, the ICT revolution is set to continue. There arestill many opportunities awaiting ICT producers in the future.

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Appendix B: How did we get here?This section presents a brief review of recent policy developments, because it is only byunderstanding how we got here that we can learn from experience and build on pastachievements.

Partnerships for Development

The major ICT industry program operating during the 1990s was the Partnerships forDevelopment (PfD) program, which emerged from a reformulation of civil offsets in1987. The Partnerships Program focused on using government purchasing leverage toencourage multinational companies (MNCs) in the ICT industry to invest in a range ofproduction activities in Australia. Under the program MNC suppliers of ICT goods andservices to Governments were invited to deepen their involvement in the Australianeconomy by:

entering into 7 year agreements to increase their level of R&D activity to 5% ofturnover;

increasing exports to 50% of their imports; and

increasing the local value added of those exports to 70%.

The underlying rationale was 'information failure', based on the belief that once theMNCs realised that Australia was a good base for business they would drive industrydevelopment through further investment. The PfD program was later extended, withsimilarly focused Fixed Term Agreements (FTAs) for smaller, locally-based firms andby telecommunications carrier Industry Development Plans (IDPs), which sought anorderly transition for carrier purchasing.

It was widely believed that these programs had a positive impact.43 Investmentincreased, local production and exports began to expand at a faster rate, andemployment in the ICT industry increased. It was also widely believed that this increasein activities made a positive contribution to prosperity, not only directly, but also byshifting the structure of production towards elaborately transformed manufactures(ETMs).44 Nevertheless, when a new government came to office in 1996 a thoroughreview of what was by then a decade old policy framework was due.

A timely review

A wide ranging review of business programs was conducted by a team led by Mr DavidMortimer (then Chairman and Chief Executive of TNT) and supported by a secretariatdrawn from a number of Commonwealth Government Departments. The Review'sfindings were released in Going for Growth: Business Programs for Investment,Innovation and Export (the 'Mortimer Report') in June 1997.

A National Information Industries Taskforce, chaired by Professor Ashley Goldsworthy,was also convened in late 1996 to develop a strategy specifically for the ICT industry.


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Announcing the creation of the Information Industries Taskforce, the then Minister forIndustry, Science and Tourism suggested that: The Government recognised the size andimportance of the information technology and telecommunications industries, butbelieved that the policies aimed at developing the industries had not kept pace with theadvancement of the information industries. The Minister suggested that the 1987Information Industries Strategy was out dated, and that in recent years policies haddeveloped on an ad-hoc basis. He called for a new national approach, which considers theinterests of industry and users, which has the commitment and support of the State andTerritory Governments and which adopts a long-term strategic view.45 The Taskforce'sfindings were release in The Global Information Economy: The Way Ahead in July1997.

These two reports formed the principal inputs to the Howard Government policystatement, Investing for Growth: The Howard Government's Plan for AustralianIndustry, which was launched in late 1997, and the subsequent Information IndustriesAction Agenda.46 Since then there have been a number of reviews and reports looking atvarious aspects of policies and programs relating to the ICT industry.47 Elements ofthese were picked up by government in its recent statement, Backing Australia's Ability:An Innovation Action Plan for the Future, which was released in January 2001. A briefreview of these reports and responses provides a basis for understanding how ICTindustry policy has evolved.

The 'Mortimer Report': Following a wide ranging review of business programs, the'Mortimer Report' concluded that: programs did not operate within a clear policyframework; there was little guidance as to the correct role of, or expenditure on businessprograms; program objectives were often poorly specified, and reviews usually found ithard to determine whether to increase, amend or cancel programs; programs appearedad hoc or too small for the specified task, and many programs appeared ineffective.

The Mortimer Review suggested that government should set a growth target and harnessbusiness programs for growth by focusing on five key areas – boosting businessinvestment, encouraging innovation, expanding exports, enhancing competitiveness andensuring sustainability. It called on government to:

adopt a whole of government industry policy, with the central aim of doublingAustralia’s GDP growth per head of population (to 3.4% pa over 10 years);

collapse the current range of business programs to a suite of five, with more fundingcertainty;

determine that all business programs must conform to key principles;

establish Invest Australia, and allocate an additional $1 billion funding over fiveyears for investment incentives;

standardise all innovation programs;

retain, but adjust, the main export programs;

consolidate business competitiveness programs;


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target sustainable resource management programs towards measurable objectives;and

focus program delivery through fewer delivery agencies, and apply thepurchaser/provider model.48

The report also outlined detailed costings showing how this could be done within theoverall limits of existing business program expenditure (estimated to have been $2.8billion in 1997-98).

The 'Goldsworthy Report': Focusing more specifically on the ICT industry, the'Goldsworthy Report' suggested that to prosper in the 21st century Australia must be aleading user and producer of ICTs, because experience suggests that leading edge producersand leading edge users form mutually reinforcing relationships. The report also suggestedthat: capital was becoming more mobile, so we must compete for investment; there was aneed to affect a transition from leverage-based to incentive-based industry policies;there was a need for greater recognition within governments of the size and importanceof the information industries; and there was a need for governments to show a sense ofurgency about information industry issues and national leadership in their resolution.The Taskforce concluded that:

the information industries play a key role in enabling businesses in all industriesacross the economy to raise their productivity and compete internationally;

communication and information technologies can lead to employment problems andopportunities − new opportunities emerge as old activities die;

current trends in information and communication technology production andconsumption were likely to lead to trade deficit problems;

in many areas of the ICT and user industries Australia was simply not choosing tocompete − managements were too domestically focused;

there was too little policy appreciation of the nature of competition in the real world,and too much reliance on textbook theory;

to be a significant player in the information industries global scale is required;

there is strong international competition for investment capital and Australia wasuncompetitive at attracting global investment in the information industries;

the taxation regime was anti-growth and far too complex;

a competitive business environment is a necessary, but not a sufficient condition forinvestment and success in the information industries; and

most developed countries already had major information society initiatives whichfeatured leadership, focus and coordination.

The Taskforce outlined seven key challenges facing Australia: recognising the size,impact and strategic importance of the information industries, and the need for aNational Information Industries Strategy; national leadership; proactive investmentattraction; going global − exporting information and communication technology to the


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world; enabling and empowering users across the economy; enhancing skills formation,education and training; and enhancing research, development and innovation. TheTaskforce put forward more than 50 detailed policy recommendations which aimed toenable Australia to meet these challenges. They included:

that there be a cabinet level Minister and single Department responsible for ICTdevelopment;

government should establish an information economy development fund − pointingto the sale of Telstra and radiofrequency spectrum as possible sources of revenue tounderwrite such a fund;

governments should establish mechanisms for Commonwealth−State cooperationand coordination in the pursuit of a national strategy;

governments should use outsourcing to maximise industry development potential;

there should be a single agency for nationally focused, proactive investmentattraction;

there should be a range of initiatives intended to increase the availability of venturecapital, and to ensure that firms are 'investor ready';

there should be fundamental tax reform to ensure that Australia is a competitivelocation for investment;

there should be greater efforts towards trade liberalisation, and ensuring that firmsare 'export ready';

government should provide concessional support for infrastructure exports, andextend the Export Market Development Grants Scheme (EMDG);

government should support local MNCs gaining global mandates, and encouragealliances and export partnerships;

government should enable and empower ICT users, by kick-starting electroniccommerce and ensuring that Australia has a leading edge and competitively pricedcommunications infrastructure;

government should establish a model framework for regulation of the informationeconomy;

government should enhance skills formation by means of a range of initiatives intertiary, VET and schools education, and greater linkages between education andindustry; and

government should act to enhance research, development and innovation byintroducing a more competitive R&D tax concession, providing greater support formajor projects and R&D related infrastructure, and ensuring that there is greaterfocus on ICT related R&D.49

Government's response

Investing for Growth: The Commonwealth Government's response to the 'Mortimer'and 'Goldsworthy' reports was encapsulated in, Investing for Growth: The Howard


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Government's Plan for Australian Industry, which took up many, but by no means all ofthe recommendations put forward.

In response to the 'Mortimer Report' recommendations, the Government announced thatit was:

setting a GDP growth target of 4% pa average over the decade to 2010;

substantially increasing targeted support for innovation with the provision of $1billion over the four years from 1998-99 (with a shift from entitlement-based togrant-based allocation − with no increase in the R&D tax concession, which hadbeen reduced to 125% in 1996);

more proactively promoting Australia's advantages as an investment locationthrough the establishment of Invest Australia;

no new investment fund was allocated, but the Government did commit to theprovision of specific incentives in limited and special circumstances to attractstrategic investment projects to Australia;

extending the Export Market Development Grants Scheme (EMDG), at a cost of$150 million per year for the years 2000-01 and 2001-02 (a steady nominal rate,which implied a real decline);

introducing a new system of Manufacture in Bond (MiB) and consolidating existingDuty Drawback and Tariff Export Concession schemes into one integrated andsimplified scheme to be known as TRADEX;

introducing a range of taxation measures to increase the attractiveness of Australiaas a financial centre, at a cost to revenue of $80 million over four years; and

adopting a broad ranging Information Industries Action Agenda to foster thedevelopment of the information industries (see below).

