NATIONAL PRESS CLUB ADDRESS
Australia and the ICT revolution
25 July 2001
Professor Brian D O Anderson
President, Australian Academy of Science
In 1935 Australia's first international telephone link was opened. It was to the UK and three minutes of talk cost you about £6, which was also about the basic wage (ie, a week's normal earnings) at that time. In 1945 the chairman of IBM made a forecast about the world market for computers. He forecast that there might be a need for perhaps four or five computers. What revolutionary times we are living in a few decades later! In fact, we are living in the midst of one of the three great technical revolutions the world has seen. Number one was agriculture, number two the industrial or energy revolution, and number three the npc2001information revolution, spawned of the invention a hundred years or so ago of radio and electronics.
These days, information and communication technologies are technologies that are ubiquitous and embedded in ever more products.
As a result of these technologies, today we have things like cochlear implants; vastly improved weather forecasting; General Motors shipping more computer power than any computer manufacturer, all in its cars, to control fuel efficiency, braking, temperature and so on. It is possible to call a 1800 number and book a seat on an aeroplane, including an aeroplane that might be flying between Frankfurt and Paris. It is possible to access the entire timetable of the Star Alliance group of airlines on a Palm computer. It is possible to use an ATM, it is possible to do Internet banking. We are all familiar too with what mobile phone usage can bring and it is even more impressive that you can just step off the plane in Frankfurt or Hong Kong or Johannesburg or New York and make a call immediately. And in those cities if you want to read The Australian or The Sydney Morning Herald each morning, you can, if you have Internet access.
Internet access offers us vastly improved distance learning also. ICT also links to our old industries, for example, it has enabled us to discover new ore bodies in Australia using new airborne scanning techniques. It enables the Argyle diamond mine to process hundreds of tonnes of ore an hour, to get a bucket load of diamonds after one week.
CAT scanners, ultrasound and modern drug design rely on ICT.
Of course there are social consequences of the technologies: the death of family letter-writing; the loss of privacy inherent in simply switching on your mobile phone or driving on the Melbourne tollway network; the Japanese citizens who forget how to write Kanji characters; and the Australian citizens who forget or never learnt how to spell because they rely on the computer spell-checker.
For those who are unimaginative, you might think that we have seen most of what is to come. Of course, one can envisage that computers will get faster and have more memory. But is there anything more beyond faster and bigger? Well, yes, there is. In the future we can look forward to Internet access almost anywhere in the world, with a wireless connection. We can look forward to natural language processing by computers, something that will truly automate directory assistance or ATO interaction, and do away with call centres. We can look forward to online automatic translation when we talk on the phone to someone in Japan. We can look forward to inspecting in three dimensions a possible new house we might want to buy, but we will inspect using a computer. We can probably look forward to lawyers pleading a case in property law in front of a computer rather than a judge – a computer that has moved beyond the storage or handling of data or even information, and not only has a knowledge base in it, but indeed has developed some wisdom.
Those of us who are older and have lived a hedonistic lifestyle can perhaps look forward to robots reaming out our arteries. Those who are younger may be able to rent a robot to help them move a grand piano from the ground floor to the first floor, at least if there is a market. A visit to the GP may have us giving a saliva sample, instantly analysed in a black box to provide personalised therapies, based on our genetic deficiencies or adverse predispositions. You may have read that there is a limit on the speeds with which chips will be able to operate and therefore there will be a limit to this treasure trove of exciting capabilities. Know then that we will partially be migrating at some stage from dependence on silicon to dependence on biological material as very basic building blocks in computers, and then many more of us will permanently wear or have implanted computers as part of bionic devices.
The fact that over the last year there has been a reappraisal of the money to be made from high tech stocks, especially ICT stocks, serves in no way to contradict the scientific and commercial rich landscape of opportunities lying before us, a landscape of ICT industry itself, of other industries differentiating their products with ICT, and of all industries propelled to new heights of productivity. The information industry itself is in its infancy. Australia has not missed the bus; fleets are yet to arrive. Can we catch them? Can we dare to seek to drive at least some of them?
An honest self-appraisal is part of answering these questions. So how is Australia doing? I would like to give you some statistics. The most positive statistic concerns Australian use of ICT products.
There is no doubt that by world standards we are a leading user, in terms of quantity measures. What I am far less clear about is the extent to which this use derives from consumption, such as video recorders or DVDs in the home, or mobile phones as fashion statements for teenagers – as opposed to use for productive purposes, for example, robots to build cars more cheaply, computers to control automated warehouses containing cars, washing machines, detergent packets and so on, or software to take some of the pain out of the GST for small businesses.
If you move away from use and look at a number of other measures, the picture is much less attractive.
