A Commentary on 'Smart State':
Illustrating Queensland's Lack of Serious Public Policy (Revised 2003)
CPDS Home Contact The Futility of 'Backing Australia's Ability 2' Smart State: Some Informal History  Strengthening Innovation in Australia By Challenging Interests Who Resist Change
Background

Background: The following comments are based on study of the subject since the 1980s including authorship of a report, Towards a Strategy for Technological Development in Queensland, Premier's Department 1983, (unpublished) - which described the need for something like a 'Smart State' program, and how it might be achieved. It remains up-to-date and relevant (unfortunately) because, despite a massive escalation in political rhetoric and public spending, Queensland has made little practical progress in the interim. The author's career experience also included a period as Director of Technology Policy in the Queensland Premier's Department 
Overview +

Attachments

Overview

The Smart State programs have been only one example of the lack of practical realism in Queensland's public policies. In particular Smart State:

  • concentrates on the wrong target by emphasis on increasing 'smart' inputs (eg research and education) to an economy which suffers from a systemic inability to use them productively;
  • tries to enhance 'commercialization' by focusing on government funded research, rather than on enhancing the capabilities of the economic system as a whole;
  • must eventually encountered financial constraints because strengthening the tax base, by creating a more productive economy, is vital to Queensland's medium and long term public financing but is not being achieved because of Smart State's weaknesses .

More practical and effective alternatives are available.

Policy Weakness

General Policy Weaknesses

Queensland has traditionally suffered from a lack of public or private institutions able to develop sound strategies for the development of a productive modern economy.

Evidence that there is a general problem is outlined in Queensland's Economic Strategy, which also suggested the nature and weaknesses of traditional strategies and recent populist alternatives; and the need to do better in future. A traditional emphasis on simply exploiting natural resources arguably both caused (and resulted from) this lack of capable economic institutions (see Queensland's Weak Parliament).  The effect of Queensland's rich natural resources was to strengthen the position of 'elites' who provide poor economic leadership (see Resource Curse Hypothesis). This chronic problem was both illustrated and exacerbated by poorly conceived and incompetently managed Public Service 'reform' in the 1990s (eg see Towards Good Government in Queensland, and The Growing Case for a Professional Public Service). 

The poverty of policy inputs to the political process was highlighted in an article about Queensland's political Opposition in mid 2001 (Koch T. 'Politics of despair', Courier Mail, 28//7/01). However the need for a serious effort to provide raw material for relevant public policy was also illustrated by the Opposition's call at that time for state spending on research facilities under the Smart State program to be spread around the regions more (see Franklin M. and O'Malley B., 'Horan seeks regional stake in Smart State, Courier Mail, 13/7/01). 

Such an Opposition proposal missed the point that Smart State has been only a 'pretend' program which gained political applause from benefited interest groups at public expense - without ensuring that members of those interest groups became more economically effective by being better able to meet their customers' demands. Thus spreading the program around more couldn't do anyone any real good.
Wrong Target

Aiming at the Wrong Target

Smart State differs in detail (but not in substance) from similar programs which have been deployed in other states and nationally (eg consider the federal government's 'Backing Australia's Ability' agenda and the federal oppositions' Clever Country' proposals). However the net effect is that Australia's innovation-capability ranking seems to be declining rapidly [1]. Similarly business spending on R&D (except in manufacturing) has declined somewhat [1], and has been falling behind growth of the economy [1]

Why it matters: Innovation involves the practical implementation of new technologies. An account of the economic significance of this was presented in a 1998 proposal to the Institution of Engineers (Qld). In particular this referred to:

  • how technological change creates new products and improves efficiency, and thus has the potential to dramatically increase demand (and job creation);
  • the very important role which innovation plays in theories of economic growth because of its potential contribution to raising productivity. The latter may usefully be considered to involve the economic value-added from any given inputs of labour and capital; 
  • the vital importance of having competitive advantages (eg derived from technological innovation or other sources) if value-added / productivity is to be high in a competitive environment - and the transitory nature of any such advantages (as competitors catch up) which makes it essential to continuously create new sources of advantage.

The practical significance of this can be illustrated by the contribution to Australia's prosperity traditionally associated with the wool industry (ie which Australia had a world-beating performance as an innovator until 1904), and the reverses which that industry suffered with the invention of synthetics in the second half of the 20th century [1]

One observer described Smart State as funding 'research into biotechnology and information technology to attract or create spin off businesses' (Franklin M., 'Toothy optimist flogging a dead horse on jobs', Courier Mail, 23/6/01).

Though it is more than this, the quickest way to see why it must be inadequate is to recognize that the Smart State strategy has mainly provided increased 'smart' inputs (eg research and education) to an economic system that remains unable to use them profitably. Thus those expensive inputs are most likely to merely contribute to the offshore commercialization of local technology and to a brain drain.

Queensland’s / Australia’s traditional problem in succeeding with innovation was not any shortage of publicly funded education or basic research (though politically-driven reorganization and funding cuts have partly disabled Australia's tertiary education and basic research systems over the years).

In particular Queensland has never had any lack of technological opportunities which could have provided the basis for 'Smart' industries. For example an informal survey by the author of innovative activities in Queensland in 1985 (based on peer review) revealed:

  • hundreds of interesting technical options on which it appeared that industrial opportunities might have been based;
  • a general lack of awareness within the community of the existence of these opportunities and what would be required to exploit them; and that.
  • most of those involved in attempting innovative activities were from outside the state.