The budgetary impact of the Investing for Growth initiatives was $1.26 billion over thefour years to 2001-02, of which just over $47 million was directed at ICT sector specificinitiatives.50

The Government chose not to rationalise and focus business programs, as recommendedin the 'Mortimer Report'. Nor did it establish an investment attraction fund. Whileprogress was made towards the separation of policy development and delivery and thecreation of a limited number of delivery agencies, there remains a bewildering array ofsmall programs operating through many agencies, and investment attraction remainspoorly resourced.

The Information Industries Action Agenda: Investing for Growth also contained theoutline of the Government's response to the 'Goldsworthy Report'. It stated that theGovernment is rising to meet these challenges by:

providing strong leadership, including through the establishment of a MinisterialCouncil to further develop a National Information and Online Services Strategy andthrough the appointment of Senator Alston as Minister for Communications, theInformation Economy and the Arts;


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encouraging business and consumer confidence by setting a light-handed regulatoryframework to support and encourage private sector led development of theinformation economy;

getting Australia online by encouraging Australia's governments, businesses,communities and education sector to move online; and

fostering the development of the information industries to capitalise on employmentgrowth and export opportunities.

Table B1 Summary of funding initiatives from Investing in Growth, 1997($m)

1997-98 1998-99 1999-00 2000-01 2001-02 TotalMortimer Responses:R&D Start 0.0 43.2 114.7 182.0 215.9 555.8Innovation Investment Fund 0.0 0.0 11.5 15.4 16.4 43.3Technology diffusion 0.0 0.0 17.0 27.0 27.7 71.7Invest Australia 0.0 3.0 3.0 11.0 11.0 28.0EMDG 0.0 0.0 0.0 150.0 150.0 300.0TradeStart and Export Access 0.0 1.4 4.0 4.0 4.0 13.4APEC Market Integration/ Industrial Collaboration 0.0 4.4 4.4 4.4 4.4 17.6TRADEX 0.0 15.0 30.0 30.0 30.0 105.0Australia as a financial centre 1.0 14.0 22.0 22.0 22.0 81.0Subtotal 1.0 81.0 206.6 445.8 481.4 1,215.8Goldsworthy Responses:Additional 50 Australian postgraduate awards 0.0 0.6 1.8 3.0 3.3 8.7Surplus computer equipment for schools 0.1 0.1 0.1 0.0 0.0 0.3Community access to information technology 0.3 0.3 0.0 0.0 0.0 0.6Online community awareness campaign 1.3 1.7 0.0 0.0 0.0 3.0Subsidy for replacement of digital receivers andretransmitters

3.2 0.0 0.0 0.0 0.0 3.2

Online access for the disabled 0.0 1.7 1.7 0.0 0.0 3.4Software engineering quality and testing andconformance infrastructure

0.0 7.0 7.0 7.0 7.0 28.0

Subtotal 4.9 11.4 10.6 10.0 10.3 47.2Total 5.9 92.4 217.2 455.8 491.7 1,263.0Source: CofA (1997) Investing for Growth: The Howard Government's Plan for AustralianIndustry, AGPS, Canberra, p95.

Within this framework, major initiatives, included: facilitating electronic commerce through commitments to removing tariffs on

information industries inputs, ensuring goods ordered and delivered electronicallyremain customs duty free and that there will be no ‘bits' tax on the Internet (ie. therewill be no tax based on the amount of information transmitted across the Internet),and conducting a comprehensive review of the legal and regulatory framework;

developing a range of programs aimed at encouraging business and community takeup of ICTs, improving access for the disabled and those in remote areas, andenhancing the IT related skills of students and workforce;


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establishing the government as a leading edge user through the adoption of newtechnologies for access to government information and services; and

establishing a national network of Software Engineering Quality Centres to ensureindustry has access to appropriate testbed and conformance facilities, removingtariffs on inputs to manufacture of ICT equipment, maximising industrydevelopment through procurement and outsourcing programs and facilitating thelicensing of rights for intellectual property developed within government contractsto Australian-based firms for commercialisation.51

It was also suggested that the information industries would benefit from access to theGovernment's R&D, investment incentives and venture capital initiatives available to allsectors.

Many of the recommendations of the 'Goldsworthy Report' were taken up, and havebeen progressed. However, some recommendations were ignored and the achievementsunder others have been disappointing. For example:

the Government did not establish an Information Economy Development Fund;

the extent to which government outsourcing has led to industry development is,perhaps, somewhat disappointing;

the Commonwealth Government has not pursued incentive led investment attractionas vigorously as asked, and chose to appoint an outside coordinator rather thanshow direct leadership; and

the Government has not fully supported outward investment, an export readyprogram, concessional loans for infrastructure exports, the established a leadingedge users program, or the adopted skills enhancement measures of the size andscope of those recommended.

The Information Industries Action Agenda evolved through a number of phases andrewrites, as responsibility for it transferred from the Industry to Communicationsportfolio. In its first revised form the 'key priorities' were listed as:

Access to capital − through the Innovation Investment Fund (IIF) outlined inInvesting for Growth (43 million over 3 years);

Formation of intellectual property − through the R&D Start program outlined inInvesting for Growth ($556 million over 4 years);

Commitment to quality − through the Software Engineering Quality Centres andTesting and Conformance Infrastructure initiatives outlined in Investing for Growth($28 million over 4 years);

Developing global scale − through investment attraction, PfDs, IDPs, outsourcing,etc;

Orientation towards global markets − through the Manufacturing in Bond, abolitionof tariffs on inputs to manufacturing, extension of EMDGs and the introduction ofTRADEX (a consolidation of the former duty drawback and tariff concessionschemes); and


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Fostering a domestic environment conducive to competitiveness, employment andgrowth (for which there were no specific initiatives).52

A further evolution took place with the adoption of responsibility for the InformationIndustries Strategy by the Department for Communication, Information Technology andThe Arts (DCITA). The new Minister's 'strategic priorities for the information economy'were listed as efforts to:

Maximise opportunities for all Australians to benefit from the information economy;

Deliver the education and skills Australians need to participate in the informationeconomy;

Advance the growth of a world class infrastructure for the information economy;

Increase significantly the use of electronic commerce by Australian business;

Develop a legal and regulatory framework to facilitate electronic commerce;

Promote the integrity and growth of Australian content and culture in theinformation economy;

Develop the Australian information industries;

Unlock the potential of the health sector;

Influence the emerging international rules and conventions for electronic commerce;and

Implement a world class model for delivery of all appropriate government servicesonline.53

Among these, only number seven focused on industry development issues. Theinitiatives identified as 'key areas for action' were, in essence, those previously outlinedby the Department of Industry, Science and Resources (ISR). As at 14th January 2002,the Department's website listed the Information Industries Action Agenda as "allinitiatives implemented".

Further program developments: Since 1998 there have been a number of ICT relatedprogram initiatives, including: Commercialising Emerging Technologies (COMET);Building on IT Strengths (BITS); and Strategic Partnership Industry DevelopmentAgreements (SPIDA).

COMET: In November 1999, the Commonwealth Government announced theCommercialising Emerging Technologies (COMET) Program, which aims to supportthe commercialisation of innovative products, processes and services by providingtailored support packages for up to 2 years for working with business advisors (up to amaximum of $100,000), and developing management skills (up to a maximum of$5,000). COMET currently involves a commitment of up to $40 million a year.

BITS: In June 1999, the Commonwealth Government announced the Building on ITStrengths (BITS) Program, which aims to build the strength and competitiveness of ICT


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businesses, foster much stronger commercialisation linkages with R&D organizationsand create clusters of innovative activity. BITS seeks to:

increase the rate of new SME formation in the Australian information industries(especially from R&D organizations), and foster linkages and networking betweenparticipants in the information industries sector;

facilitate the availability and use of leading edge network technologies by theinformation industries sector, in recognition of the role that these networks can playin the development of the information industries and of the broader economy; and

develop further an internationally competitive ICT sector in Tasmania, building onexisting Tasmanian Government initiatives and the research capacity of Tasmania'stertiary education sector.

