History has shown that the most successful economies are those that re-invent themselves when circumstances change. Boston re-invented itself twice. It established itself early as a whaling and fur trading port, but when this industry declined it metamorphosed into a manufacturing hub in the 20th century and then transformed yet again into the biotech superpower it is now.
The clean energy transition represents a pivotal juncture for Australia. As with many other economic transformations, governments play a critical strategic role alongside industry and civil institutions. This was true for the US during the 20th Century, Japan and Germany post-WWII, and the Asian tigers – Singapore, South Korea, Taiwan and China. I can’t think of a successful, purely market-based transformation since the British Industrial Revolution – and it had many downsides for the workers involved.
Analysts have now accumulated considerable evidence on what makes for a successful champion industry of the type that clean energy could be for Australia.
First, agglomerations matter.
Agglomerations are localised clusters of interrelated businesses. Business and other producers learn from colleagues and competitors through worker mobility and networking. And critical information is typically transmitted through narrow inter-personal channels. Knowing about hidden new technologies, new markets, customer preferences, and what other global players are planning are not things that can be gleaned from the internet or newspapers in a timely manner.
Growing a cluster of similar business operations also allows for the viable creation of supporting businesses and institutions – be it suppliers of components, R&D centres, logistics or supportive government agencies. And this is where the government’s Future Made in Australia policy can come to the fore.
Studies undertaken by Swinburne University of Technology found robust evidence that new startups and new exporters are much more likely to occur in local areas where there is already a cluster of firms in a similar industry or export market. There is consistent hard evidence to show that R&D undertaken by one firm has positive effects on its nearby neighbours.
Secondly, entry into global value chains matter.
Economies of scale combined with the increased complexity of manufacturing processes have dictated that the most efficient way to produce a product is to draw on the expertise and capabilities from around the world. Again, research on the impact of Austrade services shows introductions and support for marketing leads to 15% higher exports. The presence of foreign multi-national companies in Australia can be a channel for integration into these global value chains but the role of government agencies such as Austrade can be a catalyst for emerging industries and products.
Thirdly, we need to establish new pathways to market for Australian scientific success.
According to professor Ashish Arora, establishing known routes for exploiting ideas is vital for reducing the risk of innovation and R&D. Higher degree researcher training is a potential unsung hero in technology transfer and upgrading both the technological and absorptive capacity of the private sector. Improving worker mobility between universities, the CSIRO and companies can enhance the transfer of know-how between organisations (as goes the aphorism, ‘if you want to transfer knowledge, wrap it up in a person’), but it builds bonds of trust between organisations that are critical for investing in uncertain and opaque technologies. Without trust, the market for technology and ideas falls apart. These are areas where government programs can catalyse industrial transformation.
There are considerable challenges ahead for Australia. Our iron ore exports will be under threat if we do not find an efficient way to produce green iron from our low-quality iron oxide. Australia stands the most to lose if we do not find a solution here – other nations will just switch to the higher-grade Brazilian ores. They do not have the same incentive to invest in the green iron technologies needed for our hematite ores. We need to urgently find replacement export industries for coal, our third largest export.
Relying solely on market forces is a slow road and like the industrial revolution could take about 100 years to permeate through the economy. Combining a judiciously crafted government strategy with market incentives is currently the best option we have before us. It will not happen overnight. It may take decades, but it is probably the fastest option we have.
Professor Beth Webster is the pro vice chancellor (research impact) at Swinburne University.
