By Gavin Artz – May 28th, 2013


Photo: minds-eye (Flickr)

Photo: minds-eye (Flickr)

Ford’s plan to stop manufacturing in Australia by 2016 and the uninspired “we will see” from GMH and Toyota on their future here has put manufacturing back in the news.  While this has been mostly bad news for Ford workers and the many businesses that supply Ford, there is a bigger piece of bad news that we are not talking about. The closure of Ford is symptomatic of a deeper problem, the problem of how our attitudes toward investment hurts local innovation and ultimately jeopardises the future of our economy.

If you look at what is happening at head office for the leading car manufacturers, you see that they are positioning themselves to take advantage of the biggest change in personal transportation since Henry Ford perfected mass production. Internationally the leading car manufactures are quickly moving toward self-drive cars, while the in-car-app market will go from nothing a few years ago to being worth over 90 billion globally by 2025.

You would think this would be fantastic news for Australia. Australia has three of the world’s largest car manufactures operating factories right here, there is a rapidly growing technology start-up community and significant science and technology research institutions. Knowing this, you would expect that Australia’s technology companies would be booming, as local manufactures work closely with local technology entrepreneurs and research institutions to create innovative technologies that will build the future of the automotive industry. Off course, you would be wrong to make that logical conclusion, and you would be wrong because of Australia’s rather strange approach to investment and innovation.

When we are talking about investment with regard to Australia’s automotive industry, we are talking Foreign Direct Investment or FDI. FDI is useful for infrastructure investment and traditional industries. Infrastructure costs a lot, but if you can attract FDI the investment stays here as something tangible and useful for the economy. If you can get a global corporationl to build a factory, like GMH, Ford and Toyota, then there is a win-win situation where local production gets an injection of funds, jobs are created and the investor gets a foothold in a market.  Traditionally, FDI moves from the investor to a geographical area (it is the whole point of FDI), but the new economy does not work like that, and the new economy is the future of developed countries.

In Australia, there is a two tier economy; mining and everything else. In the U.S., it is the technology sector and everything else. As the mining boom wains, we realise that a sustainable economy does not rely on digging stuff out of the ground. A sustainable economy now relies on intellectual capital and innovation, something ably demonstrated by U.S. companies like Apple and Google. Luckily for Australia, our intellectual capital is one of our most internationally competitive renewable resources and the technology sector relies on this resource like no other industry, but here is the problem for Australia, the intellectual capital that drives the new economy is incredibly mobile. If your business resides on a server and you get foreign investment, it is very easy for that intellectual capital to move anywhere in the world; you are not tied to a geographical area, or market. Unlike traditional industries, it is very easy for intellectual capital in the new economy to move to where the investment is coming from. This is not so much of a problem for the U.S., as their local investment drives Silicon Valley, but in Australia traditional business and those with money to invest are not investing in the new economy. This leaves savvy overseas investors getting some of our best intellectual capital and taking it with them off-shore. This is great for those local entrepreneurs who have worked hard on taking an idea, or technology to market, but it is terrible for our economy.

This problem is compounded by other negative effects that FDI is having on innovation. Going back to the automotive industry and particularly GMH – there is obvious FDI, but no significant innovation. The biggest recent innovation from GMH is their electric car the “Volt”, but that was created at head office and any good idea that has legs in Australia is quickly drawn away to head office. There is no incentive to invest in local intellectual capital, there is no incentive to build a local culture of innovation, or local technology industries because that is what head office does and head office is hardly ever here.

We are distrustful that anything great can come from Australia, as a result we seek foreign investment more like a developing country than an advanced economy. We sell out Australia’s creative and clever while aspiring to be the clever country. We need to realise we are already the clever country and start taking on the responsibility that entails.