Thus the main problem was (and remains) in the massive gap in the capabilities and organization within the market economy (ie private sector) to make a commercial success of innovation (eg problems in access to financing skills, and in the lack of a pool of people with experience of turning innovation into successful enterprises). All research during the 1980s revealed that nationwide a similar lack of competency and organization to commercially exploit available opportunities was the main constraint.

The areas where government is spending most money under Smart State will do virtually nothing to overcome the most critical constraint (though it may have some marginal benefit). 

Political 'Push' on Economic Inputs can Achieve Little

Smart State has parallels with the Commonwealth Government's Backing Australia's Ability strategy, the federal Opposition's one-time Knowledge Nation and numerous efforts by other states to invest in various research facilities. All such efforts are mostly about spending public money to boost educational and basic research - which are INPUTS into the economy.

An aside: Smart State and Knowledge Nation also involved some silly efforts to 'pick OUTPUT winners' such as biotechnology and IT - which ignores the fact that 'winners' ultimately depend on unpredictable consumer preferences and the unknowable capabilities of enterprises. 

However as mentioned above (and further detailed below) the problem in developing technology-based industries lies mainly in the lack of capabilities and effective systems WITHIN the market economy to commercialize the products of research or creativity.  These primary weaknesses are (largely) outside the sphere of direct government control, and involve complex, rapidly changing issues that an elected government and its agencies can never really understand. 

That there is a problem in top-level competencies in Australian organizations is clearly indicated by:

  • the difficulty that expatriate Australians, with skills gained through international experience, reportedly have in gaining employment here - because their abilities are often seen as a threat by their potential bosses [1];
  • the fact that the significance of Australian innovations tends only to be recognized overseas [1];
  • the perceived inability of management in most businesses to develop or implement major strategic initiatives [1]

Furthermore innovations and innovation-commercialization capabilities WITHIN the economic system must work as an integrated whole if they are to be economically productive and sustainable. It is thus dangerous to treat indicators of economic capabilities as simple economic inputs which could be provided by government.

For example an Innovating Capacity Index  has been devised which (reasonably) includes: R&D activity, number of scientists; per capita GDP; but total expenditure on secondary and tertiary education; university R&D [1].

However while such factors may be useful indicators they are not in themselves sufficient causes - and can only be relevant if they are present as part of an effectively functioning economic system. If provided as economic 'inputs' (which is how they will tend to be treated by government programs) rather than being developed as components of an integrated, functioning innovation system, their presence could easily be irrelevant to innovation capacity.

A particularly important issue in the integration of an innovation system (if it is to be economically productive) is that it be strongly market oriented. This is most likely where the system is created through OUTPUT 'pull' (ie customer demand in the market)

Telling it like it is: "Debate about innovation in Australia would be more sensible if biotechnology were taken down from its pedestal. Think about industries such as surf-wear, fast ferries, animation, mining software, contract engineering or wine. In each, Australia is winning in export markets because of the application of knowledge. In none of these has government incentive played more than a peripheral role ... all of them have been driven by market demand.   The extraordinary diagram of the knowledge nation ... was similar to one presented at the Innovation Summit by the Business Council of Australia and the Department of Industry last year. They show government at the top, lots of circles for producing knowledge like the universities, the CSIRO and manufacturing industry  .... and no mention whatsoever of market demand" (Uren D. 'Market demand, not science, drives innovation' Australian, 7-8/7/01)

A practical example of the problems that emerge when political 'push' is applied to economic inputs is Queensland's Biotechnology Bubble.

Other indicators that the innovation system is poorly integrated in practice include:

  • the difference between what business wants (science and engineering) and what universities are good at (life sciences); the lack of people employed in business with potential innovation capabilities; and the common misunderstanding of venture capital as 'risk' capital [1];
  • lack of investor interest in promising scientific discoveries [1];
  • informed observers' perceptions that many elements in the commercialization chain are missing [1];
  • the typical separation in businesses between concern for intellectual property and those concerned with creating competitive advantage [1];
  • Australia's low levels of business R&D expenditure by OECD standards - though it can be noted that:
    • some firms have found R&D increasingly necessary for their competitive strategies [1];
    • low business spending on R&D has been seen as consequence of Australia's industrial structure rather than of a lack of innovation [1]
  • Australia's excellent ranking in OECD survey in terms of learning, compared with its poor ranking for 'earning' [1]
  • Australia's poor status in relation to business R&D spending is not limited to OECD economies, as Australia is rapidly being surpassed by developments in India, China and SE Asia [1];
  • though many firms have some innovative activity the overall level of such activity is low. Firm tend to focus on cost cutting as the main basis for competition, which from the viewpoint of the community as a whole is inferior to innovation  [1]
  • Australia's lack of organizational and financial vehicles to manage the risks of innovation [1]

  • a disconnect between academic and business research; limited specialization; R&D focus on areas of slow technological change and growth; business skills limited to adapting technology; and lack of critical mass [1].

  • Australia's poor patenting performance [1];

  • attempts to support / encourage innovation have been suggested to be based on poor understanding of how this is undertaken in Australia [1, 2];.
  • Australians are enthusiastic users of technology - but not good at making it or even understanding it.  Entrepreneurial business success often comes from 'listening'. The Business Council of Australia needs to understand this.[1]

Methods whereby innovation-commercialization capabilities can be developed WITHIN the economic system are available (see below). However they cannot be improved by political 'push' on market INPUTS such as basic research and education. All the latter can achieve in isolation is to waste taxpayers' money and to increase everyone's frustration, the presumed brain drain, and the offshore commercialization of Australian technology.

