Australia must become a tech leader to prosper into the future

Government spending won’t make Australia rich. The path to continued prosperity requires innovation and entrepreneurship, rather than trying to decolonise the curriculum.

In this age of identity politics and critical race theory, it’s fashionable – at least in academic and media circles – to lambast Western civilisation as colonialist, racist and aggressive.

It’s true, the major European powers occupied territories around the world and in some cases, such as Australia, established permanent settlements. They didn’t do that because they were white, it was because they had substantial technological advantages that had been developed from the 15th century onwards.

The development of robotics has been dramatic, accelerated as a result of the restrictions imposed by the COVID-19 pandemic.

Race didn’t have anything to do with it: it was all about technology, and the evolution of technology was a function of circumstance. The Europeans didn’t always lead the world in technology. At one stage China was a technological leader, and later the Arabs led the world.

So while Western academics and journalists lambast the West as racist and there is a risible effort to decolonise the curriculum – including science and mathematics – in countries such as China they’ve learned the lesson. To prosper means to lead with technology. China is making a massive effort to catch up to the West technologically and, if it can, to surpass the West.

In Australia, we would be better off understanding that lesson than trying to rewrite history. If Australia, which has been so successful over the past 150 years, is to continue to prosper, it is going to have to be a technological leader.

Let us just take agriculture as an example. The agri-tech sector is estimated to be worth $6 billion to $7 billion a year, whereas only five years ago it was worth just $1.5 billion: crop-inspecting robots, artificial intelligence that analyses crop data, assessing plant disease and soil health, and machines that improve spraying, seeding and transportation are all evolving.

Autonomous weeding robots using lasers rather than herbicides are being developed and it’s estimated that in five to 10 years machines will be able to identify and pick ripe fruit.

Australia’s advantages in agriculture could quickly be overshadowed by countries that have developed more sophisticated technologies.

This all sounds very exciting. It’s just that the countries that develop and adopt this technology will be the ones that increasingly lead the world in agriculture. Unless we embrace these changes, Australia’s traditional advantages in agriculture could quickly be overshadowed by countries that have embraced and developed more sophisticated technologies.

More generally, the development of robotics has been dramatic, accelerated as a result of the restrictions imposed by the COVID-19 pandemic. In the last quarter of 2020, robotic purchases in the United States grew 64 per cent year on year. Robotics are making a huge contribution to productivity increases. Oxford Economics estimates that by 2030, robotisation will add $5 trillion to global GDP.

There is no doubt that the pandemic will accelerate technological change as well as changes in workplaces, and this will happen around the world. Out of lockdown has come working from home and this in and of itself has improved labour productivity by eliminating commuting time. Some studies suggest it has led to a 5 per cent increase in labour productivity. These figures are disputed, but the trend is clear.

The implementation of e-commerce and the digitisation of the workplace is estimated by Goldman Sachs to be adding between 2 per cent and 7 per cent to productivity above trend. That is quite dramatic.

What is particularly interesting is that a number of developing countries are embracing digitisation, and this is having a dramatic impact on their economies. In Vietnam, e-commerce is growing by about 40 per cent annually, and more broadly in south-east Asia the digital economy is expected to triple to $300 billion by 2025.

That is impressive. And these are our neighbours.

Normally, during recessions business investment declines quite substantially. Yet in the US the recession induced by COVID-19 measures has had the reverse affect. A McKinsey report recently reported that three out of four business leaders surveyed expected investment to increase in the next year, and that investment will substantially focus on technological improvements.

It’s worth mentioning all these things at budget time. The recent federal budget sensibly focused on expanding outlays at a time of huge economic difficulty, and it has been an opportunity to address some shortfalls in areas such as aged care.

But it is worth remembering that the great drivers of the future, and in particular the people who will lift our living standards, are entrepreneurial investors adapting, embracing and introducing new technologies.

Growing living standards ultimately depend on rising productivity, which is a function of technological change. If we approach technology as a second or third-order issue, then expect our high living standards to stagnate in the years ahead.

Path to leadership in technology

That begs the question as to how Australia can become a leader in technology. There are three points to make about that.

First, Australia has not been a technological laggard. It has its own innovations, particularly in areas where it anyhow enjoys a comparative advantage, such as agriculture and mining. There’s no need to be too modest and suggest that we do not have an innovative and technologically sophisticated society. We do. What is more, Australian consumers are ready to embrace new technology – more so than many other cultures.

Second, invention, research and development and new industries thrive in an environment that encourages that sort of entrepreneurial activity. The right sort of regulatory and tax environment is critically important. Over the past few years, high-tech businesses have been fleeing American states with heavy regulation and high taxes such as California to low-tax, low-regulation states such as Texas.

Third, in Australia, we hardly debate these issues. Throughout the budget period there were questions about whether the government is providing enough funding for aged care or whether benefits are sufficiently generous. Let’s face it, if it wasn’t for the improvements in productivity generated by technological change, there wouldn’t be any money for benefits at all!

By: Alexander Downer AC

From:  Australian Financial Review – May 30, 2021