Op Ed on Australia's massive missed opportunity to use geographic clustering

During my undergraduate studies in at the Australian National University (ANU) in Canberra, I had the tremendous opportunity to work in the Parliament of Australia for almost half a year through the Australian National Internships Program (ANIP).

When joining, I found myself in an unusual position: I had a strong preference for working in Parliament (over other venerable institutions in Canberra) but no strong preference for a specific politician, owing to my growing disillusionment with both major parties at the time.

Ultimately, I was matched with a politician based on our shared policy interests. That fortunate member was the Hon. Bernie Ripoll MP, then serving as the Parliamentary Secretary to the Treasurer and the Parliamentary Secretary for Small Business (positions now known as 'Assistant Minister').

My time in Parliament was mostly spent soaking up the atmosphere of the House and learning everything I could, while postponing the research report I was supposed to be writing. Academically, this was unwise, but from a learning perspective, it was incredibly valuable. I witnessed much of the House's frenetic activity, including both of Kevin Rudd's leadership challenges against Julia Gillard. I believe I even appear in the background of some television footage from those leadership spills.

The research I conducted was fascinating to both Bernie and me. We were both exhilarated by the possibilities of improving Australia's innovation ecosystem and lamented the ever-growing pile missed opportunities. We were also particularly curious about why Australia lacked anything like Silicon Valley and agreed to study the question: "but could there be?"

In Bernie's electorate (Oxley), located in the outer suburbs of Brisbane, was a new city called Springfield, which he thought could be used as the central case study. Springfield is Australia's largest master-planned city and certainly a one-of-a-kind in other ways. It was effectively a massive tract of land purchased decades ago by an entrepreneur aiming to develop it into a massive high-tech city whose CBD three times greater than that of Brisbane. At the time, this was the boldest vision I had ever seen that was actually underway and seemingly on track, and happily agreed to take it on.

I wrote the report (at the last possible minute) to satisfy the ANU and the requirements of the ANIP course. I also gratefully accepted a trip to Springfield City Group headquarters (then called Springfield Land Corporation) to present my findings to their executive team. That made me feel like a real grown up, being flown across the country for business.

Bernie and I had hoped to publish an Op-Ed together in a masthead like the AFR, advancing the findings of the report and our opinion that this was a missed opportunity too large to ignore. However we couldn't quite find the time to follow through with this.

A few years later, when I was editing a business magazine at the University of Sydney called Inside Enterprise (IE), I was eager to contribute an article as as well as editing. Concurrently, talk of innovation had reached new highs in the media thanks to the Turnbull government's aggressive promotion of its science and innovation agenda. This was a great opportunity to revisit and share some of those report findings while contributing to the (then) current conversation on innovation ecosystems. I believe the magazine is either in hibernation or has been discontinued, so I thought I would reproduce it here in case anyone was trying to find old articles from IE to see what they were like.

Australia Cannot Thrive Without Clusters

It's official: innovation is a buzzword.

By far the greatest abuser of the word 'innovation' recently has been the Australian Federal Government. The 'Ideas Boom', as it has become known, is a well intentioned policy but carries a fatal flaw: it is simply a wish list, mistaking its goals for a strategy.

Had this occurred in any other policy domain it would be a forgivable flub. But nearly every other OECD country has been experimenting with their own versions of this type of policy since the 1980s.

Now Australia has effectively rejoined the race with its newly announced 'National Innovation and Science Agenda', but it remains conspicuously behind the pack. Playing catch-up will require not so much an ideas boom as an explosion. It requires a match in our proverbial gas tank – in other words, a miracle.

There may indeed be nothing wrong with pinning Australia's hopes on a miracle, besides Donald Horne turning in his grave once again. We could simply bet the farm on Australia remaining the "lucky country" and move on, bur in doing so, our policymakers must be willing to travel to a place where miracles can actually happen: sub-national economies, or "industry clusters'.

Australia has effectively rejoined the race with its newly announced 'National Innovation and Science Agenda', but remiains conspicuously behind the pack.

