Today’s detailed look by Good Weekend magazine at the emergence of a large, interconnected community of Australian information technology entrepreneurs on the US west coast raises the inevitable question: is there a way to stop the brain drain?
The answer is more complicated than you might think. Australia should, of course, do more to foster innovation, and its commercial development. Links between higher education, research and development and the capital markets need to be reinforced.
Last night’s $US100 billion-plus listing of Facebook, a company begun by Mark Zuckerberg at Harvard University, is a reminder of what is possible, and what is at risk as Asian governments build their own R&D machinery, and changes the Labor government has made to drive more R&D funding down to smaller companies are a step in the right direction.
When it comes to attracting the best IT talent, America has several things going for it that Australia doesn’t. One is market depth: its home consumer end-market is 311.6 million strong, 14 times larger than Australia’s. Its GDP is $US14,600 billion, outpacing Australia by a similar multiple, and its capital markets are deeper and more willing to risk capital in start-ups than its economic weight suggests.
The sheer size of the northern hemisphere markets, and the US market in particular, offers two things. Easier developmental funding, and, when the product is developed, a deeper customer base. Australia can’t overcome that easily.
An innovation survey that the Gillard government released half way through last year highlighted another long-term issue. Australia’s innovation tends to be second-hand: an adaption or development of primary innovation, rather than a ground-breaking ”invention”.
In the IT industry and other technology-driven sectors this is also a reflection of reality, however. The US is the heartland of the IT boom and the main incubator of new IT ideas and start-ups, partly because the IT revolution is founded on intellectual property that US citizens own. The rest of the world can make money using it, but it’s an inherently less rewarding proposition.
Australia is still doing reasonably well in the R&D league tables. Last year’s innovation report put Australian research and development spending by businesses in 2008-09, the last year for which a global comparison was available, at 1.35 per cent of GDP. That was below the OECD average of 1.63 per cent, but it still put Australia in 12th spot out of 33 nations, up from 14th place a year earlier.
And Australian businesses at least excelled as innovation ”modifiers” – companies that take products and processes that already exist, and develop, modify and market them. Almost two-thirds of Australian companies rated highly on this measure in the innovation survey, compared with 23.8 per cent in Germany, 41.2 per cent in Japan, and 19.1 per cent in Britain, for example.
Can we do better? Of course. Might we produce a Silicon Valley effect of our own? Perhaps – it has happened before: Finland got one, for example, when Nokia surged to global leadership in mobile phones (a lead it then lost as Apple’s iPhone ushered in a smart-phone revolution that Nokia had failed to anticipate).
One thing that is clear is that the role of universities and other higher education facilities as innovation incubators needs to be more strongly supported – and in this area, there is new threat, not just to smaller economies like Australia’s, but to the traditional brain-drain magnet, the US: the odds are reasonably short that the next Mark Zuckerberg is studying now at a university in China.
China’s R&D spending has been expanding for several years at a compound rate of about 10 per cent a year, about four times faster than America’s. Last year it overtook Japan to be the world’s second-biggest R&D spender. The US is still spending roughly three times as much, but by 2008 only four of the top 10 private sector recipients of patents in the US were American. Five of the others were based in Japan, and the other, Samsung, was Korean.
America’s share of global university enrolments also fell from 20 per cent to 13 per cent between 1990 and 2010. China’s share of enrolments doubled in the same time, to 15 per cent, part of a conscious R&D seeding strategy that emphasises science and engineering degrees that feed the innovation pipeline. Last year they accounted for 40 per cent of all degrees in China, compared with 12 per cent in the Group of Seven industrialised nations (the US, Germany, France, Britain, Japan, Italy and Canada).
Australia, the US and other Western governments are aware of the long-term challenge that Asia’s rise as an R&D powerhouse presents.
The ability of northern hemisphere governments to respond has been compromised by the global financial crisis and the debt overhang and economic slump it has caused, however.
Australia is in better shape: but with the major parties politically committed to a rapid return to a budget surplus, a concerted push is still in the mail.