Article—Does the knowledge base of today serve knowledge—the industry of tomorrow?

The following article by Professor Brian D O Anderson, President, was published in the Business/Higher Education Round Table Newsletter. It was published on the Academy's website on 26 July 1999.

In the future, companies will build their success on the ownership or use of some sort of knowledge. The wealth of countries will also be built on knowledge.

Knowledge is what turns raw materials into marketable products. Knowledge is creating new materials and new types of products and processes. In many cases, knowledge itself is the product. Commodities that do not contain knowledge are worth very little, to importers and to consumers, and are declining in value.

On the other hand, clever products are precious and profitable. When products embody knowledge, the copying of that knowledge is often cheap. In a CD-ROM of the Encyclopaedia Britannica, retailing at about $200, the raw material from which the disk is fabricated might cost about $1 and reproduction might cost another $1. The rest of the value is knowledge. So if you have the knowledge, its cost of replication is in many cases almost nothing.

For a car, the cost of production is a much greater part of the final price. Even so, knowledge – incorporated into clever materials, aerodynamic design, lean production methods and computerised driving controls – is increasingly adding value to cars and differentiating luxury models from basic ones.

In agriculture, biotechnology may soon increase the knowledge that goes into growing the food we eat; indeed, the biotechnology revolution of the 21st century will over the medium to long term be profoundly transformational of world society

There are other areas of knowledge where advances have profound implications for our future. Examples include materials science and nanotechnology.

However, in this short paper I will concentrate on one area of knowledge that is also a key technology-computing and communications technology.

The lessons to be drawn from computing and communications technology could also be drawn, in very similar terms, from other areas of scientific and technological growth.

For most of this century, as people have moved from the country to cities and from factories to offices, service industries have been the fastest growing part of advanced economies. Knowledge is almost the defining characteristic of a service industry: think of stock brokers, travel agents, traders and the professions. One of the largest service industries of all is government, which is nothing if not a producer and user of knowledge.

The tool that has been used to apply knowledge to every area of business and government, and which as a result has become a major industry itself, is the computer. It is the most pervasive tool in modern society: farming, mining, manufacturing, banking, airlines, education and public services – all depend on computer hardware and software and communication networks.

On a scale of intelligence that goes from data, through information and then knowledge, to wisdom, computers have progressed from processing data to handling information, that is, organised data. In limited areas, such as medicine and law, inventors assert that their expert computer systems have knowledge. No computer system yet exhibits wisdom.

But computers and communication are the key technology of the information revolution. In a decade or two, the most successful companies will be those which manage knowledge the best, and much of their success will be based on computer systems which are knowledgable i.e. in some ways mimic human reasoning processes. The beginning glimmers can be seen, in medicine and law as mentioned above, and in technologies such as datamining. The internet search engine company, Yahoo, was recently valued by the stock market at billions of dollars – and in comparison with the knowledge engines we shall see in a few years, it is primitive.

Acquiring and using new knowledge of course means research, development and training involving a broad range of disciplines. But as well as discovering smarter processes and products, we need to find out how people gain and use knowledge within an organisation. In part reflecting the process of organisational flattening, but also because of its intrinsic value, the future outstanding companies will need the capability to extract and store tacit knowledge or relevant experience from their individual employees, and organise it into a framework that makes it easily accessible to others in the organisation to enhance how they can work. Today this is impossible, for we lack a workable theory of knowledge which embraces its representation, manipulation and transmission between one machine and another and between machines and people.

Because of the huge investment all industries are making in knowledge, information technology and telecommunications are forecast to become the largest sector of economic activity worldwide. If the same thing is to happen in Australia in a manner that confers the full benefits on our citizens rather than foreign shareholders, we have to act decisively and deliberately. A precondition to stay at the forefront of a knowledge industry, like any other, is research in its underpinning technologies.

In September 1998 the Australian Research Council published a review of the Australian disciplinary research base in information technology, prepared by the Australian Academy of Technological Sciences and Engineering, called Information Technology: Sink or Swim. This report sounds not just a muted alarm bell, but a deafening siren for Australia, a siren directed at governments, universities and business. The report says, in relation to our IT research capability, 'We are going backwards.' And at the same time the report notes that the ratio of IT imports to exports is 4:1 against us and worsening.