BITS committed $158 million over 5 years to: Incubator Centres to assist ICT SMEs($78 million), Advanced Networks and Test-beds ($40 million), and DevelopingTasmania as an 'Intelligent Island' ($40 million).54

SPIDA: Following the 'Humphry Review' of government IT outsourcing a number ofchanges were made to the industry development arrangements associated withgovernment purchasing. The Partnerships for Development (PfD) program was replacedby the Strategic Partnership Industry Development Agreements (SPIDA) program.Recognising the importance of reference sites for SMEs selling overseas thegovernment reaffirmed a commitment to source at least 10% of its purchases fromSMEs – reporting that in 1999-2000, 27% of the value of Commonwealth contractswent to SMEs (worth approximately $2.6 billion). However, the government also actedto remove specific industry development requirements from all contracts valued at lessthan $5 million and streamline requirements for larger contracts.55

Recent policy reviews

More recently innovation and the National Innovation System have been examined in anumber of reports and reviews, including two with particular relevance for innovationand commercialisation in the ICT industry. Namely: The Prime Minister's Science,Engineering and Innovation Council's Australia's ICT Research Base and the ChiefScientist's The Chance to Change, both released in November 2000. These reportsprovided key inputs to the Government's major innovation statement, outlined inBacking Australia's Ability: An Innovation Action Plan for the Future, which wasreleased in January 2001.

Australia's ICT Research Base: The Prime Minister's Science, Engineering andInnovation Council (PMSEIC) presented an in depth analysis of the base for ICT relatedinnovation in Australia, and stressed its importance in underpinning both ICTproduction and use. It suggested that the Australian ICT industry is weak because basicICT related R&D is underfunded and, therefore, weak. It also pointed out thatcompetitive advantages in high-technology industries around the world have beencreated through combinations of: attracting MNCs to establish manufacturing plants;building the national skills base; and strengthening R&D (including training capability)


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in key areas. The report also pointed to the need to set priorities in order to overcomepath dependence, which in the absence of specific priority setting simply reproduces thehistorical industry structures.56

The PMSEIC recommended that government: increase the level and quality of public sector ICT R&D and enhance the scope for

commercialisation of research outcomes – through the establishment of two majorICT Research Centres of Excellence, the creation of 20 ICT Research Chairs, thecreation of 35 ICT Research Fellowships, and the introduction of 5 ICTDemonstrator Programs (at a total cost of $555 million over 5 years);

improve the capability of Australia’s ICT research and development infrastructure –through significant and sustained investment in high performance computingsystems, advanced optical communication networks, digital libraries, threeMicroelectronic Technology Centres and a national support centre, and increasedparticipation in national and international standardisation (at a total cost of $161million over 5 years); and

increase the level and quality of private sector ICT research and development –through using Government negotiating power to encourage MNC’s to undertakemore R&D in Australia, strengthening the R&D requirements in telecommunicationcarrier Industry Development Plans, and development and implementation of aprogram to facilitate Australian ICT SME’s to achieve a significant global presence(at a total cost of $30 million over 5 years).

In addition to these core recommendations the PMSEIC endorsed recommendationsrelating to SME cash out of the R&D tax concession, expansion of the BITS andCOMET programs, establishment of Innovation Centres (including an ICT-specificCentre), and providing an additional 2 000 student places from 2002. The WorkingParty also endorsed the need for action in response to stakeholder requests to:

streamline immigration procedures to access overseas skills pools and encourageforeign students with high level ICT qualifications to remain in Australia, and, inparticular, to offer permanent residence to individuals with very recent PhDs;

improve on priority setting by government funding agencies, including theAustralian Research Council (pointing out that ICT is an important but weak area,and the Council needs relevant policies to remedy the weakness);

improve the university teaching system to cater for greater intakes of ICTundergraduates without adversely affecting ICT research;

make computer science postgraduate funding consistent with engineering andscience postgraduate students; and

ensure DETYA’s research funding formula includes recognition of external incomefrom equity or income from the sale of equity in spin-off companies.

The Chance to Change: In 2000, the Commonwealth Government called upon theChief Scientist to assess the capabilities of Australia's science, engineering andtechnology (SET) base to meet the needs of Australians in the 21st century. His report,


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The Change to Change, concluded that it is not sufficient for Australia to be a fast userof other nations’ technology: we must have leading edge capabilities so that we candevelop pioneering technologies that will ensure the competitiveness of our industry inthe global marketplace of the future.57 The Chief Scientist noted that our competitors inother countries are showing the way, with their governments viewing the systems thatgenerate and translate knowledge into wealth as the primary focus for sustainableeconomic development.

The major recommendations for enhancement of the SET base to emerge from the ChiefScientist's Review were:

1. People and Culture: Provide 200 HECS scholarships for students undertaking combined

science/education qualifications and 300 for students of the enablingsciences.

Increase the number of Australian postdoctoral fellowships – doublingwould be appropriate. These would be tenable at universities,government-funded research agencies and internationally recognisedinstitutes.

The Commonwealth Government fund the establishment of FederationIndustry Chairs in universities or a research entity affiliated with auniversity on a competitive basis for five years.

Redesign and expand R&D Start Graduate to place SET graduates inSMEs.

The Commonwealth Government show leadership and initiative to raisethe importance and profile of science awareness. Activities with a highpublic profile, such as National Science Week, should be expanded.

2. Ideas: Implement a priority review process of R&D funding across the

Commonwealth Government.

Over five years, double funding for the Australian Research Council’scompetitive grants and related infrastructure activities, consistent withthe commitments already made for increased funding of health andmedical research.

CSIRO, ANSTO and AIMS be given access to competitive R&Dfunding mechanisms, including commercial loans, be assessed againstoutputs, and reform incentives for researchers to encourage new businesscreation.

Consideration of intellectual property be prominent in assessing ARCgrant applications, similar to the NHMRC process.

Expand the funding for university research infrastructure and provide acommensurate increase in support for research infrastructure at non-


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university institutions eligible to receive ARC and NHMRC researchgrants.

Develop a pilot scheme to test a national site license concept betweenhigher education institutions, government-funded research agencies andpublishers in an attempt to keep the price of journals down.

Commonwealth Government fund 50% of the cost of creating new majorresearch facilities on a competitive basis in conjunction with the Statesand Territories, publicly-funded research institutions and commercialinterests.

Government-funded research agencies, CRCs, and RDCs have access tothe initiatives outlined in this report, including Major Research Facilities,pre-seed funds and Innovation Centres.

3. Commercialisation: Create a cash-out option under the R&D tax concession for R&D

expenditure by SMEs and provide suitable incentives to attractsignificant R&D projects to Australia.

ARC and the NHMRC develop stronger guidelines on commercialisationof research.

Expand the CRC program to encourage greater SME access and tofacilitate stronger networks between the SET base and industry,nationally and internationally.

Establish Innovation Centres to provide universities and government-funded research agencies with support in commercialising research.

Establish a pre-seed capital fund for universities, Innovation Centres andgovernment-funded research agencies, such as CSIRO, RDCs and CRCs.

Universities and government-funded research agencies reviewopportunities for researchers to better share in the benefits ofcommercialisation with particular encouragement for formation of start-up and spin-off companies.

Universities and government-funded research agencies adopt a morestrategic approach to the management of intellectual property.

4. General: Any additional funding for the SET base should be closely linked to

measurable performance indicators.

A Science Capability Implementation Group be established to implementthe recommendations endorsed by Government.

Blackburne Review: In August 2001, Dr Ian Blackburne presented a report to thePrime Minister entitled Wining Investment: Strategy, People and Partnership's, whichcontained a review of the Commonwealth's investment promotion and attractionactivities. Recommendations focused on:


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creating a one-stop-shop agency, Invest Australia, as an autonomous prescribedagency bringing together the current disparate Commonwealth investment attractionactivities;

establishing a Prime Minister's Investment Council (PMIC);

formalising Commonwealth-State coordination by forming a National InvestmentAdvisory Board (NIAB);

develop a coherent national branding / marketing image for Australia;

develop a national strategic plan for investment attraction and promotion;

focus industry specific promotion on those sectors in which Australia hascomparative advantage and/or excellent potential; and

fund the activities to at least the current total level (approximately $20 million perannum for commonwealth activities).58

Government's current agenda

The Government's response to these recommendations was outlined in BackingAustralia’s Ability, which provided $2.9 billion over five years to fund initiativesintended to stimulate innovation. These included:

providing an additional $736 million for Australian Research Council (ARC)competitive grants, doubling funding by 2005-06;

boosting research infrastructure funding by $583 million;

committing an additional $176 million for world class Centres of Excellence in thekey enabling technologies of ICTs and biotechnology;

providing $155 million to support investments in major national research facilities;

continuing the R&D Start Program with funding of $535 million over five years;

reforming the R&D tax concession, including the provision of a premium rate of175% for additional R&D activity, and a tax rebate for small companies;

expanding the Cooperative Research Centres (CRC) Program with an additional$227 million, and encouraging greater access by small and medium enterprises;

increasing funding to universities by $151 million to create 2 000 additionaluniversity places each year, with priority given to ICT, mathematics and science –to be backed by adjustments to existing immigration arrangements to attract moremigrants with ICT skills; and

delivering $130 million to foster scientific, mathematical and technological skillsand innovation in government schools in those States where the EnrolmentBenchmark Adjustment (EBA) is triggered.59

While ignoring a number of the PMSEIC's recommendations, these measures went along way towards meeting the key demands emerging from the Innovation Summit andthe Chief Scientist's review. Among the main omissions from the PMSEIC'srecommendations were ICT research chairs, ICT demonstrator programs and specific


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allocations for High Performance Computing and Advanced Optical CommunicationsNetworks in R&D infrastructure funding. However, Backing Australia's Abilityincluded other related measures, such as continuing R&D START, and a range ofinitiatives aimed at fostering science and engineering education in schools.