While in 1997 Ireland produced approximately $2800 of ICT goods per capita, Australia was producing less than $200 per capita. We were just edged out in the OECD league table by Portugal, approximately equal with Spain and only ahead of Greece, the lowest producer. In patents you may be cheered to know that our telecommunications patents over a 5-year period increased by 5 per cent, but on the other hand in that same period, the US's patenting increased by 61 per cent.
Overall, our ICT patents per billion of GDP look terrible in the OECD ratings. If you are seeking comfort in Australia's patenting figures, you will have to look in the low technology area, where international trade is growing most slowly.
If you turn to look at the strength of our ICT scientific R & D base, your first problem is to find adequate indicators. There are at best surrogates. One of them is called citation intensity.
It measures how much Australia's published work is seen as relevant by the rest of the world. In the computer science area, Australia's intellectual endeavour is rated by the world as having 28 per cent less relevance than the world average. There is no other area of science and technology in Australia that is as poorly rated as is computer science by this measurement.
What about our imports and exports? The knowledge intensity of world manufactured exports has been growing for about 25 years. There is a more detailed aspect about the pattern of the world manufacturing exports which is also important. High tech exports have been growing faster than low tech and medium tech exports. What has been happening with Australia? In 1997 the ICT share of our exports was 5 per cent and the ICT share of our imports was 13 per cent. In the OECD league, the ratio put us at 24th worst, out of 28. Several years later we know there has been a big fall in exports and a big rise in imports, because our ICT industry has been weakening.
How do others think we are doing? Dr David Hale and Mr James Wolfenson are two Australians who are significant on the world economic scene, Dr Hale being global chief economist of the Zurich Insurance Group and Mr Wolfenson president of the World Bank. They talk about the need for Australia to catch up, have more R & D, to get big high tech investments, to develop the universities. When you use the term high tech, you include a number of technologies, but ICT is certainly a very big one among them. When you get comments from the likes of Bill Gates, or Jack Welsh (CEO of General Electric), or Carla Fiorina (CEO of Hewlett Packard), you hear similar things, perhaps with more focus on ICT. You also hear comments from people who were previously mired in a state of complacency. My namesake Paul Anderson says that until he met Bill Gates, he thought BHP was doing pretty well in the ICT area. But the meeting with Bill Gates showed him that in BHP it was a case of (to quote Paul Anderson) 'the blind leading the blind'.
Do we really have a problem though? After all, we have had some fine figures for GDP growth. Shouldn't we believe that things are going fine? There is no question that we have had outstanding figures for GDP growth, no doubt reflecting to a great deal the benefit of competition policy, deregulation of electric power, interest rates, telecommunications, aspects of the labour market, micro-economic reform, tariff reform and the like. But if you were to express our national balance sheet in US dollars, the trend looks shocking. If you were to correct it by our trade-weighted exchange rate rather than the US dollar exchange rate, you would not see a pretty picture. Because Australia Inc. is a stock that has been marked down, for the same reason many stocks are marked down: our future prospects look so unexciting to the rest of the world. We have done marvellously out of minerals, but mineral prices have been trending downwards for 150 years in real terms. The easy finds on the Australian continent may now be largely exhausted. And if and when political stability develops in South America, Central Asia and Africa the competition will be devastating. The world thinks Plan A looks in poor shape and we are not seen to have a Plan B. In my work with Cochlear Limited, I have had to visit a number of countries, and in more than one I have had heard a comment along the lines 'isn't it surprising that Australia of all countries can produce a product as sophisticated as a cochlear implant'. That sums up the world's view of Australia, in the same way that our exchange rate does: a technological backwater and thus a future economic backwater.
Well, is there a prize for Australia for doing ICT better, or to a larger extent? Yes, there are a number of prizes.
First: ICT is a tool to enable us to differentiate our low technology and medium technology products from those of our competitors. We might be able to produce iron ore of more uniform particle size than our competitors if we use ICT.
Second: ICT, if we did it better or did more of it, would enable us to export more high tech products, both pure ICT ones, and those containing significant ICT; and remember, the high tech end is where the growth lies for international trade. World trade in high tech goods has been growing 50 per cent faster than trade generally.
Third: If we were more ICT literate, not blind, to use Paul Anderson's words, we would also be able to make much more intelligent purchases of ICT products from abroad. Not only would we be taken advantage of less often, but we could also probably exploit the opportunities that ICT offers to improve industries in Australia much more effectively.
Fourth: If we were doing ICT better, and if we were doing more of it, we would certainly create jobs, many with high intellectual content and low adverse environmental impact, and the world might start to think of the Australian dollar or Australia Inc. as an attractive growth stock.
