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Australia desperately needs a virtuous cycle of innovation

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It says much about the schismatic nature of Australia’s economic strategy that the Federal Government invited public submissions on how to build a clever country in the same week that it signed a $50B gas export contract with China. Jordan Green outlines his vision for Australia’s knowledge economy.

Virtuous cycle, (noun) a beneficial cycle of events in which a favourable result gives rise to another that subsequently supports the first.

As the news of one of the largest resources contracts in history sinks in, Australian entrepreneurs and the investors who back them are wondering what their futures will hold.

The Federal Government and the Australian resources sector are confident of decades of billions of dollars in return for serving up the non-renewable (in the foreseeable future) riches buried in our soil. To be sure, exploiting our nation’s natural resources is a necessary and valuable pursuit.

At the same time, the Federal Government has announced the formation of the Commonwealth Commercialisation Institute (CCI) to deliver “a radical new approach to ensure ideas from our universities, publicly funded research agencies and innovative enterprises become successful commercial ventures“.

The future of any one of these ideas is most uncertain, yet it is critical to the future prosperity of our nation that we become as accomplished at exploiting our human resources as we are with our natural resources. Not only does this knowledge economy promise an economic alternative to the minerals economy, it is an infinitely sustainable and renewable economy.

My vision is of an Australia that is a factory for innovation and successful commercialisation. That factory will turn Australia into one of the primary global sources of business value for the 21st century. If knowledge is power, then a knowledge economy that serves the world seems a most desirable goal.

The factory I envisage will identify, foster and nurture innovation with particular attention to those innovations with the potential to deliver valued benefits to global markets.

Commercialisation will successfully exploit those innovations for economic value. Many innovations can be commercialised in Australia and deliver valuable economic returns from a redistribution of our own wealth. For the greatest national benefits, we want commercialisation successes that earn export dollars and increase the net wealth of the nation. We must sell our innovations offshore.

I know the cynics are already focusing on how so much of that wealth will remain in the hands of a few lucky individuals, so why should the community – the Government – help those lucky few succeed? Why a CCI?

First, let’s remember that along that road many good efforts fall by the wayside.

By learning from our mistakes, we increase our chances of future success. Using the experience and insights of Australians who have trod the path of commercialisation at home and abroad, we can ‘pick winners’ with greater certainty of commercial success. A CCI that serves as an effective channel for learning, sharing and storing our lessons learned will enable more Australians to be effective candidates. That CCI, gathering and sharing the lessons, will deliver the data and insights that let us know we are getting better at picking winners, or not.

Second, stop to recognise how those “few”, and many of their not-so-lucky peers, are funded.

Innovation comes in many forms and is funded by the taxpayer, the business sector, consumers and academia. Commercialisation follows many paths, some funded by passive private investors, some funded by active angel investors, some funded by corporate enterprises and others funded by our superannuation funds and institutions. Each of these funding mechanisms allows the community to share the risk and to distribute the wealth so those “lucky few” can become the “lucky many”.

Third, we know that Australia has critical shortcomings in risk capital, management skills and market scale.

Each of these can be improved through astute government facilitation. The CCI “will enhance productivity and underpin the development of industries of the future, keeping high-value jobs in Australia with long term economic and social benefits for the nation”. The CCI “will have a primary goal of leveraging private sector capital”.

Our challenge as a community is to create a virtuous cycle of innovation and commercialisation that sustains our comfort and security at home by selling our ideas to the world.

We learned the lesson of pig iron in the resources sector and laboratory molecules in the biotech sector. Not raw ideas – developed ideas packaged into well-defined nuggets of value for which companies in larger economies will pay a premium. Ideally, selling those nuggets of value will take some of our brightest and most adaptable minds overseas where they will gain valuable experience, expertise and networks. Value they will bring to us when they return home and re-engage with our knowledge economy.

There is a place in this vision for every form of innovation and commercialisation.

We need the small innovations that only need domestic commercialisation to sustain a lifestyle business that delivers dividend returns and long-term jobs. Often those will be the Small and Medium Enterprises (SME) that are the true engine room of our economy. We need the innovations that can be commercialised as Australian-owned and Australia-based businesses that will grow and, in time, can list on the ASX and/or be acquired by a larger Australian business, keeping the jobs in the country.

Most of all, we need the innovations that Australians can package in efficient business models and sell to the world for ten, twenty, fifty times the capital invested and give our best and brightest the chance to shine on the global stage.

A virtuous cycle will recognise the need to let our people and ideas flow out to the world. Then that knowledge and capital we gain can return to enrich our community, to increase our capacity and improve our capability to go round the cycle again.

Jordan Green is an experienced and successful entrepreneur, director, investor and adviser in Australia and overseas. He is co-founder and Deputy Chairman of the AAAI and founder and Chairman of Melbourne Angels.

Photo: Photo Mojo

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