It is not valid (as the Treasury has tried to do to explain away evidence of defective economic strategies) to draw the conclusion that because there is a correlation between a low level of Year 12 completion in Queensland and the state's lower per capita state product [1], that merely increasing Year 12 completion rates would overcome the latter problem.

While there is undoubtedly an association between higher levels of (say) education and high community incomes (eg see The Agenda), it does not follow that higher levels of spending on (say) education will in itself cause increased economic production. It may simply lead to:

  • a community with an over-inflated opinion of its own worth - as appears to have been a major factor in Argentina's economic problems (See Latin America)
  • a brain drain because of the absence of suitable job opportunities (as has been the experience of Queensland and numerous third world countries who were persuaded to follow 'missing factor' theories of economic development);
  • under-employment of ever more highly qualified individuals as appears to have been Australia's experience over several years.

    Example: That strengthening the 'supply' side of the labour market, while essential, is not likely to be enough on its own is supported by a Dusseldorp Skills Forum's study, Australia's Young Adults: The Deepening Divide (1999). It found that: '..... during the 1990s there has been a ..... trend towards lower skill jobs for young adult(s) .... and ..... a clear shift ..... towards employment in jobs that require only elementary or intermediate skills. ..... These findings ..... contrast with the central policy emphasis of the past 15 years .... (which sought to) to enhance ..... skills and maximize employability'.

Moreover, it has been noted that Australia is an exception amongst OECD countries in that addition of an extra year's study has not resulted in any improvement in per capita GDP [1]. This reflects the fact that Australia's economy generally (like Queensland's) is systemically ill-equipped to make productive use of additional 'smart' inputs.
Commercial Weakness

... Technical Weaknesses in Developing Commercial Competencies

Technical defects in the Smart State approach to developing commercial competencies to exploit 'smarter' economic inputs were first apparent in Innovation: Queensland's Future, a document produced by the Department of State Development in association with the 1999-2000 state budget. Though  it included a long overdue recognition of the importance of innovation to Queensland's ability to profit from, rather than be the victim of economic change, it's obvious defects included: 

In practice there have been serious problems in efforts to develop commercial capabilities.

Example 1 -  government as venture capitalist:

In Queensland's 2000-01 budget a $100m Research Facilities Fund was established to provide expensive research facilities and equipment - funds which would be recouped in later years through taking a government interest in any resulting intellectual property. Government denied that this involved 'picking winners' because (a) an expert panel would make decisions and (b) funds would only be provided to broad areas (O.Malley B. 'Smart money seeks share of biotech boom's spoils', Courier Mail,  20/6/01).  This move was seen as highly desirable by scientists ( O.Malley B. 'Scientists welcome research package', Courier Mail, 20/6/01)

However the way to guarantee that the products of research institutions are hard to commercialise is for the administrators in those institutions to take an interest in the intellectual property. The involvement of (risk averse and commercially unaware) government agencies as part owner of intellectual property would be an even worse constraint. The only constructive way for government to gain a return from research facilities it funds is through general growth of the economy - and increasing taxes [eg see 1].

By 2004 Queensland's government had a three stage program for providing venture capital [1]. A major component of this involves a $100 Biotechnology Venture Capital fund through QIC. This is a silly proposal because the idea of venture capital is to provide both capital AND commercialization skills which  young technology-intensive companies lack - and there is no reason to suspect that the QIC will be able to provide those hard-to-acquire skills either, as they are well outside its traditional areas of operations. Furthermore public accountability makes commercial success by any institution very difficult.

Consider: an ex Chairman of the QIC has suggested that ill-informed government interference has impeded QIC's ability to produce financial returns (Emerson S. 'Beattie's Budget hits deficit', A,  18/6/02). Based on publicly available sources, it seems that all that this involved was government backing for the Auditor General's in objecting to the Chairman's entertainment expenses (Owen R. and McCullough J 'Treasurer returns Kennedy's QIC blows', CM, 19/6/02). However, being subjected to audit according to Public Service standards is often said to make it impossible to compete properly - because the requirement in the public service is to avoid risk by mechanically following rules, while the strategy of business (which is subject to competition and so can't avoid risk) has to be to manage risk - and this can't be a simple mechanical operation. As government 'businesses' can never have the flexibility to do what is needed to manage risk, they can seldom produce commercial successes.  

Example 2 - government 'assistance' to entrepreneurs is the opposite of developing the economy:

In November 2001 a technically-innovative entrepreneur praised the start-up assistance that was being provided by Queensland's Department of State Development. It was said to be better than would be available in (say) Europe and was enabling his firm to gain success. 

See [1] for outline of start-up assistance that was available in 2004.

However giving a few firms 'hot-house' success (and giving political 'brownie points' to the Minister and the Department) is quite different to developing the economy (see comments in Queensland's Economic Strategy). 

Government 'assistance' to individual firms is the opposite of, and often a serious obstacle to, economic development. Developing the ability of business and the community to smoothly provide the support which enabled such a firm to succeed would create a reproducible process which launch 20 entrepreneurs for every one that can be grown under 'hot-house' conditions. And artificial support only works until there is a really difficult competitive challenge. When that occurs 'hot-house' successes will find that they have no strong support and will thus either fail or be taken over. 