As the preface to the Sink or Swim report states, 'Either Australia embraces the Information Age wholeheartedly and moves towards a prosperous future in the 21st century or it continues to rely on primary industry exports to be able to import the high technology products which are so enthusiastically consumed. If Australia chooses the first option and "swims" with the tide, it can join other countries like Ireland, Israel, Finland, Sweden and Taiwan. But if Australia continues down its current path, it will "sink" in the face of ever increasing competition from emerging nations in agricultural and minerals markets.'

What are we failing to do? The report dwells mainly on the failures in training and shortcomings of the disciplinary research base – other reports have dwelt on the industry structure. First, Australia is moving backwards, relative to its competitors, in terms of the supply of professional IT staff and trained researchers for business and academia. The Sink or Swim report says that the number of computer science graduates needs to be increased, with six times as many postgraduate students by 2010! This newsletter has published figures (June 1998) showing that in 1992, compared to Australia, Japan had four times as many engineering graduates as a percentage of total graduates; it would be no surprise to see a similar figure in information science and technology.

Having qualified people for research and industry makes up one part of the supply chain. Maintaining the intellectual pace in the universities and CSIRO is another. Sink or Swim says our position in IT research and development is declining relative to other countries. Business research performance in the IT area is low and university research groups often lack a critical mass.

Many recent government actions have not helped. We have a government which significantly attenuated the financial attractiveness for industry to engage in research and development, notwithstanding the endorsement by the Industries Commission of the justice in public funding of R&D tax concessions, given the spillover benefits. Unfortunately this has also occurred when international surveys have demonstrated the significantly lower priority given to innovation by Australian company executives as compared to their foreign counterparts.

The government has also increased the price of a tertiary science or engineering education relative to the humanities.

Nevertheless, the Federal Government has initiated one significant development recently: setting up the Australian Partnership for Advanced Computing, headquartered at the Australian National University. This is a consortium of Australian universities established to operate a high-performance computing facility for research, training and the diffusion of techniques to industry.

Another round of Cooperative Research Centre grants will be decided in the near future. All the proposals for new IT cooperative research centres were knocked out in the preliminary screening. The only way to maintain the rather low level of IT research conducted through the CRC program is for all the existing centres seeking renewal to receive funding.

Governments have known for a number of years, through a variety of reports, that computer science as an intellectual discipline in Australian universities is weak. Both Labor and coalition governments have been unable to create policies to fix an area of national importance.

There seems a lack of systematic policy instruments to address the problem. The Australian Research Council cannot do it: its job is, broadly, the support of excellence. The Australian Partnership for Advanced Computing is confined to a small disciplinary area. The Cooperative Research Centre program is not designed to build up weak but important areas.

These problems have been exacerbated by the substantial lowering of government funding for universities. Because of the comparative sparsity of local outstanding academic talent, universities have desperate need of some outstanding talent from abroad in the IT area. The universities must have sufficient money to attract distinguished individuals to nucleate centres of excellence.

The starting salaries offered by industry to bachelor computer science graduates tempt them away from further study. To train the most talented graduates for research, we need to offer more attractive postgraduate scholarships in selected disciplines. A recent Government move to offer 50 new post graduate industry-linked scholarships is welcome, but obviously only a small component of fixing our problem.

The privatisation of government utilities such as Telstra has also meant that these utilities have reduced substantially the attention they give to conducting or subcontracting research and development with universities. They are understandably putting more effort into seeking to maintain a market share through better customer service, and lowering cost structures.

Last year I gave evidence to the House of Representatives Standing Committee on Industry, Science and Technology on behalf of the Australian Academy of Science. I argued that the government needs a mechanism to compensate for the loss of utility funding for IT research. The rural research funds could be a model: to reduce the demand on public funds, industry stakeholders contribute.

The problem of corporate under-investment in research and development needs addressing in the most determined way, and not just of course for the IT sector. The 150 per cent tax concession for research and development should be restored, or a variant of it introduced – there are plenty of international models. The Government should also implement the Ralph report proposals to move away from our punitive capital gains tax regime.

Australia will only remain among the advanced countries through the production and exploitation of knowledge. If a company has knowledge, it can make profits. If a nation has knowledge, it can survive and prosper in an information revolution. But we must have a change of public policy settings and private attitudes.

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