Innovation Council, Harper Review & IP

Most lucid observers note that our economy is too dependent on the export of resources and that it is also 70% in the services sector by GDP. In the services sector we have relatively few exporters and certainly no major providers of technology platforms, primarily because our companies have been and are operating in a protected oligarchical environment to the extent that they are not innovative and would not survive open global competition.

Ian Harper wants to get rid of the oligarchies by removing the hidden barriers to competition from foreign players and new entrants in the Australian services sector. Inexplicably he also wants to water down our already weak IP rights which would further reduce the incentives for our services companies to invest in IP creation.

This big stick of removing the hidden barriers to foreign competition, he argues, would force our companies to compete more aggressively to keep their market share to the point that they would be competitive enough to export their services.

I think that this is a fallacious argument.

Firstly, they would fight the changes and collectively they would win such a battle.

Secondly, even if by some miracle these changes came to pass, our oligarchies would simply lose out to foreign service providers well before they could change their cultures sufficiently to compete in a truly open market.

Australia would be worse off.

My personal preference is to go for the carrot and not the stick. I argue that government can give the same lazy oligarchies a strong incentive to invest in (a) innovation in the areas of their core revenues using substantial tax breaks for both foreign income and income related to innovation (through the patent box scheme) and (b) invest their cheap capital (while they have it) overseas, again through tax breaks.

Any such increased profits must align with senior management incentives and, if so, management would find a way to take advantage of these measures while they still had all that lazy capital to do it with. Indeed, we could even reduce the personal income tax rate for long term senior management incentives related to such increases in export incomes and income derived from genuine innovation.

And then, once this transition is well on it’s way, of course we could open up the Australian services markets with some surety that our companies had the skills to defend their local patch, based on their already successful foreign ventures.

On the subject of “innovation” I would note that it is not an outcome of any sort by itself. It is a habit of individuals and companies that is required to flourish in the modern era.

I would argue that any government policy should not attempt to create an “innovative culture” – that is the wrong approach. All that government can do is give the right people and companies the correct incentives to be innovative and successful. And we should also introduce changes to make IP enforcement simple, easy and lucrative for those whose IP rights have been infringed.

My current fear is that the certain measures, like the patent box, will be introduced in the wrong fashion and this will just result in the local service providers gaming it for the tax breaks as they currently do the R&D tax incentive.

For a complete view please see my article one the subject at https://www.academia.edu/8093846/How_Australia_can_Invent_a_Thriving_Technology_Export_Sector