The prize is effectively an industrial one, an industrial one affecting all industries but especially high tech ones, within which, as a very significant component, stands ICT production. Of the US economic output in the year 2000, about 8 per cent was due to ICT, but of the real growth between 1995 and 1999, one-third came from ICT, much of it from ICT production and the rest from use. In the Netherlands, ICT is about 4 per cent of economic output, but 17 per cent of the growth over the 1996-1998 period was attributable to ICT.
Well if there is a prize to be gained, what are the blockers that we need to clear away in order to gain that prize, and how do we do that?
First, there is a set of blockers that have lowered Australia's overall industrial research and development performance. We have had unfriendly taxation structures, aversion to risk-taking, shortage of venture capital, a UK inherited culture sustaining a gulf between much of the R & D community and industry, a low level of technological literacy in Parliament and sometimes company managements, and certainly a lack of will, skills and incentives to commercialise on the side of our public sector institutions.
Governments of both political persuasions started some years ago to address these problems, and the commitment by the coalition government in January of $2.9 billion to 'Backing Australia's Ability' is quite properly focused on the goals of wealth generation or other improvements in our lives through innovation.
But in the ICT area, there are some particular aspects of the situation which have to be flagged.
First, there is the industrial structure. With the exception of Telstra and perhaps News Ltd, we have no really large players in the ICT area that are Australian owned. The problem with the non-Australian owned multinationals operating in Australia is that all too frequently they just see Australia as a sales target, apart from a few conspicuous exceptions. We have many indigenous small players, and very few medium ones of the size of say the smart card company ERG or Cochlear. What the small enterprises desperately need is help to go global or even to be born global. They need access also to infrastructure that they cannot afford, such as supercomputers, and micro-electronic design facilities.
What about the blockers on the public sector side, the sector that is responsible for education, basic research, and which we hope will produce some ideas for commercialisation.
The first issue is one of balance. Approximately one-third of research and development workers in industry are working on ICT. On the other side, the Government is spending only 5.5 per cent of its R and D budget on ICT. It is spending no more on ALL the CRCs per annum than it is spending in grants to firms in the textile, clothing and footwear areas, for new plants and buildings, R & D etc. Figures now a few years old showed CSIRO was spending more on textiles, clothing and footwear than ICT. Also, the Australian Research Council, according to their website, awarded only one post-doctoral fellowship in the ICT area last year, although classification problems may make this an underestimate.
Next, there is the issue of the quality and resourcing of universities, especially in the computer science area. I already indicated that according to one quality measure, computer science is the weakest area of science in Australia, despite our having a limited number of very high performers. You might think that universities should go out and hire some high performers. But where is the money? The price for the universities' principal product – a trained Australian student – is not theirs to set, instead it is set by the Commonwealth Department of Education, Training and Youth Affairs (DETYA). Economists call this a monopsony and they are about as keen on monopsonies as they are on monopolies. Not surprisingly, the monopsony power has led to a situation where staff members are leaving computer science departments in droves, especially the better ones, and the departments cannot replace them. When they leave, the load on everybody else goes up. The problem is accentuated by the quaint view of DETYA that it should be cheaper to teach computer science than electrical engineering, or chemistry. And so the official price paid per student is lower. Not surprisingly, universities are not keen on taking more Australian computer science students, despite everything you read in the newspapers about there being a shortage of trained individuals.
And this is the greatest problem of all in the public sector: its inability to supply the human capital that the private sector so desperately needs. Even worse, not only is there a quantity problem, reinforced by DETYA policies, but there is a quality problem among the trainers. This is why the decision by the Government in January to fund a world class ICT centre, outside the funding parameters of the Department of Education, Training and Youth Affairs, has been so welcome.
Aiming to do for ICT what the AIS did for sport, there is no single initiative that could be more important in the public sector than this. Such a centre will need to create much human capital, and in particular train many trainers, and it will necessarily have to be staffed to a significant degree by people imported to this country. It is simply not practical to imagine that one could assemble such a centre from existing talent in Australia and create a world class enterprise in the process.
Now to sum up. Australia must find a new path to ensure the GDP statistics continue to look great, a path which ensures they will look good too when denominated in dollars, euros or yen. Intelligent use of ICT across our society will be critical, but at the moment the amount of ICT intelligence we have is too small. ICT production itself can play a major role in securing growth, but we need to focus on growing our own Australian domiciled companies, rather than hoping for favourable board room decisions taken in Tokyo, Helsinki or Silicon Valley. Such domestic ICT production has the potential to underpin trade growth, as mineral prices and Australia's terms of trade fall off the bottom of the graph.
As we move towards an election, I hope there can be bipartisan acknowledgment of the problem, and the measures taken to address it. For many of the measures are ones for governments to take. With WTO-friendly industrial support, and with policy and financial repair of our over-stressed education system, acknowledging the priority status of ICT, all Australians can share in the winnings.