Similarly when looking at commercialization of knowledge, it can be noted that the Knowledge Nation taskforce assumed that this would flow from incentives for entrepreneurs and scientists (Boyd T. 'Beazley's  incentives will be hard to sell', Financial Review, 3/7/01). However commercialization capabilities require learning / re-organizing within the market economy - and no amount of 'incentives' will compensate for the absence of relevant knowledge and institutional capability.    

Example 3: Intellectual Property (IP) Principles

Queensland Public Sector Intellectual Property Principles were released (in 2003?) by Department of Innovation and Information Economy, 2003?)

Précis: Only when IP is identified can it be developed and protected. The Department of Innovation and Information economy has developed Public Sector IP Principles. There is considerable IP in public sector - eg archival management system developed by DIIE - which is licensed to a company in exchange for royalty payment. Management of IP can increase revenue, make service delivery more efficient, create opportunities for local industry. The Financial Management Practice Manual codifies agencies obligations for public property and assets - but there has been no guidance on IP assets. Queensland Public Sector IP Principles include (a) general policy principles, (b) management policy principles and (c) commercialization policy principles. Under this: agencies must manage own IP; commercialization should be ancillary to agency's core business; and ongoing operations should not be compromised by commercialization. Document also details (a) definitions and interpretation (b) general policy principles (c) management principles and (d) commercialization principles

The problem is is that government can not effectively commercialize anything (including IP) because the goals and accountabilities of government agencies are politically-oriented rather than customer-oriented. This is clear in the IP principles which provide (appropriately) that government mission is to take precedence over IP commercialization. While this is appropriate, it means that a commercial-dead-weight is attached to any IP which government agencies owns and seeks to encourage others to commercialize. Thus from an economic viewpoint the benefits of that IP are minimized.

Superior IP policy principles could be something like:

"In conducting their required functions, government agencies should:

  • seek innovative options which improve the character or efficiency of their operations;
  • recognize that this will at times result in the creation of commercially valuable IP;
  • ensure that IP accumulates within entities which are able to effectively make commercial gains from exploiting it in other applications, and that the opportunity to acquire such IP is recognized by and available to all entities competing for government contracts; and
  • rely on increased economic growth to generate financial returns to government through the taxation system (in a similar way to that in which returns from funding of basic research are gained)."

As argued in The Economic Futility of Backing Australia's Ability 2 far more is likely to be achieved in developing an embryonic innovation system by starting at the market end (ie with 'market pull' on modest innovations made available to customers of established firms and industries, rather than 'advanced technology push', as this would give the business community the opportunity to crawl before it is expected to run).

In particular it is noted that an observer with business experience described efforts to promote the commercialization of R&D as an 'ideological frolic' and suggested that it was likely to be far more useful to develop innovation capabilities in existing industries which have real markets, brands and distribution networks [1]
Financial Limits

.. Financial Limitations

A practical problem for Smart State is that, while economic theory correctly identifies the economic spill-overs which justify public investment in education and basic research (ie fact that public benefits are not reflected in the private benefits of any particular individuals), the States who are now competing to provide research facilities and incentives suffer from the same problem because their tax bases are too narrow to enable them (as compared with the Commonwealth) to capture the revenues from a more productive knowledge-based economy. 

This is particularly significant for Queensland given its potentially perilous financial predicament when current economic / property boom subsides (see Queensland's Challenge, February 2001), symptoms of which have been further revealed in subsequent state budgets (see About Queensland's Budgets).
Evaluation

Evaluation

Partly because of those financial constraints it is (in 2003) becoming critical that Smart State succeed in enhancing the Queensland economy - and thus in upgrading the state's tax base. And, in fact, Smart State is being claimed to have accelerated productivity growth in Queensland's economy [1].

Unfortunately, while the latter would be a most appropriate goal, the evidence appears suspect primarily because the effect of substantial devaluation of the $A against the $US in which most commodity exports are priced on creating the impression of rapid economic and productivity growth (which will be particularly significant in Queensland's more export oriented economy) does not seem to have been considered - see Does Productivity Growth Confirm Smart State?.

It appears that Queensland's government may have fallen into the the most basic trap in the development of its Smart State agenda - ie it seems to have consulted with various interest groups, and they knowing what they would be likely to be doing in a 'smarter' economy, asked government to pay them to do it. The result seems to have been the creation of expensive business and technological 'welfare' programs rather than an integrated innovation capability within Queensland's economy as a whole.

Fortunately there have been indications (in 2003) that the Smart State programs are being seen to require review [1, 2, 3]. 

And in June 2004 it was announced that, rather than merely funding biotechnology research institutions, government would stimulate a multi-disciplinary approach which required different institutions to work together [1]. However if such such interaction occurs in a government-driven framework (as seems to be intended) then it will be politically-focused and lack the motivation and flexibility required for commercial success. Such interaction needs to occur within a market framework (ie be driven by entrepreneurship) - but this can not occur because Smart State did nothing to develop the market-focused innovation-commercialization capabilities which would have to control the interaction to produce economically-useful outcomes.

In November 2004, it was apparently recognized that heavy investment in biotechnology to create a critical mass of technical skills was not producing commercial gains - so it was suggested that scientists needed to develop their ideas much further [1]. This is, of course, precisely the reverse of what is required as success is only likely when business becomes positioned to use the products of science, rather than when science pretends to be business.