Policy statements for Election 2001

The Knowledge Nation: A key part of Labor's platform for the 2001 election campaignwas its agenda for Australia as a 'Knowledge Nation'. Among the wide ranging agendawas a set of proposals for the development of key industries, including ICTs. TheTaskforce suggested that The Commonwealth should make it an urgent national prioritythat all Australian households and businesses have the option of access to digitalbroadband. This could be done by:

Using the array of Commonwealth power, capacity and influence to expandbroadband access. This will include improving the current regulatory arrangementsand maintaining majority government ownership of Telstra.

Upgrading the current standard telephone service, which mandates minimum levelsof voice telephony service, to a standard communications service that mandatesminimum levels of data transmission.

Improving the competitive and regulatory environment to ensure fair access to theCustomer Access Network and to ensure that broadband networks are open,digitised and inter-connectable as soon as possible.

Providing incentives, including investing in broadband networks, for the take up ofbroadband technology.

Making government a leader in the use of broadband technology, includinginnovative online government services.

Ensuring that all Australians, particularly those in regional areas, have theopportunity to access fixed-price untimed calls nationwide, for both voice telephonyand data services.

Removing the existing restrictive and failed datacasting regime and opening up anew digital spectrum to the exciting, potential new services of the future.

Building a national strategy around the growth and development of Australia’ssoftware and digital content sector, including a comprehensive capability inventory.

Using improved government procurement policies to encourage the furtherdevelopment of an Australian ICT industry.

Closing the digital divide by using community and regionally based strategies toimprove skill levels and assure affordable Internet access.60

Putting Australia's Interests First: The Coalition's election commitments wereoutlined in Putting Australia's Interests First: Securing Australia's Prosperity, releasedin October 2001. It stated that: A Coalition Government will… deliver furtherimprovements in living standards through continuing increases in real incomes and


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employment. And we will further strengthen the competitive position of Australianbusinesses… Attention will be specifically given to:

improve the governance, efficiency and effectiveness of the statutory authoritieshaving an impact on business;

review legislation and administrative processes that affect business competitiveness;

address the challenge of the “branch office economy” in the global environment;and

strengthen our active efforts to encourage overseas direct investment in Australia.

The Coalition committed to a range of initiatives aimed a refining the taxation system inorder to encourage international investment and skills availability by removing anydisincentives within the system, and to adopting and implementing therecommendations of the 'Blackburne Review' into investment facilitation activities.61

In the related Information Industries for the 21st Century action plan, the Governmentoutlined its current initiatives. New initiatives promised for the third term included:

an enhanced investment attraction effort;

a comprehensive digital content strategy; and

the completion and implementation of an electronics industry action agenda.62

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Appendix C: What major insights have emerged?This section presents a brief note on the insights emerging from some of the majoranalytical and policy reports produced over the last few years. These highlight keyissues and critical dimensions for policy consideration, and provide an essential input toframing a strategy.X

The 'Competitiveness Study': Allen, Allen and Buckeridge's report Spectator orSerious Player provided a major input to the deliberations of the Information IndustriesTaskforce during 1996-97. It concluded that Australia's ICT industry was notcompetitive, due to:

small local firm size − too small to have a global impact;

Australian capital markets not being competitive with major international stockmarkets for technology companies (beyond early stage financing);

limited electronics production; and

MNC vendors being oriented to the domestic market, not towards exporting.

Key recommendations included strengthening investment attraction, ensuring theavailability of venture capital, and reforming taxation to make Australia a competitivelocation in which to do business.63

The 'Mortimer Report': The Mortimer Review concluded that programs did notoperate within a clear policy framework; little guidance was provided as to the correctrole of, or expenditure on, business programs; program objectives were often poorlyspecified, and program reviews usually found it hard to determine whether to increase,amend or cancel programs; programs often appeared ad hoc or too small for thespecified task; and many programs appeared ineffective. The report suggested thatgovernment should focus on five key areas – boosting business investment, encouraginginnovation, expanding exports, enhancing competitiveness and ensuring sustainability.

The 'Goldsworthy Report': The Goldsworthy Taskforce suggested that to prosper inthe 21st century Australia must be a leading user and producer of ICTs, becauseexperience suggests that leading edge producers and leading edge users form mutuallyreinforcing relationships – rarely does one exist in isolation from the other. It was alsosuggested that:

to be a significant player in the information industries global scale is required;

there is strong international competition for investment, and Australia isuncompetitive at attracting global investment in the information industries;

government must deal with global industry leaders, as it does with political leaders;

the taxation regime was anti-growth and far too complex; and


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there was a need to affect a transition from leverage-based to incentive-basedindustry policies.

The IPAC Report: A National Policy Framework for Structural Adjustment suggestedthat the ICT sector is too diverse for a single sector strategy, and concluded that thepolicy framework should focus on ICTs as an infrastructure − like transport or energy.64

Noting the diversity of the ICT sector was an important insight. However, the fact thatwe have transport policy does not prevent us having industry development policies forthe automotive industry (which produces the vehicles to run on our roads) or thebuilding and construction industry (which builds our roads). Similarly, the fact that wehave energy policy does not prevent us having a Sustainable Energy Industry ActionAgenda. Communications infrastructure policy is important, and there have beensignificant developments in communications and media policy and in the developmentof a 'Digital Agenda'. However, these are not a substitute for ICT industry developmentpolicy. Unfortunately, the IPAC report appears to have misled some into thinking thatthey are.

Australia's ICT Research Base: The PMSEIC's report, Australia's ICT ResearchBase: Driving the New Economy, suggested that Australia's ICT industry is weakbecause basic ICT related R&D is underfunded and weak; that we need to set prioritiesin order to overcome path dependence; and that competitive advantages in high-technology industries around the world have been created through combinations ofattracting MNCs to establish manufacturing plants, building the national skills base andstrengthening R&D (including training capability) in key areas. Importantly, the reportconcluded that being a leading user is not enough: Australia must also be a leadingproducer.

PMSEIC members stated that: Australia will struggle to maintain its strong economicperformance if we do not have a focussed effort to continually up-date Australia'sdomestic capacity in ICT innovation and production, because close relationshipsbetween leading edge users and suppliers of ICT are important, as are the skills toimplement ICT innovations. There is a “first mover” advantage in ICT which underpinsthe development of competitiveness across all industries, but particularly the servicesindustry. Innovation in new economy sectors such as ICT relies heavily on interactionbetween users, producers and the science and research system. ICT is becomingincreasingly important to the international competitiveness of established products.Weakness in ICT research will reduce Australia's capacity to differentiate goods andservices from those of competitors and weaken Australia's overall competitiveness andexport performance. Without ICT R&D and production capabilities we may well losethe capability to be intelligent purchasers of ICT goods, let alone pioneers. Purchasingthe right solutions cost-effectively requires detailed understanding of ICT.65

The Chance to Change: The Chief Scientists report, The Chance to Change, alsoconcluded that it is not sufficient for Australia to be a fast user of other nations’technology: we must have leading edge capabilities so that we can develop pioneeringtechnologies that will ensure the competitiveness of our industry in the global


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marketplace of the future.66 The Chief Scientist noted that our competitors in othercountries are showing the way, with their governments viewing the systems thatgenerate and translate knowledge into wealth as the primary focus for sustainableeconomic development. He also noted that business expenditure on R&D (BERD) isvery low in Australia, and must be a focus for attention, and that overseas science andtechnology linkages are vital for small countries like Australia because much of thetechnology we use will be imported.

Knowledge Nation: The underlying premise of the Knowledge Nation report was thatthere is a 'knowledge investment crisis'. The Taskforce clearly stated the belief thatAustralia could not simply be a user of ICTs; concluding that the impact of ICT occursthrough two main channels − the rapid adoption and use of information technologygoods and services across all industries, and the rapid growth in output and employmentin the information industries themselves. The Taskforce suggested that consigningAustralia’s economic future to that of just being a good diffuser of technology merelyreflects a poor understanding of the nature of technological change. It is increasinglybecoming accepted that the productivity jumps associated with the new economy havebeen most visible in those sectors that heavily use new technology and in those sectorsengaged in the production of new technology. Developing a production sector in ICT isfundamentally about value-adding to our existing industries, developing new productsand processes, and, importantly, developing our content generation and servicessector.67 The Taskforce also stressed the importance of getting the key elements ofR&D, innovation and investment attraction working in unison.

