Our New ‘Innovation PM’ Needs Policies To Match

While it’s wonderful to hear the new Prime Minister wax lyrical about disruption and productivity, the real test will be putting some policy flesh on those rhetorical bones.

The recently ousted treasurer, Joe Hockey, used to talk a lot about innovation and disruption, and in much the same language as Prime Minister Malcolm Turnbull did announcing his new ministry.

Innovation was Hockey’s theme addressing the National Reform Summit in August. At a small business summit in July he declared that “global disruption is the new black”. When he addressed the Institute of Public Affairs in March, he marvelled at the possibilities and challenges of Uber, Airbnb and ASOS.

But for all that oratory, Hockey’s policy for these new firms was simply to bring them into the GST net, as happened with Uber and all online purchases.

And it’s not immediately obvious what the ideal role for government in innovation is.

We already sponsor, support and subsidise science, engineering, technology, invention and innovation in many different ways. The research and development tax incentive offsets R&D costs against corporate taxation. The patent system is meant to give inventors an incentive to invent things. In 2001 the government introduced an “innovation patent” for incremental changes to business practice.

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) receives $750 million a year to conduct scientific research for the good of industry and encourage commercialisation. Then there’s all the money we give to universities for research – which Ian MacFarlane, the now-former industry minister, wanted to tie to commercialisation.

Innovation policy can easily become as much a boondoggle as any Alice to Darwin railway. State governments have been burning money on wasteful “innovation” policies for decades. Every new premier wants their capital to become Silicon Valley. But who now remembers ComTechPort?

We actually know very little about why economies innovate, let alone how we might encourage them to innovate more.

Take the oldest innovation policy on the books – the patent system. Patents might in fact discourage innovation as much as they encourage innovation. In the classical model of innovation market failure, inventors won’t invest in inventing unless they are protected from free-riders copying their invention for a period of time. Hence patents offer a temporary monopoly.

But if that monopoly is too long or too strict it could prevent new inventions leap-frogging old ones, or prevent inventions being adopted across the economy. We have no reason to believe governments have struck the correct balance here.

Last month the Productivity Commission launched an inquiry into intellectual property. Hopefully under the Turnbull Government this inquiry might be able to make a difference.

My colleague Sinclair Davidson has challenged the idea that there is a market failure even in basic scientific research. The assumptions underpinning the standard blackboard arguments for market failure in science do not hold up. He finds that government spending on science is probably a net drain on the economy – despite the fantastic claims of supporters of science spending.

Whether you accept this or not, the fact remains that while we know that technology and innovation is at the heart of economic growth, there’s no off-the-shelf policy to suit.

Refashioning 1970s-style industry policy with a technology and science focus isn’t going to cut it. Christopher Pyne should be cautious with his new role as Minister for Industry, Innovation and Science. The position could easily become a useless financial black hole.

What’s more prospective is Turnbull’s focus on the “rapidly changing, disruptive environment”.

Ever since he launched his challenge, you get the impression he’s been restraining himself from blurting out “Uber” at every press conference. Over the last year both sides of politics have been trying to grab the future-y high ground of the sharing economy (like Labor’s Andrew Leigh, Clare O’Neil and Tim Watts).

But the lesson of sharing economy firms like Uber is that innovation comes from below. The political battle we’re seeing now between Uber and the taxi industry is a peek at a future where technology butts up against regulation – and the wealthy economic interests that regulation supports.

At the very least a focus on disruption and change is a base on which Turnbull can revitalise the Government’s lagging deregulation agenda. Not just because deregulation will save firms money, as the Abbott government argued, but because it will unleash their potential.

But it’s also a firm intellectual base on which Turnbull can pursue his broader innovation agenda.

Rather than looking to pour more money into government commercialisation and science programs, the new Prime Minister should be looking at this issue from the other side of the glass. What does the Government do right now that prevents industry from innovating itself?

Turnbull opened his bid for leadership with an argument: “Our values of free enterprise, of individual initiative, of freedom, this is what you need to be a successful, agile economy in 2015”.

Fine, heartening words. But it will be quite a trick to turn those words into a reform agenda, let alone a productivity boost.