In April 2005 it was announced that:

  • a new version of Smart State would be launched involving large investments to support both new and existing industries [1]. [It was not however clear that this would achieve anything more than past efforts].
  • phase 2 of Smart State would involve initiatives linked to education, training and R&D [1, 2].  [However the education and training initiatives appeared routine (ie the sorts of changes that would have been likely no matter what), while additional R&D support will do nothing to enhance Queensland's chronic systemic inability to use 'smart' inputs productively. Overall the Smart State extension seems unlikely to make any difference to Queensland's economic status].

In June 2005 the establishment of a new leaders / experts groups was announced [1] to provide government with advice about (for example) how to overcome obstacles to achieving Smart State goals. The options outlined in this document were then formally submitted for that group's consideration.

Alternative

A Practical Alternative

Development of market-focused innovation-commercialization capabilities (which have a systemic character in that they require complementary arrangements in many different types of organizations) should be possible through appropriate strategic management.

Developing a Regional Industry Cluster suggests a practical method, which:

  • builds on real-world initiative as well as analysis to discover unforeseen opportunities;
  • prevents outcomes from being determined by political lobbying;
  • has the potential, experiments show, to increase rather than merely redistribute wealth;
  • would require adjustment for developing innovation-commercialization capabilities.

Defects in Economic Tactics, Strategy and Outcomes outlines corresponding theory about the contribution of such systemic change to economic competitiveness and productivity.

An arrangement to 'bootstrap' higher-level innovation- commercialization capabilities in Queensland was developed by the Institution of Engineers (Queensland) in an indicative 1999 proposal for an Engineering Enterprise Development Centre.

Revised August 2003
Overcoming impediments to achieving Smart State goals

Attachment A: Overcoming impediments to achieving Smart State goals

Submission emailed 11/7/05

Professor Peter Andrews
Queensland Chief Scientist

I should like to make a formal submission to the expert / leaders group which I understand (from a recent media report) has been established to chart future initiatives and advise Queensland's new Smart State Council, which also includes various state government ministers.

My interpretation of a recent article referring to this matter: A group of 19 leaders in science, technology, medical research, education and capital raising has been formed to chart the future direction of Smart State initiatives. This group would be led by chief scientist (Peter Andrews) and meet four times annually. It will form the standing committee of larger group (Smart State Council) whose role will be to provide strategic advice to government to guide and accelerate Smart Queensland policy. The Council, which will meet twice per year, will be chaired by the premier and include: Treasurer (Mackenroth); Education Minister (Bligh); Employment, Training and IR Minister (Barton) and State Development and Innovation Minister (McGrady). The goal of the new bodies is to set new trends and create new jobs. They need to be Smart State futurists, examining worldwide trends to ensure that Queenslanders can benefit. Members were selected for their commitment to Smart State concepts, their ability to think strategically, their professional success and their knowledge / experience. They would advise government on: opportunities for developing knowledge based industries; important domestic and international developments in science, technology, engineering and skills formation; measures to overcome impediments to achieving Smart State goals. It will be innovators and those who quickly take up new technology who will create the jobs of the future (Livingstone T. 'Science chiefs to plan tech future', Courier Mail, 22/6/05).

I would like to endorse the goals that this group has been set. They seem vitally important in order, for example, to:

  • ensure future community prosperity - because of the central role which knowledge plays in sustainable economic growth and in the competitiveness of higher value-added industries;
  • reverse the stagnation of Australia's exports (especially of higher value-added goods and services) which has occurred in recent years; and
  • overcome the supply constraints which have been seen by the Reserve Bank to require interest rates to be raised to constrain demand and prevent further escalation of the imbalance between the value of demand and production which is reflected in Australia's large (approaching 7% of GDP) current account deficit.

I should also like to submit that the key to overcoming obstacles to Smart State goals is to shift the strategic focus towards the creation of basic innovation systems within the mainstream economy to meet demand in existing markets or new global niches. This implies a strong focus on developing commercial capabilities, and a limited initial focus on identifying leading edge trends in education and R&D.

Potentially-valuable innovative ideas have always been widely available in Queensland. The primary obstacle to achieving Smart State goals has been the lack of commercial competencies and organization to profit from them, rather than the absence of high quality education or R&D. Once such innovation systems exist, then demand for, and the economic benefits of, high quality education and R&D will be dramatically increased.

Methods that could be used to create effectively functioning innovation systems are suggested in A Commentary on Smart State.

The need to adopt what could be called a 'market-pull' strategy is argued in The Economic Futility of Backing Australia's Ability 2. It suggests that such an approach would provide more energy and a more realistic sense of direction than the 'technology-push' strategy which has achieved little over the past 20 years. The latter document also comments on the need for a change in leadership style, if efforts to develop better real-world innovation capabilities (which is one of Smart State's core goals) are not to continue to be frustrated.

The above comments are based on a study of this subject for over 20 years, the authorship in 1983 of a major report to the Queensland Government on how something like the goals of Smart State might be achieved, a brief period as Queensland's Director of Technology Policy and long study of worldwide experience and theory concerning economic development generally.

