James Riley
September 11, 2019

Sovereign capability the digital key

Policy

Sovereign capability the digital key

In trouble: Australia is not capturing economic value from the digital revolution

Australia’s tech sector – specifically its information and communication technology industry – is about half the size of its global peers as a proportion of GDP and ranks second to last against its OECD peers. Only Mexico ranks lower.

Australia’s publicly listed technology sector is four times smaller than that of the US as a share of the total stock market. And Australia ranks in the bottom half of OECD countries for innovation and R&D.

These are some of the key takeaways from a report from research house AlphaBeta and commissioned by a big friendly group of multinational tech platform giants that form the industry association Digital Industry Group Inc (DIGI), which includes Google, Facebook, Twitter, and Instagram.

The report, called ‘Australia’s Digital Opportunity’, paints a shocking picture of the Australian tech sector and calls on government to get its act together.

The headline number from the report that received the first cut of media attention was an AlphaBeta calculation that if Australia could perform at a level on par with its global leaders by 2030 in relation to its ICT sector as a proportion of GDP, the tech sector could contribute $207 billion to the economy every year.

That is the glass half-full prognosis. It is a measure of the upside if Australian policy makers and business leaders can find a way to boost our performance in the ICT sector.

Rather than scraping the bottom of the OECD rankings, if we can just be average, it will literally be worth tens of billions of additional dollars to the economy every year.

Well that no-brainer is easy to say and harder to do, as we have all witnessed over the past several decades of industry policy. You would think being average among peers would not be quite so hard.

The glass half-empty prognosis would include a measure of the downside, the do-nothing option. You don’t have to spend a lot of time looking at this graph to draw your own conclusions.

Alphabeta-image

There is nothing average about Australia’s performance on this measure. Average would have been a good outcome, as AlphaBeta makes clear.

Australia’s performance has been terrible. There is nothing good about the trend line. There is no comfort here at all.

The proportion of the ICT sector’s contribution to the Gross Value Add has fallen off a cliff. And it is plummeting at a precise moment in history where ICT-based products and services are under-pinning transformation across virtually every sector in the economy.

This is not a small problem for Australia. The direct contribution of the tech sector in the UK and US is 40 per cent higher than in Australia.

And while for years – the Howard years to be specific – economists argued Australia were a early adopters and innovative users of technology developed elsewhere (as an argument for not investing in local industry schemes), this appears to no longer be the case.

According to AlphaBeta, innovation and investment has stalled over the past decade.

“Australia’s reliance on traditional industries such as mining, banking and property has seen it fall behind global benchmarks in the tech sector. In the past 25 years, Australia’s ICT sector has contributed a declining proportion of net economic value, resulting in the nation being ranked near the bottom of OECD countries for ICT share of GVA,” the report said.

“While the tech sector makes an important contribution in Australia, the Australian economy has had an inconsistent experience in capitalising on and capturing economic value from the digital revolution.”

The term “capturing economic value from the digital revolution” should become our mantra. And it should be inscribed on a plaque sitting on the desk of every Cabinet minister. It should be something we strive for as a national challenge.

“On current form, Australia’s place in the global economy overall is forecast to plummet from 19th to 28th by 2050, but with the right policy settings and a collaborative approach between government, industry and others including academia, Australia can become a leader in the next major wave of global economic growth, ensuring its economic strength for decades to come,” the report said.

And the federal government isn’t doing anything currently to help the situation, the report found, with a more coordinated approach to the digital economy needed.

“Our current policy environment is a legacy of a previous era with fragmented and overlapping responsibilities across multiple government departments and agencies. As the digital economy becomes a larger part of all Australian industries, we need a more coordinated approach to developing the foundational policy and regulatory framework to ensure our success,” it said.

To be fair, the AlphaBeta report is probably no more shocking than the 30 or so other reports over the past several years. These have been carefully filed away in the ‘Deal With This Later’ basket.

Alphabeta draws some conclusions about a way forward and makes some policy recommendations. It is worth noting that the interests of Australia and its local tech sector do not map directly to the interests of DIGI and its powerful tech platforms members. DIGI and its members have their own view of the future and the recommendations in this report map to that view.

But there are plenty of cross-over interests, and the OMG baselines that set out the challenge that confronts policy-makers – and yes, opportunities too – should be enough to generate some urgency.

Clarification: A previous version of this story stated DIGI is the local arm of an international industry group. This is not the case. The organisation was established in Australia and does not have a parent or umbrella body based elsewhere.

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