Graeme Philipson
February 16, 2016

Govt defines a creative innovation

Govt defines a creative innovation

Joseph Schumpeter: Championed creative destruction before 'disruption' made it cool

Malcolm Turnbull has made a big deal about innovation. His Government’s new National Innovation and Science Agenda (NISA), released last December, made broad announcements about tax and other incentives for investors and innovative companies. But it was light on details.

Now it wants to “develop the principles for eligibility for the incentive to ensure it is appropriately targeted.” As part of this process, it wants to define just what innovation means. It could ask a man called Joseph Schumpeter. But he has been dead more than 60 years.

This week the Treasury invited comment on a Consultation Paper it is developing on the subject. It says in its invitation that “a cornerstone of this consultation is the definition of an innovation company.

“The Government is keen to hear from stakeholders on the appropriate definition of an innovation company and how the eligibility principles and criteria can leverage off existing industry concepts and business practices.”

There are a couple of ways of looking at this. Do we commend the government for seeking input into the definition of innovation, or do we criticise it for not knowing what it is talking about?

Malcolm Turnbull is already in trouble in some quarters for being all talk and no action. His affable and smiling persona has certainly changed the country’s mood, but there are the beginnings of rumblings about the substance – or lack of it – behind it all. Musical chairs in the Ministry and continued factional sniping have not helped, and the opinion polls have started to weaken.

There has been much talk of agility, and how this is the best time to be lots of things, but by the government’s own admission it has no clear definition on just what constitutes an ‘innovation company’.

The question is hardly irrelevant. Whatever definition is used in guidelines to be used for assistance, there will be winners and losers. You can bet everybody’s submission will encourage the government’s definition to be framed in terms of what will potentially benefit them the most.

Startups will want criteria based on size (smallish) and years in business (newish). Well established businesses doing innovative things will want the opposite. Private companies will want to exclude public companies. Rent seekers will seek rent.

It is unlikely to be an edifying spectacle. Whatever the case, the submissions should make interesting reading. These are normally made public (unless the submitters ask that they not be), so the level of self-interest should be there for all to see.

They could all do a lot worse than look for the definition of innovation in the work of Joseph Schumpeter.

This great Austrian-American economist was one of the most important figures in management theory in the first half of the 20th century.

Nobody today pays much attention to him, but it is to Herr Schumpeter we owe the importance of the concept of innovation and entrepreneurship as important drivers of the economy.

Schumpeter called innovation ‘creative destruction’, not a concept likely to be welcomed by too many Australian companies that might think of themselves as innovative. He said that innovation was central to the evolution of modern economies, because it destroyed outmoded business practices and replaced them with new ones based on new technology or better ways of doing things.

The popular term for this today is ‘disruption’. He said that revolutionary changes wrought by true innovation were much more dynamic than traditional market competition and Adam Smith’s famous ‘invisible hand’.

Joseph Schumpeter was one of the most colourful and influential economists of his day. The Economist magazine has a column named after him. His disciples are still at work today, and his great work Capitalism, Socialism and Democracy remains on the reading list in many faculties of economics.

But it is unlikely many of the people who will be writing submissions to help government come up with a workable meaning of ‘innovation’ will have ever heard of him. To them, like Humpty Dumpty, the word means whatever they want it to mean, and that meaning will magically accord with their own company’s attributes.

We do not wish to be too cynical. When governments start offering money, many otherwise rational people develop a kind of tunnel vision, where objectivity becomes an alien concept. But the government’s request for help in the guidelines it will use to help it make its decisions of who will be the beneficiaries of its innovation largesse is unlikely to do any harm, and may even help.

InnovationAus.com will monitor the submissions, and scour them for any references to Joseph Schumpeter. The closing date is 24 February, which means the government will have given people just eight working days to make their views known.

We look forward to learning of the government’s criteria.

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