Putting Australia's Interests First: The Coalition's election commitments, promisedto: improve the governance, efficiency and effectiveness of the statutory authoritieshaving an impact on business; review legislation and administrative processes thataffect business competitiveness; address the challenge of the “branch office economy”;and strengthen efforts to encourage overseas direct investment into Australia. In doingso, it placed a clear emphasis on the problems of competitiveness and the need forenhanced investment attraction.68

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Appendix D: What are the elements of a strategy?Recent policy reports have different foci and use different terminology, but certainthemes are common. Distilling those themes gives us the elements of a strategy.

A strategic approach is required

There have been repeated calls for a more strategic approach to industry development.While the meaning of strategic is multifaceted, elements of what is intended are clear.

Taking a long term perspective

The most common feature is a demand for a longer-term perspective that goes beyondthe short-termism of Australia's electoral and business cycles. It seems widely acceptedthat strategic means having a vision about the future, working out how to get to wherewe want to go, setting targets and working systematically towards them until they areachieved. Criticism of the short-termism of Australian politics and business, anddemands for policy and funding time horizons of 10 or even 20 years, rather than the alltoo common 2 or 3 years, are common.

Focusing on key points of leverage

Another common feature is a demand for a more focused approach, often contrastedwith what is seen as the 'scatter gun' approach that characterises much Australian policy.There are calls to:

Focus on a few key sectors of the economy which offer the greatest opportunity forgrowth in the future;

Focus on Australia's strengths in education, skills, resources and rapid technologyadoption;

Focus on value not costs, in order to move up the value chain, rather than engagingin an impoverishing race to the bottom;

Focus on value-adding rather than on the more politically immediate issue of jobcreation;

Focus business programs on a few key areas in order to bring greater attention tocritical issues and marshal limited resources where they can have most impact; and

Focus the delivery of business programs by creating a one-stop-shop in order toreduce search and compliance costs, and make the programs easier to find andaccess.


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Leadership is required

Also common are demands for leadership – for government and/or combined industry-government groups to demonstrate leadership, create a vision of the future, articulateand communicate the strategy for its realisation, set targets, ensure that the necessaryresources are mobilised and oversee the processes of implementation. Frustration withthe 'conventional wisdom' that the government has no role in the economy beyondsetting the base conditions is common. Many suggest that establishing an open andcompetitive business environment is a necessary, but no longer a sufficient condition.As one leading international analyst put it:

Governments – both national and local – have new roles to play. They mustensure the supply of high-quality inputs such as educated citizens and physicalinfrastructure. They must set the rules of competition – by protecting intellectualproperty and enforcing antitrust laws, for example – so that productivity andinnovation will govern success in the economy. Finally governments shouldpromote cluster formation and upgrading and the build-up of public or quasi-public goods that have a significant impact on many linked businesses.69

Governments must now play 'active hosts' to increasingly mobile investment, ensurethat the conditions are right for the development of clusters, and promote thedevelopment of linkages within clusters of developers, producers and users.

Key inputs include education, skills and intellectual property

It is now almost universally accepted that education and skills are going to be key inputsin the emerging knowledge-based economy of the 21st century, and that intellectualproperty will be the most important form of property.

Investing in education and ensuring the timely availability of the high-level skillsnecessary to facilitate constant innovation, drive upgrading and renewal, and increasevalue adding is the single most important investment that governments can make. AsBritish Prime Minister, Tony Blair, put it: "education is our best industry policy."Investing in the creation, development, transfer and commercialisation of intellectualproperty, through investments in R&D activities and in the national innovation system,are also critical investments for governments to make.

Setting the regulatory environment for the protection of intellectual property andprivacy, in order to engender trust in the online world and ensure that businesses whichdevelop and market high value, knowledge-intensive products and services can realisefair economic returns on their investments, is also becoming an increasingly importantarea for government action.

The process is one of continuous upgrading

Whether it is called innovation or reform, there is widespread agreement that theprocess must be one of continuous upgrading. It is no one-off adjustment that is


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required, but rather a continuous process of improvement, driven by ever fastertechnological change and increasingly intensive global competition.

In addition to creating and maintaining an underlying business environment thatencourages investment and entrepreneurship, governments must facilitate and support afull range of business improvement initiatives to ensure continued competitiveness andproductivity improvement. This involves such things as:

Supporting and leveraging business expenditure on R&D;

Facilitating and supporting cooperative and collaborative development oftechnologies and solutions;

Facilitating and supporting technology transfer and diffusion, both internationallyand domestically, between public and private sectors and between academia andbusiness;

Facilitating and supporting skills development, enhancement and renewal, forworkers and managers, on shop-floors and in boardrooms; and

Generally facilitating and supporting the further development of initiatives focusingon business improvement and competitiveness.

Investment is crucial

Upgrading progresses at the pace of investment, or is limited by it. Upgrading skillsrequires investment in education and training, upgrading technology requires investmentin R&D, and its commercialised depends upon investment in upgrading plant and theproductive capacity of enterprises throughout the economy. There is an old adage aboutthe Three 'i's – invention, innovation and investment. Commercial success requires allthree.

Much of the recent policy discussion points to the need to: Ensure that there is a competitive investment environment;

Ensure that seed and venture capital are available for investment in thecommercialisation of new technologies and solutions; and

Engage in pro-active investment attraction to maintain and enhance foreign directinvestment in Australia.

Framework conditions must be supportive

None of the recent policy reports call for a return to protection or for special favours,assistance or 'business welfare'. Rather, they call for open, transparent business andregulatory environments, which set Australian businesses on an equal footing withinternational competitors, enable and encourage them to compete with the world's best.

Regulation can be an inhibitor or a driver. Getting the regulatory environment right, andconstantly monitoring and updating it are key activities for government. Increasinglyimportant in the emerging knowledge-based economy are such areas as:


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Competition policy, in setting the ground rules and ensuring fair and freecompetition;

Consumer protection, in giving confidence to consumers;

Intellectual property rights and the framework for the development and exploitationof intellectual property;

Regulation of information, including such areas as the security and privacy of onlinetransactions, the internet and e-commerce; and

Regulation of communications, the media and content industries to ensure the timelyand affordable availability of broadband access with the attractive content necessaryto encourage and drive adoption.

Linkages make it work

The idea that it is all about linkages is expressed in a variety of ways, such ascooperation, collaboration, alliances and clustering. Nevertheless, the underlying notionthat linkages are crucial is all but universal, as are calls for greater policy attention tofacilitating, developing and leveraging linkages.70

There are a number of reasons for heightened attention to linkages. Firstly, there isincreasing recognition that one of the differences between a traditional industrialeconomy and the emerging knowledge-based economy is the greater significance ofexternalities and knowledge spillovers. The dynamic of a knowledge-based economy isnot only about the creation of new knowledge, but also about knowledge distributionand the capacity of organizations throughout the economy to access, assess and absorbnew ideas. Consequently, the linkages that facilitate the transfer and distribution ofknowledge are as important for realising its value as are the researchers, developers andR&D centres that create it. Co-location and clustering are vital enablers of the transferof high-value, tacit knowledge of the kind which often creates and supports sustainablecompetitive advantages.

Secondly, global deregulation of capital markets, transport, trade and, to a lesser extent,labour markets, has greatly increased the international mobility of capital, withinvestment becoming increasingly footloose. The development of synergistic linkages,alliances and clusters of innovation and production help to embed direct investment intolocal economies and reduce the risk of its departure.

Thirdly, the increasing rate of technological and organisational change and theincreasing intensity of global competition mean that business models are becomingmore varied and are evolving more rapidly. It is becoming more difficult to identify thekey point in a product or service value chain at which value can be realised, with rapidchanges in the location of value in the chain. Consequently, capturing as much of thevalue chain as possible is becoming one key to competitive advantage. This can be doneby vertically integrating activities into ever larger multinational firms, and is one of thedrivers of their growth. Alternatively, capturing larger segments of the value chain canbe achieved through cooperation, collaboration, alliances and clustering. Such alliances


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and clusters reduce competitive risks by ensuring that wherever value is in the valuechain it can be realised by alliance or cluster members, and by the nations in which theylocate.

Forging linkages, therefore, facilitates knowledge transfers, innovation, upgrading andrenewal; increases the ability of firms to capture value from their activities; and reducesthe mobility of multinational investment by embedding it in local clusters. Developingclusters and facilitating more intensive and extensive linkages between suppliers andtheir clients (be they between local SME suppliers and major MNEs, or between localsuppliers and their customers in key vertical markets, such as health, education, miningor resources) should become a key focus for policy initiatives.

Resourcing must be adequate

There is a widespread sense that business programs are often too small and inadequatelyresourced to really make a difference. Everyone understands that resources are finite,but well designed and targeted programs that support growth should be seen as aninvestment, not an expenditure. As individuals we understand that when things are tightwe must either learn to live within our means or find another job which enables us toearn more and support the lifestyle we desire. It is really no different nationally. Makingcuts to balance the budget should not be the be-all and end-all of economic policy.Rather, we must combine sound economic management with industry developmentinitiatives so that, collectively, Australia can 'get a better job' and enjoy a higherstandard of living.