Regards

John Craig

 
Industry Clusters Based on Engineering: Some Lessons from History

Industry Clusters Based on Engineering: Some Lessons from History - email sent 24/5/13

Professor Graham Schaffer,
Faculty of Engineering, Architecture and IT,
University of Queensland

Re: ‘Queensland the Smart Engineering State’, Ingenuity, Issue 3, May 2013

Jonathan Cosgrove kindly sent me a copy of Ingenuity, and I should like to put forward some suggestions about giving substance to the worthy aspiration expressed in your article, namely:

”… the development of a cluster of companies, suppliers, universities and research organisations providing global scale, specialised engineering services in specific fields where Queensland can build a competitive advantage and compete internationally. This will deliver new knowledge-based jobs, exports and revenue for the State by building on the existing critical mass of engineering expertise and re-shaping it for the future’.

My suggestions include:

  • a methodology for actually developing a viable industry cluster based on experiments in Queensland in the 1980s (see Developing a Regional Industry Cluster, 2000 and A Case for Innovative Economic Leadership, 2009) ;
  • cautions about the way in which any partnership is developed with government – because democratic politics will tend to frustrate the development of market-oriented economic capacity. My reasons for suggesting this (and ways to get around this) are outlined in The Queensland Plan: Developing a Valuable Vision (and 'Australia's Competitiveness': Some Suggestions in relation to equivalent national aspirations);
  • the need to give primary emphasis to the development of commercial competencies and organisation to complement the fairly well developed technical competencies that Queensland has traditionally had if clusters of specialised engineering services are to generate really significant economic benefits.

By way of background I note that I am a 1967 UQ Civil Engineering graduate and worked in the 1970s in the Coordinator General’s Department when whole-of-government methods for strategic change (that are in some ways equivalent to the development of clusters in a market context) were being led by Queensland's Coordinator General (and studied related issues as the basis for a master’s thesis). I was also the author of the first Queensland proposal (and one of the very early Australian proposals) for achieving the sorts of outcomes that your Ingenuity article referenced (Towards A Strategy for Technological Development in Queensland, Coordinator General’s Department, 1983, unpublished). Moreover I had opportunity over several years to do a lot of research into international approaches to economic development (including apparently ‘reverse engineering’ the intellectual basis of East Asian economic ‘miracles’). I also had the opportunity to experiment with what could be called ‘strategic market management’ in relation to stimulating the development of several opportunity areas that are equivalent to (though not the same as) the specialised engineering services that your article referenced. An overly brief (and informal) history of what happened is outlined in Smart State: Some Informal History.

The latter include reference to:

The former (EEDC) proposals were greeted with a loud silence by Queensland’s engineering fraternity. Engineering in Australia is quite different to that in (say) Europe, where engineers are expected to be the core drivers of technically-oriented enterprises (and are thus expected to take the economic lead). In Australia, by contrast, engineers have traditionally seen themselves in a dependent role, ie as technical service providers to enterprises that are run by accountants, lawyers or foreign investors. Until this is overcome (which engineers can’t do on their own, and certainly can’t do by seeking political support) it seems most unlikely that engineering will make the sort of economic contribution that is now essential.

I would be interested in your response to my observations.

John Craig
Dumb Ways of Being 'Smart' In Queensland's History

Dumb Ways of Being 'Smart' in Queensland's History - email sent 15/2/15

Bernard Salt
KPMG

Re: A Smart Way for Growth, Sunday Mail, 15/2/15

Your article points to Queensland’s need to diversify its economy into knowledge based functions. I should like to point out that Queensland has had this aspiration for the past 3 decades, but has achieved much less than it could have because the methods that have been used have been ‘dumb’ (ie they emphasised capacity development via political ‘push’ rather than market ‘pull’ – and the former is much less likely to be sustainable / economically productive). By way of background I note that in 1983 while working for the then Premier’s Department I wrote the first report on diversifying Queensland’s economy into knowledge intensive functions, and have observed with some interest Queensland’s inability to date to make much progress.

My Interpretation of your article: Some years ago there was a debate about a ‘big Australia’. Now international migration has doubled to 400,000 pa. Baby boomers are retiring and need to be replaced. Thus cities are growing rapidly – especially in Queensland. This will require Queensland to change. The Gold Coast will have a population of 1m – and this can’t be based on tourism and retirement. This requires long term strategic planning. There is a need to know what sort of place Queensland wants to be by 2050. Australia used to ride on the sheeps back – but those days are past. Queensland used to prosper on the basis of tourism, lifestyle and retirement. But the rest of Australia has moved in the direction of knowledge work. Queensland needs to think differently about its future. Knowledge workers might be attracted by Queensland’s energy, vibrancy and can-do capability. Upgrading Queensland’s cultural facilities might make a difference. There is a need to shift into knowledge industries. ‘Smart State’ is the right sentiment. But there is also a need for enterprise, energy and self-belief.

The best way to develop knowledge industries (or other high productivity functions) in Queensland and its regional cities is probably to develop competitive advantages in those functions by a market-oriented process to accelerate economic learning. How that might be achieved was suggested in Reinventing the Regions (2010) and Re-imagining the Federation to Develop New Cities (2010).

There has never been any problem attracting knowledge workers to Queensland. In the 1980s it was easy to identify hundreds of operations that might have been the foundation of knowledge industries in SE Queensland - almost all of which were a product of interstate migration. What was missing (and unfortunately still remains deficient) is the commercial competencies and organization - and other support functions - needed to enable those seeds to grow.