Industry clusters have been some of the biggest economic miracles of the last century, and possibly even all post-agrarian society. The power of an industry becoming 'headquartered' in a city or region is too great to be ignored. Most of the ideas booms throughout history have in fact been industry clusters by a different name. These include Las Vegas gaming, Holly wood filmmaking, Swiss banking, Silicon Valley hi-technology, and of course, champagne in Champagne.

Australia is noticeably absent from this list. It is home to no such clusters. Even if the policy ambition existed to grow clusters, the full weight of government support may not even be enough. The origins of clusters arc marvellously unpredictable, as demonstrated in the following histories of the more notable clusters:

Las Vegas: the construction of the Hoover Darn brought an extraordinary mass of young, income-earning men into the Las Vegas area during the 1930s. This triggered the development of an overlarge entertainment industry, and the region has exported global tourism for decades.

Cambridge Technopole: Free financing advice was given to the 1970s startups of Trinity College's modestly successful Cambridge Science Park in the UK. The ensuing commercialisation boom completely outgrew the park and the Cambridge Technopole is now home to over one thousand technology companies.

Swiss Banking: Ethno-linguistic diversity, limited agricultural land and poor access to the sea caused Switzerland to specialise in sophisticated services much earlier than its European neighbours. Stable currency, recognised permanent neutrality and 20th century fears of war-fuelled expropriation propelled Swiss banking to mountainous heights.

Silicon Valley: despite popular belief. emerged from early 20th century radio contractors to the US Navy. They were forced to collaborate with each other to compete against powerful state-backed rivals, and shared a desire for strong indigenous industries in the nation’s disadvantaged West. This culture collided with Stanford University's spinoffs and startups of the I 940s and 1950s, which sealed the region’s phenomenal trajectory.

In all these cases, and indeed for most others, the role of government is unclear.

The best clusters were evolved rather than legislated. Government was usually secondary to these other forces, behaving more like an underwriter. What is obvious about government’s role, however, was that, in every case, it was a beneficiary.

Clusters are characterised by positive spirals. They attract and grow the best talent because they are at the cutting edge of their industries. Access to this talent pool, as well as knowledge spillovers and supply-chain benefits, becomes a magnet for the other inventive firms to join the action. This, in turn, attracts even better talent, and the cycle repeats.

To host such self-reinforcing growth would be a great boon for government – but it is one that has so far eluded all Australian governments. Only two explicit attempts to bring about clustering in Australia have ever occurred: the Hawke government’s Multifunction Polis (MFP) and the Innovation Precincts floated by the Gillard Government. The MFP failed to gain traction with its space-age name and the Innovation Precincts were never able to compete for oxygen amidst the Rudd Gillard leadership skirmishes.

To host such self-reinforcing growth would be a great boon for government — but it is one that has so far eluded all Australian governments.

Spectacular naming and leadership showdowns aside, there are still several almost insurmountable challenges to a successful government-backed ideas boom, including the need to be selective and patient.

Coming to dominate only a few industries would mean concentrating government support in the strongest, densest industries rather than the weakest. Any such advocacy in public discourse is political suicide. ‘Puppet governments’, ‘regulatory capture’, ‘mollycoddling’, ‘command economics’, ‘corruption’ and ‘crony capitalism’ are just some of the most likely accusations to take flight. About the most charitable label an Australian government could hope for is probably ‘technocrats’.

Even if government could be selective, it certainly couldn't be patient. The gestation period for a dominant industry cluster is longer than any knife-wielding political apparatchiks are prepared to wait. This is a perennial problem with the Australian system and has thwarted many other long-term policy ideas.

It is fair to say that a cornerstone or two is in place. Australia has emergent strength in a number of industries not yet headquartered anywhere else on the globe. The logical starting point would be food technology and packaging around Melbourne, or mineral and energy extraction in Perth. Future opportunities may range as far as digital media (Sydney), tropical medicine or marine services (FNQ), medical instruments (Melbourne), environmental engineering, or aged care.

Where the capstone coudl go remains to be seen, but it will be a function of the public appetite for industry clusters and a subtle mastery of hands-off government support

This article was first published in Inside Enterprise, a biannual business magazine published from the University of Sydney Business School in Issue 6: Momentum (2016).

I always thought the design of the magazine was on point, so I have included some of the front covers here for posterity.