Large scale privatisations, such as that of Telstra, offer a once in a lifetime opportunityto make a significant investment in upgrading the Australian economy. They providethe means to establish a 10 to 20 year economic redevelopment fund with which tounderwrite Australia's future prosperity, without jeopardising the record of soundeconomic management that Australia has achieved.

A sense of urgency is required

Calls for a greater sense of urgency permeate recent policy debate. Australia seems tobe paralysed by a deep-seated, almost cultural risk aversion, or, perhaps, by the nationaldelusion that 'she'll be right'.

There are many indicators of economic performance, but few go as directly to the valueof Australia's output on world markets and its ability to create wealth as do theexchange rate and growth in GDP per capita. Financial deregulation in the early 1980smarks the point at which Australia truly entered the global economy. Since 1981 theAustralian dollar has devalued by 50% against the U.S. dollar (Figure D1) and Australiahas slipped from 13th to 26th in the World Bank's ranking of countries in terms of GNPper capita.71 The message is clear: the world no longer values the things we areproducing as highly as it did, and other countries are better than Australia at creatingwealth.


47

The well known Australian economist, Saul Eslake, recently said that talk of thedeclining dollar making Australia more competitive is nonsense: adding that if acontinually declining currency were the route to national prosperity, then Turkey,Indonesia, and Bolivia would be the richest countries in the world.72 One of the World'sforemost industry analysts, Michael Porter, wrote:

“Cheap labour and a ‘favourable’ exchange rate are not meaningful definitionsof competitiveness... The process of expanding exports from more productiveindustries, shifting less productive industries abroad through foreign investment,and importing goods and services in those industries where the nation is lessproductive, is a healthy one for national prosperity... The expansion of exportsbecause of low wages and a weak currency, at the same time as the nationimports sophisticated goods that its firms cannot produce with sufficientproductivity to compete with foreign rivals, may bring trade into balance butlowers the nation’s standard of living.”73

A scenario which seems to resonate eerily with Australia's recent economicperformance, with growing commodity exports on the back of a weak dollar and aburgeoning ICT trade deficit.

Figure D1 Australian-U.S. dollar exchange rate, 1970-2000

Notes: Value of USD against AUD, annual average exchange rates. Trendline added.Sources: OECD and Reserve Bank of Australia.

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00

USD


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In order to resist such a slide, Australia must shift its structure of production towardsthose things for which world demand is growing (eg. by producing ICT products andservices), and enhance its wealth creation capacity through a process of upgrading andrenewal (eg. through innovatively using ICTs in industries throughout the economy).Australia’s traditional structure of production relies too heavily upon industries that facefundamental limits to their expansion (eg. the environmental sustainability of expandedagricultural production in the face of declining water resources), or decreasing marginalreturns (eg. the expansion onto ever more marginal land), or both. We must shift thestructure of production towards those industries which do not face fundamentalenvironmental limits, which enjoy increasing marginal returns (eg. knowledge-basedand content industries) and which can both generate and absorb increasing knowledgespillovers.

Summarising the elements of a strategy

The key elements of a strategy emerging from recent policy analysis are clear: We need to take a strategic approach, which entails adopting a longer-term

perspective and focussing on key points of leverage;






We must understand that linkages facilitate innovation, and make linkage policiesand cluster development a focus for action;

Policy initiatives must be adequately resourced; and


__________


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Appendix E: What can be done?Our review of recent policy debate and subsequent consultations provide the foundationfor a revised strategic framework and updated proposals for action.

A strategic framework for action

At its simplest, a strategy for the development of ICT in Australia must be: Built on a solid infrastructure, through innovation, skill and professionalism;

Focused on commercialisation and building businesses;

Scaled by investment; and

Driven by vision and leadership.

Figure E1 A Strategic Framework for ICT development in Australia

Key elements of each of these are outlined in Figures E2, E3, and E4 (below). In eachcase the left-hand column indicates the key strategic foci, while other columns suggestexisting or potential policy initiatives contributing to the outcome. They are indicative,rather than exhaustive lists of initiatives.

Building BusinessesCommercialisation

Business ImprovementClustering & Linkages

Market Access

Scaled by InvestmentStrategic

Large-scale Targeted

Funded to Make It Work

Platform for ProductionInnovation

Institutional EnvironmentInfrastructure & Regulation

Skills & Professionalism

VisionLeadership


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A platform for production

The platform for production must support leading edge ICT production for both sale andown use (ie. support both the ICT producing and ICT using industries). Key elementsare the funding supports for ICT related innovation, the institutional settings for thatinnovation, and the necessary infrastructure to underpin innovation in ICT productionand use. Governments and industry must support innovation, support the institutionalsettings for that innovation and support the infrastructure which provides the linkagesfor the transmission of innovation into commercial reality. Governments must alsoensure that the regulatory environment encourages e-commerce and e-businessdevelopment, and that there is an appropriate supply of skilled and professional peopleavailable to make it work (Figure E2).

Figure E2 ICT infrastructure: supporting innovation, development andskilling

SupportSkilling &Professionalism

ICT places inSchools & ICT

enabledlearning

ICT places &and learning

in University &VET

SkilledMigration

Taxation ofTemporary

Residents &Expatriates

ProfessionalDevelopment

&Accreditation

SupportInfrastructure

SoftwareEngineering

QualityCentres

AdvancedNetworksProgram

HighPerformanceComputing

Centres

Testing andConformanceInfrastructure

Standards(CITEC -

StandardsAustralia)

SupportRegulation

CommsRegulation

Broadcasting& RadioComms

Media, Cross-Media &Content

DigitalAgenda

(IP)

Digital Agenda(Privacy &Security)

SupportInstitutionalSettings

ICTCRCs

ICTsat the

CSIRO

ICTCentre of

Excellence

InnovationAccess

Program

TechnologyShowcase

SupportInnovation

Public R&Dallocations

(ARC)

Public R&Dallocations(START)

Targeting ICTin R&DFunding

R&D TaxConcession

Business ICTR&D

Spending

Many of the elements of a sustainable platform are already in place or in train. Existingelements should be brought together as a coherent platform with longer termcommitments to funding, and further developed with new initiatives where gaps areidentified and with greater resourcing where necessary. The issues of skilling andprofessionalism also require constant attention, as do the issues of skilled migration andthe taxation treatment of expatriates and those returning from work overseas.

Building businesses

The rewards from innovation will be reaped through building businesses – throughsupporting the creation and emergence of start-ups, helping them develop the necessary


51

business and marketing skills, helping them attract investors to enable them to grow,and easing access to export markets through reducing barriers to trade and facilitatingoutward direct investment (Figure E3). Key elements will be support forcommercialisation (eg. venture capital and incubators), support for businessimprovement (eg. investor and market ready initiatives, and user-producer clusterdevelopment), support for growth (eg. through investment attraction, linkage formationand cluster development), and support for market access and global expansion (eg. tradeand access agreements).

Figure E3 Building Businesses: supporting commercialisation,improvement and growth

SupportMarket Access &Development

MarketAccess

Initiatives

Bilateral &MultilateralAgreements

EMDG&

EFIC

AusTrade(DFAT)

Missions,Conferences

& Visits

Support Growth:Linkage & ClusterDevelopment

Clustering &Linkage

Programs

Solutions-based

Clusters

StrategicAlliances &Partnering

GlobalMandates for

MNCs

OutwardInvestmentFacilitation

SupportBusinessImprovement

COMET,IT Online

InvestorReady

MarketReady

BusinessNetworking

User /Producer

Interactions

SupportCommercialisation

ICTIncubators

InnovationInvestment

Fund

Pre-seedFund

PooledDevelopment

Funds

Standard IPAgreements

Many of the elements of these business building and improvement activities are alreadyin place. They should be brought together as a coherent program with longer term andhigher level commitments to funding, and further developed with new initiatives wheregaps are identified. It is time for a major commitment to business improvement andcluster development.


Scale remains a critical 'missing ingredient'. From barrier protection through purchasingleverage, Australian ICT industry development policies have focused on activitiesscaled to the domestic market. If Australia is to realise its global ambitions we mustbreak through the scale barrier by encouraging, facilitating and supporting large scale,strategic investments.

Centralisation of investment promotion and facilitation within Invest Australia(following the Blackburne review) is a first step. There must also be adequate fundingfor in-depth analysis of strategic sectors in order to enable sophisticated and targetedinvestment attraction, as well as thorough analysis of the proposed projects themselves.However, breaking the mould will require a major one-off shock, over and aboveexisting and currently proposed investment attraction activities, for which it will be


52

necessary to make a substantial strategic investment fund available to support largescale, strategic investments in high growth sectors.