Queensland has had a ‘Smart State’ aspiration for years – but has been anything but ‘smart’ in trying to achieve it. Governments have tended to focus on increasing the supply of ‘smart’ inputs (eg education, training, research) into regional economic systems that were insufficiently developed to use them productively, or providing direct ‘assistance’ services that blocked the development of the market economy (eg see Commentary on 'Smart State': Illustrating Queensland's Lack of Serious Public Policy, 2003 and The Futility of 'Backing Australia's Ability 2', 2004). An apolitical emphasis on stimulating market-driven development of embryonic industry clusters would have resulted in an increasing demand for those ‘smart’ inputs (rather than a supply of inputs which were politically favoured but not necessarily what was best from an economic viewpoint).

In some respects Queensland’s ‘Smart State’ agenda was about increasing electoral support (by being seen to do something trendy, or to gain endorsement from the influential providers of the ‘smart’ inputs such as universities) rather than about actually developing Queensland’s economy (see Smart State: Some Informal History, 2012).

There is no doubt, as your article suggested, that cultural facilities might improve a region’s attractiveness to sophisticated people – but once again this is probably best the result of demand rather than a politically-driven supply. The benefits of ‘cultural facilities’ are real, but probably not as great as enthusiasts sometimes claim (see The Value of Creativity and Culture, 2005). Queensland had a focus for many decades on government provision of industrial estates to attract ‘industry’ (which would parallel the view that it might now be ‘cultural facilities’ that might encourage ‘low-flying knowledge industries’ to land). However there were undoubtedly smarter ways to build real industrial capacity – which would have created a real demand for industrial estates (see The Seven Secrets of Failure, 2000).

Finally I would be very cautious about recommending a ‘strategic planning’ process to determine what sort of place Queensland should be. Strategic ‘planning’ will produce an answer that accords with the assumptions of central planners – and tend to suppress options / initiatives that the ‘planners’ don’t know about. SE Queensland has already had a not very effective strategic ‘planning’ process (see SEQ 2001 - A Plan for an Under-developed Economy, 1994). Strategic ‘management’ is a better option (see Strategy Development in Business and Government, 1997). The latter involves ‘asking the question’ in a way that allows diverse stakeholders to collaborate in finding their answers which can be integrated into a coherent whole, rather than the a central planner guessing the answer on the basis of consultation.

John Craig

Queensland's Preference for Economic Futility

Queensland's Preference for Economic Futility - email sent 14/6/16

Amy Remeikis,
Brisbane Times

Re: Queensland budget 2016: Premier makes good on innovation promise, Brisbane Times, 13/6/16

Your article pointed out that Queensland’s Government has provided additional money in its 2016 budget for an Advance Queensland program to boost innovation. It also listed a large number of small spending initiatives to either stimulate the development of innovative options or support / attract innovative businesses. In another article, you noted that Queensland’s Premier and Treasurer did not seem quite sure how the Advance Queensland program would work.

History suggests that they need not bother trying to understand. The Advance Queensland program seems to parallel the sorts of things that have often been done in the past to achieve a political purpose (ie to make the electorate believe something is being done) but ultimately proved to be largely a waste of time and resources (eg see Queensland's Biotechnology Bubble, 2002 and 'Smart State': Illustrating Queensland's Lack of Serious Public Policy, 2003).

Queensland has always had a large number of potentially constructive innovative options because of the inventiveness of its people. What it has lacked has been the commercial competencies and organisations in its business community to turn significant numbers of those potential opportunities into successful internationally-competitive enterprises - and thus create an economic environment able to provide market-based support for ongoing innovation. Methods to overcome that obstacle have been available for decades (see Another Approach to 'My Big Idea' , 2016). However they never got beyond the stage of reasonably successful non-political experimentation because of Queensland’s apparent preference for the economic futility of politically-driven efforts to stimulate and support innovation.

It may be that at some time Queensland will get serious about economically-significant innovation – but it seems that 2016 is not the year that this will happen.

John Craig

Appalling Queensland Governments

Appalling Queensland Governments - email sent 19/12/16

John Harrison,
University of Queensland

Re: Queensland premiers: Who has been the best?, Brisbane Times, 12/12/16

Your article suggested that Peter Beattie should be regarded as Queensland’s best premier because he introduced the Smart State policy which: (a) recognised that rocks and crops were an insufficient basis for Queensland’s future; and (b) has been transformative. The ‘runner up’, you apparently implied, was Wayne Goss who re-invented Queensland’s polity.

A quote: “Goss won in 1989, as historic a victory as Whitlam in 1972, and in 1992. He won in 1995 but lost government as a result of the 1996 Mundingburra by-election. Beattie won four elections straight: 1998, 2001, 2004 and 2006 and stepped as aside at a time of his own choosing. In terms of electoral victories, Beattie has it over Goss. As premier, Goss has to re-invent the polity of Queensland, which had effectively disintegrated under Bjelke-Petersen. Beattie benefitted from this, but his great achievement, still unrecognised by many, was his Smart State policy. He recognised that rocks and crops were an insufficient basis for the future of Queensland. This policy has been, and will continue to be, transformative. The current government's Advance Queensland policy is Smart State 2.0. This is why Beattie wins my vote as Queensland's best premier in the past century.”