Figure E4 Breaking the mould - supporting large scale, strategicinvestments

Large Scale Regional orglobal market

mandate

Exporting >80%of Australian

output

>10% of worldmarket for that

product orservice

Reinvestment /growth plan for

the future

Strategic High value-adding activities

in targetsectors

Large oremerging highgrowth markets

Major MNE thatis a leader in its

field

Minimum 10year

commitment toAustralia

Nature of support Special deal -over and above

IA activitiesAvailable for 5-10 year window

Available onlyfor large scale

projects(eg. $500mminimum)

Dedicated fundmade availablefor that project(eg. 10% of the

investment)

Used to makethe investment

workNot as a cash

handout

Both the scale and nature of the investment support necessary to break the mould willbe different from that currently available. It will require a special deal, over and aboveexisting and proposed Invest Australia activities. In order to achieve the break thisspecial deal might be made available for a 5-10 year window. It would be available onlyfor large scale projects in strategic areas, targeted for attraction following in-depthanalysis. A minimum level of investment might be set (eg. $500 million) below whichthe project would not qualify for special treatment. It would not favour either domesticof foreign multinationals, being available to any project that meets the strategic andscale criteria. The agreement might involve making a dedicated fund available for thatproject (eg. 10% of the investment), which would be used to make the investment work.

It would not be a cash handout, but rather a fund set aside, available for immediatedraw-down, and applicable to any activity that would overcome potential problems orbarriers to making the investment work. For example, if the investors found that therewere problems with skills supply or with the quality levels of local suppliers, then thefund could be used to enable a local university to work with the investors to developsuitable education and training courses, or to facilitate the necessary supplierimprovements, upgrading and quality accreditation.

Such an approach would be a win-win: not a handout, but a way to reduce theinvestment risk and ensure the success of the project, while at the same time focusingthe upgrading of the Australian economy in areas that 'the market' has identified asopportunities. Moreover, because it does not involve a direct subsidy it would beunlikely to conflict with Australia's commitment to free trade and investment.


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Appendix F: Priorities for actionGovernment must recognise that having a local ICT research production capacityenables the rapid take-up and deployment of ICTs across the economy. It is equallyimportant to realise that ICT production and trade play a significant role in drivingemployment and productivity growth. By joining with industry in providing vision andleadership, governments can underpin ICT development in Australia. By failing to doso, they can undermine it.

This report outlines more than fifty detailed priority actions, three of which areidentified as flagship initiatives.

1. Establishing a platform for production to support both ICT producing and usingindustries – by fostering innovation, developing the necessary infrastructure andregulatory framework, and enhancing skills and professionalism;

2. Building businesses – by fostering business improvement, enabling market accessand expansion, and actively facilitating cluster development; and

3. Achieving scale – by creating an attractive investment environment, establishing aninvestment fund and engaging in pro-active investment attraction.

A complete list of recommendations is presented in the section ‘Priorities for Action’ onpages 3 to 15, above.


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Appendix G: Reports reviewed & consultedThe primary reports reviewed and analysed are listed in Table G1 (below). A range ofother reports were also consulted during the study. The review of these documentsprovided a foundation for consultations. Together, these provided a basis for theframework for ICT development and policy priorities outline above.

Table G1 Reports reviewed & consultedMajor Reports:ACS A New Information Industries Strategy of the Nation Feb-97Allen Consulting Spectator or Serious Player? (The 'Competitiveness Study') Mar-97DIST (Mortimer) Going for Growth (The 'Mortimer Report') Jun-97DIST (Goldsworthy) A Global Information Economy: The Way Ahead (The 'Goldsworthy Report') Jul-97IPAC (Cutler) A National Policy Framework for Structural Adjustment within the New

Commonwealth of Information Aug-97Benson, et al The IT Engine Room: SMEs in Australia's IT&T industry 1999PMSEIC Australia's ICT Research Base: Driving the New Economy Nov-00Batterham The Chance to Change Nov-00Houghton Information Industries Update 2001 Feb-01ACS Impact of the ICT Industry in Australia May 01Blackburne Wining Investment: Strategy, People and Partnerships Aug-01Houghton Australian ICT Trade Update 2001 Oct 01Microsoft Technology Policy Blueprint: The Way Forward Feb-02

Policy Responses:CofA Investing in Growth Dec-97DISR Information Industries Action Agenda ?-98DCITA Strategy for the Information Economy - Issues Paper Jul-98DCITA A Strategic Framework for the Information Economy Dec-98CofA Backing Australia's Ability Jan-01Federal ALP An Agenda for the Knowledge Nation Oct-01Federal Coalition Putting Australia's Interests First Oct-01DCITA Policy Briefs - www.dcita.gov.au Jan-02See notes and references for details.

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Notes and References

1 See Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia'sInformation Industries, Allen Consulting, Melbourne, March 1997. Availablehttp://www.isr.gov.au/itt/tskforce/allen/.

2 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister'sScience, Engineering and Innovation Council, DISR, Canberra, November 2000. Availablehttp://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.

3 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo,Canberra, November 2000. Available http://www.isr.gov.au/science/review/.


5 See Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia'sInformation Industries, Allen Consulting, Melbourne, March 1997. Availablehttp://www.isr.gov.au/itt/tskforce/allen/.


7 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo,Canberra, November 2000. Available http://www.isr.gov.au/science/review/.


9 See, for example, Batterham, R. (2000) The Chance to Change: Final Report by the ChiefScientist, AusInfo, Canberra, November 2000, p9; and PMSEIC (2000) Australia's ICTResearch Base: Driving the New Economy, Prime Minister's Science, Engineering andInnovation Council, DISR, Canberra, November 2000, pp1-6 and pp15-16.

10 OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris. There are also important employment implications, with processtechnologies often being job destroying and product technologies job creating (ie. the typicalfirst round effect of producing ICTs is to create new jobs, while that of using ICTs is often todestroy administrative jobs).

11 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce,Washington DC, p23.

12 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce,Washington DC, pp25-26.

13 There is some concern that the advisory groups are not broadly representative. See, forexample, The Australian Computer Society (2002) ‘ACS Calls for More Balance inGovernment Policy Development,’ ACS Press Release, Thursday 28 March 2002. (Availablewww.acs.org.au). It will be necessary for them to consult widely in order to overcome thisperception and ensure widespread stakeholder support.

14 In the past, there has been a tendency to focus too much on technology and what we canproduce, rather than focusing on business problems and solutions and what we can sell.

15 The partial privatisation of Telstra and radio frequency spectrum auctions have generatedsignificant revenue streams for government over recent years. There is ample scope to return


56

2 or 3 per cent of what has been taken out of the sector to support ICT industry developmentinitiatives.

16 A recent report from Accenture noted that: Australia may have met its promise to have allappropriate federal services online by December 2001, but its failure to provide greaterlevels of interactivity has kept it from ranking alongside the world’s e-government stars. SeeNicholas, K. and Bryan, M. (2002) ‘Wanted: a citizen-friendly line,’ Australian FinancialReview, April 30, 2002, p31.

17 A recent study undertaken for the Australian Information Industries Association (AIIA)found that the shortage of ICT skills placed up to $5.3 billion of GDP at risk each year, andthat Australia faced an ICT skills shortfall of 27 500 university graduates over the next 5years. See CIE (2001) Breaking the Skills Barrier: Demonstrating the benefits of investmentin ICT higher education in Australia, Report prepared for the AIIA, Centre for InternationalEconomics, Sydney & Canberra. See also Microsoft Australia (2002) Technology PolicyBlueprint: The way forward, Microsoft Australia, Sydney, p31.

18 Project management skills and the capability to successfully deliver complex systems andsolutions on budget and on time are critical to the success of both ICT producers and users,and marketing skills are essential for realising a return on investments.

19 See CofA (2002) Developing National Research Priorities: An Issues Paper, May 2002.Available http://www.dest.gov.au/priorities.

20 House of Representatives Standing Committee on Legal and Constitutional Affairs (2000)Cracking down on copycats: enforcement of copyright in Australia, The Parliament of theCommonwealth of Australia, Canberra, November 2000. Available http://www.aph.gov.au/house/committee/laca/previnq.htm, accessed February 2002.

21 Adherence to the principle of territoriality is anachronistic in a globalised world, and theregulatory default should be competition with grants of monopoly given only for a limitedtime and where their net welfare advantage can be clearly demonstrated.

22 It will be important to think beyond the simple supply chain focus of some cluster analysis,and include all elements of the ICT product system. See, for example, Houghton, J.W.(2000) Innovation and Product Systems, presentation at The Australian ICT Industry ClusterStudies Design Workshop, Centre for Strategic Economic Studies, Melbourne, October 16,2000. Available at www.cfses.com/documents/workshop/houghton_2/sld003.htm. Some ofthe papers from the workshop are available at www.cfses.com/clusters.htm.

23 See Thorburn, L., Langdale, J. and Houghton, J.W. (2002) Friend or Foe? LeveragingForeign Multinationals in the Australian Economy, Australian Business Foundation, Sydney.Available www.abfoundation.com.au.

24 Large scale privatisations and the allocation of radiofrequency spectrum through auctionsprovide a once-in-a-lifetime opportunity to invest in Australia’s future. It is an opportunitywe cannot afford to let slip.

25 Houghton, J.W. (2001) Information Industries Update 2001, Centre for Strategic EconomicStudies, Melbourne. Available http://www.cfses.com/.



28 Excluding the one-off impact of the Sydney Olympics on content exports, the overall ICTdeficit would have been more than $16.6 billion.

29 Houghton, J.W. (2001) Australian ICT Trade Update 2001, Centre for Strategic EconomicStudies, Melbourne. Available http://www.cfses.com/.


57


31 OECD (2001) Science, Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris.

32 See, for example, McKinsey (2001) U.S. Productivity Growth 1995-2000: Understandingthe contribution of Information Technology relative to other factors, McKinsey GlobalInstitute, Washington, D.C. which demonstrates that U.S. productivity growth in the secondhalf of the 1990s was attributable to six sectors, of which three are ICT producing (ie.semiconductors, computer equipment and telecommunications).

33 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce,Washington DC, p23.

34 Department of Commerce (2002) Digital Economy 2002, U.S. Department of Commerce,Washington DC, pp25-26.

35 OECD (1997) Communications Outlook 1997, Paris, p58; OECD (2001) Science,Technology and Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris,p69; and Netsizer www.netsizer.com, accessed February 2002.

36 OECD (2001) Communications Outlook 2001, Paris; and OECD (2001) Science, Technologyand Industry Scoreboard 2001: Towards a Knowledge-based Economy, Paris, p69.

37 OECD (2001) The Development of Broadband Access in OECD Countries, Paris, p14.38 Center for International Development (2002) The Global Information Technology Report

2001-2002: Readiness for the Networked World, Harvard University, Boston. Availablewww.cid.harvard.edu/cr/gitrr_030202.html, accessed February 15, 2002.

39 Part of the relative decline in ICT use in Australia is likely to be attributable to the decliningdollar, with Australia realising the lowest (harmonised) price declines for IT equipment,communications equipment and software investments over the period 1995-2000 of nine ofthe leading OECD countries. See Colecchia, A. and Schreyer, P. (2001) ICT Investment andEconomic Growth in the 1990s: Is the United States a unique case? STI Working Paper2001/7, OECD, Paris, p12.

40 Batterham, R. (2000) The Chance to Change: Final Report by the Chief Scientist, AusInfo,Canberra, November 2000, p9. Available http://www.isr.gov.au/science/review/.

41 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister'sScience, Engineering and Innovation Council, DISR, Canberra, November 2000, pp1-6 andpp15-16. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.

42 See, for example, PMSEIC (2000) Australia's ICT Research Base: Driving the NewEconomy, Prime Minister's Science, Engineering and Innovation Council, DISR, Canberra,November 2000. Available http://www.dest.gov.au/science/pmseic/.

43 See, for example, BIE (1994) Information Technology and Telecommunications Industries:An evaluation of the partnerships for development and fixed term arrangements programs,Bureau of Industry Economics, AGPS, Canberra.

44 See, for example, Sheehan, P.J., Pappas, N. and Cheng, E. (1994) The Rebirth of AustralianIndustry: Australian Trade in Elaborately Transformed Manufactures 1979-1993, Centre forStrategic Economic Studies, Victoria University, Melbourne.

45 Goldsworthy, A. et al (1997) The Global Information Economy: The Way Ahead, Report ofthe National Information Industries Taskforce, DIST, Canberra, p96. Availablehttp://www.isr.gov.au/itt/golds/.

46 Initially outlined in DIST (1998) Information Industries Action Agenda, DIST, Canberra;and later revised by the Department of Communication, Information Technology and TheArts (DCITA).


58

47 While there have been many relevant reports and reviews, perhaps the most significant interms of their specific policy suggestions have been: IPAC (1997) A National PolicyFramework for Structural Adjustment Within the New Commonwealth of Information,Information Policy Advisory Council, DCA, Canberra; DCITA (1999) The IT Engine Room:SMEs in Australia's IT&T Industry, DCITA, Canberra; PMSEIC (2000) Australia's ICTResearch Base: Driving the New Economy, Prime Minister's Science, Engineering andInnovation Council, Canberra; and Batterham, R. (2000) The Chance to Change, Reportfrom The Australian Science Capability Review, DISR, Canberra.

48 Mortimer, D. et al (1997) Going for Growth: Business Programs for Investment, Innovationand Export, (the 'Mortimer Report') DIST, Canberra, June 1997, p5. Availablehttp://www.isr.gov.au/events/mortimer/.

49 See Goldsworthy, A. et al (1997) The Global Information Economy: The Way Ahead, Reportof the National Information Industries Taskforce, DIST, Canberra. Availablehttp://www.isr.gov.au/itt/golds/.

50 CofA (1997) Investing for Growth: The Howard Government's Plan for Australian Industry,AGPS, Canberra, pvii. Available http://www.isr.gov.au/growth/.

51 CofA (1997) Investing for Growth: The Howard Government's Plan for Australian Industry,AGPS, Canberra, pp65-66. Available http://www.isr.gov.au/growth/.

52 DIST (1998) Information Industries Action Agenda, DIST, Canberra, pp15-19.53 DCITA (1998) A Strategic Framework for the Information Economy, DCITA, Canberra, p8.54 See www.dcita.gov.au, accessed January 10, 2002.55 See DCITA (2001) Inhibitors to SME participation in Commonwealth Government IT

Outsourcing Contracts: Action Plan, October 2001. Available www.dicta.gov.au, accessedJanuary 14, 2002.

56 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister'sScience, Engineering and Innovation Council, DISR, Canberra, November 2000, p8 and p37.Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.


58 Blackburne, I. et al (2001) Wining Investment: Strategy, People and Partnerships, A reviewof the Commonwealth's investment promotion and attraction efforts, August 2001.

59 CofA (2001) Backing Australia's Ability: An innovation action plan for the future, DISR,Canberra. Available http://backingaus.innovation.gov.au/.

60 Knowledge Nation Taskforce (2001) An Agenda for the Knowledge Nation, Report of theKnowledge Nation Taskforce, Chifley Research Centre, Canberra, p2.

61 Coalition Government (2001) Putting Australia's Interests First: Securing Australia'sProsperity, October 2001, p2 and pp17-21. Available www.liberal.org.au, accessed January15, 2002.

62 Coalition Government (2001) Putting Australia's Interests First: Our Future Action Plan –Information Industries for the 21st Century, Melbourne. Available www.liberal.org.au.

63 Allen Consulting (1997) Spectator or Serious Player: Competitiveness of Australia'sInformation Industries, Allen Consulting, Melbourne, March 1997. See pp41-42. Availablehttp://www.isr.gov.au/itt/tskforce/allen/.

64 IPAC (1997) A National Policy Framework for Structural Adjustment within the NewCommonwealth of Information, DCA, Canberra. See p5.

65 PMSEIC (2000) Australia's ICT Research Base: Driving the New Economy, Prime Minister'sScience, Engineering and Innovation Council, DISR, Canberra, November 2000. See chapter5. Available http://www.dest.gov.au/science/pmseic/meetings/6thmeeting.htm.


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67 Knowledge Nation Taskforce (2001) An Agenda for the Knowledge Nation, Report of theKnowledge Nation Taskforce, Chifley Research Centre, Canberra, pp26-27. Availablehttp://www.alp.org.au/kn/.

68 Coalition Government (2001) Putting Australia's Interests First: Securing Australia'sProsperity, October 2001. Available www.liberal.org.au, accessed January 15, 2002.

69 Porter, M.E. (1998) 'Clusters and the new economics of competition,' Harvard BusinessReview, Nov/Dec 1998, pp89-90. As cited in Mathews, J.A. (1999) EncouragingKnowledge-Intensive Industries: What Australia can Draw from the Industrial UpgradingExperiences of Taiwan and Singapore, Australian Business Foundation, August 1999, p97.Available www.abfoundation.com.au.

70 It is notable that linkage policies and programs are the focus of the most recent WorldInvestment Report. See UNCTAD (2001) World Investment Report 2001: PromotingLinkages, United Nations, New York and Geneva.

71 Based on annual average exchange rates reported by the OECD (2001) CommunicationsOutlook 2001, p284; World Bank estimates using the World Bank Atlas method and reportedin World Bank (2001) World Development Report 2000-01, p274; and Eslake, S. (2001)'Australia’s Economy', Presentation to the Foundation for Young Australians LeadershipForum, Australian Maritime College, Launceston, 7 July 2001.

72 Eslake, S. (2001) 'Australia’s Economy', Presentation to the Foundation for YoungAustralians Leadership Forum, Australian Maritime College, Launceston, 7 July 2001.Available http://www.anz.com/go/economics, accessed January 2002.

73 Porter, M.E. (1991) The Competitive Advantage of Nations, The Free Press, New York, pp6-9. As paraphrased and cited in Eslake, S. (2001) 'Australia’s Economy', Presentation to theFoundation for Young Australians Leadership Forum, Australian Maritime College,Launceston, 7 July 2001.

ict development in australia

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