On the basis of an inside view on the issues your article referred to (see Smart State: Some Informal History, 2012 and CV) I should like to suggest that your conclusions are well wide of the mark. While working for Queensland’s Coordinator General I wrote the first report on Queensland’s need to transition to something like a ‘smart state’ in 1983 (Towards a Strategy for Technological Development in Queensland). I can assure you that the need for such a transition was well accepted politically in the late 1980s even though Queensland’s political, business and academic institutions could not envisage anything but more-of-the-same methods to achieve that goal that had always been used (ie direct government ‘assistance’ to potentially innovative enterprises – which was a significant obstacle to the development of market-based commercial support). Because of the character of Queensland's economy, business in that state was highly dependent on government or natural resources and strongly resisted taking any independent leadership role in enhancing the economy as a whole. A Western Australian study [Ref being sought] suggested that small business / farmers tend to rely on outside experts rather than having any capacity to themselves work out optimal strategies - and this certainly seemed to characterize Queensland's business community.

Everyone who seriously studied the issue in the 1980s was aware that Australia’s / Queensland’s major obstacle to a ‘smart’ economic transformation was the lack of the commercial competencies and market organisation needed to create internationally competitive enterprises out of the many potential ‘smart opportunities’ that were a product of Australians’ innate inventiveness. And methods that were likely to be effective in overcoming that obstacle were: (a) identified by senior public servants I worked with; and (b) incorporated (as ‘market facilitation’) into the Ahern Government’s 1988 Quality Queensland strategy. In the late 1980s I had opportunities to experiment with the use of methods to facilitate change in a market context (ie enabling networks of enterprises to discover opportunities from collaboration in establishing new economic capabilities). Such methods probably had the potential to transform Queensland into something like a real ‘smart state’ (in terms of increased ability to benefit economically from available ‘smart’ opportunities) in the early 1990s - providing the process could be divorced from political 'push' (ie interest group controlled outcomes) and thus be driven by market 'pull'.

However this proved impossible because the 1989-1996 Goss Government was only interest in ‘re-inventing Queensland’s polity’. It seemed to believe that achieving this required abuses of power to politicise senior positions in the public sector (ie to ensure that ‘senior’ positions were occupied by (often inexperienced) cronies or ‘yes men’). That administration thereby:

It can be noted that Peter Beattie succumbed to pressure to give up his role as premier in 2007 because his administration was seen as ‘crisis ridden’ (see Queensland's Next Successful Premier, 2007). While Mr Beattie often had to try to clean up crisis because of the structural obstacles that had come to constrain effective government in Queensland, even worse features of his premiership were arguably:

  • A massive program of infrastructure investment that could not be managed effectively because of the damage to government machinery (see Defects in Infrastructure Planning and Delivery in Queensland, 2002). This led to: (a) reports of problems and wastage;  and (b) a major contribution to the debt blow-out that led to Queensland losing its AAA credit rating in 2009 (see Recovering from Queensland’s Debt Binge, 2012). Infrastructure spending rose from about $3bn pa, that was seen in 2002 as the maximum affordable, to a targeted $18bn pa a few years later. Funding this apparently involved some dubious capital accounting – though creative accounting did not seem to be solely associated with the Beattie administration (see Auditing the Commission, 2012);
  • The 1988 Smart State strategy which: (a) devoted huge resources in the production of ‘smart’ (educational and research) inputs to a state economy that remained seriously limited in its ability to use them productively (see 'Smart State': Illustrating Queensland's Lack of Serious Public Policy, 2003); (b) bought political support from benefited academics as well as trendy community leaders; and (c) achieved little relative to its cost in terms of enhancing Queensland’s ability to establish and support internationally competitive ‘smart’ enterprises.

In 2015 an observer provided an insight into how ‘transformative’ Mr Beattie’s Smart State agenda had actually been in practice by suggesting that it would be a good idea for Queensland to diversify its economy into knowledge based functions (see Dumb Ways of Being 'Smart' in Queensland's History, 2015). The Queensland Government took this advice to heart by re-invigorating a form of the ‘Smart State’ agenda through an Advance Queensland program in 2016. Unfortunately this continued to use much the same tactics that had proven ineffectual for almost 2 decades (see Queensland's Preference for Economic Futility, 2016).

Currently several states (including Queensland) appear to believe that large further infrastructure investment can get them through a period of weak economic performance (see Crowe D., Taylor P., and Schliebs M., States stuck in slow lane seek billions for infrastructure, Weekend Australian, 12/12/16). And the federal government seems to believe that something similar would be the key to ‘unlocking the north’. Such proposals reflect a failure to recognise that Australia is increasingly being warned that it is at risk of a financial / banking crisis because of: (a) a high level of dependence on increasing debt to sustain growth through unproductive investment; and (b) the emergence of the world’s (first or second) highest debt / GDP ratio (see Australia's Risk of Financial / Banking Crises as Growth is Driven by Rapidly Rising and Often Misdirected Debt). The fact that China, Australia’s largest export market, seems to be at risk of an even greater debt crisis (see Importing Risks from China) compounds Australia’s risk from reliance on rapidly rising debt to sustain growth.

In the present environment, investment to stimulate growth will thus preferably be in activities with high productivity (ie those likely to produce a large increase in GDP relative to any increased debt fairly quickly – in order to reduce the national debt / GDP ratio). As noted in Alternatives to Monetary Policy (2016) this is unlikely to be associated with infrastructure investment, and can probably best be achieved by the use of methods to build up competitive advantages like those advocated and trialled by senior public servants in the late 1980s before Queensland’s machinery of government was crippled by the Goss administration.

I would be interested in your response to my speculations

John Craig