Technical Limitations in Innovation: Queensland's Future  

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A. A Poor Strategy Process

The draft plan makes it clear that the State Government has a (worthy) desire to 'reposition' Queensland for the information age (of which an emphasis on innovation is part).

Managing the 'positioning' of organisations and economies in relation to anticipated future requirements (such as a capability for innovation now seems to be) has become increasingly important to competitive success, in a world of rapid and fundamental change.

However the methods that firms use to achieve this have changed, and strategic 'planning' (involving central staffs producing plans for how firms should respond to strategic change) lost popularity after about 1980 - because it hadn't worked when extensively used in the 1970s (1). When the creation of strategic capabilities really became critical to major firms, an important shift apparently occurred to strategic 'management' methods (where central staffs enable line operatives' initiative to play a major role in determining responses to strategic changes) (2).

The draft plan for innovation support capability reflects the pre-1980 methods for developing strategic capabilities (ie plans-made-by-planners. after consultation) which can have limited impact because: (a) operational information needed for an adequate plan, is not gained (3); (b) projects others are considering are not built into the plan; (c) initiative (which can add huge value to a project) is not mobilised; and (d) business / community leaders can not become fully aware of the issues or committed to the plan - which results in too little supportive action.

Over the past 15 years change in Queensland's economy was obviously required, but not achieved despite four state economic strategies (4) partly because each of these was produced by similar pre-1980 strategy methods.

A pre-1980 strategic 'planning' approach to innovation capabilities can be expected (again) to be seen as un-responsive by business and the community, even if many are consulted.

B. A Lack of Attention to Commercially Relevant Innovation Capability;

The draft plan is concerned primarily with what government itself can do (5) rather than with what can be done (ie it pays little attention to possible initiatives related to enhancing innovation support which fall outside government programs). Also governmental programs of dubious value (eg for technology parks) were subject to only superficial review (6).

Non governmental initiative were little considered by the draft plan presumably because it was produced in-house by government agencies who have only limited awareness of alternatives, because they are (virtually) forced to emphasise their own direct outputs (7).

However the value of such outputs (eg government funds and advice) is inherently limited by the characteristics of governmental institutions (8). The most important issue for successful innovation is access to commercially relevant funding, advice and support.

There are current limitations in commercially relevant support for innovation in Queensland. However the best solution to such 'market failures' (which must constantly emerge as economies change) is to establish means to speed up the rate at which market solutions emerge. It is unwise to inject grit into the economy in the form of direct government 'assistance'. Even on a short term / start-up basis, such 'assistance' will inhibit real progress by firms, and squeeze out commercially relevant support which might otherwise grow.

    See Diagram

Thus, rather than trying to 'push' a few innovations by injecting government resources, the state should encourage business leadership in creating the capabilities required to support innovation to emerge faster within the market economy - starting modestly rather than with a politically motivated 'big bang'. Such capabilities would be independent of public funding, of real commercial quality and self sustainable. Strategic management of emerging options for the economy as a whole (which enables networks of complementary firms to clarify their opportunities through innovation), might achieve this goal, if governmental agendas are minimised in this process (9), and demand exists for relevant products and services (10).

Queensland has a tradition of state corporatism - where economic activities are undertaken by 'private' firms orchestrated by the state (eg consider 'agrarian socialism'; 1980s' protective investment in 'Queensland' firms by state financial institutions; and state efforts to arrange industrial complexes in central / north Queensland). However corporatism has not resulted in an economically productive economy. And it is quite impossible to orchestrate innovation.

Government should concentrate on governing, rather than trying to be, the economy.

C. Fragmenting Necessarily Integrated Systems

The capabilities to support innovation must form an integrated system. Needed capabilities might include: the motivation / knowledge of individuals; arrangements in enterprises which support initiative; appropriate financing; supportive relationships between research bodies and firms; and a pool of management talent with experience of turning innovations into successful businesses. Such components must not only exist but be easily integrated in dealing with any specific innovation, and the whole system must integrate into the economy.

Unfortunately the draft plan would create components (each of limited commercial relevance), which were unlikely to be well integrated amongst themselves, or as part of the economy.

The history of failure of 'missing strategic factor' approaches to development (11) shows that the components of an economy are most likely to be effective, complementary to one another and complete if they are created (as the parts of a living body are created) through a process of development and growth, where each component has a role in influencing the creation of all the others. The approach suggested under Item 2 above might achieve this goal.

4. Picking Winners

The draft plan implies that government should / could 'pick winners' in terms of areas which are of strategic importance to Queensland's economy (12). However, it is impossible to do so successfully on the basis of any form of centralised analysis (13).

Becoming a 'Smart State' involves building knowledge based enterprises. Unfortunately a dominant role for politically accountable organisations can only slow this process, not speed it up, as politics can only respond to emerging opportunities and threats when they are widely known and well accepted. For example, very similar goals to those in the draft plan have often been suggested over the past 15 years, yet have only now gained political acceptance.

Experience suggests that such a lag is fairly normal (eg a similar lag was involved in accepting agribusiness styles of organisation for agriculture in the early 1990s, though these had been standard practice in Europe and North America in 1980 as a means to improve market access). Thus, to the extent that political influences affect government, the latter can not take a constructive leadership role in the advancement of a knowledge based economy.

E. More is Needed on the Economic Role of Innovation

The draft plan presented a brief account of the economic contribution of knowledge / innovation based (apparently) on current theories. However that may not be adequate as a basis for successful programs, and many of the concerns raised above would be unlikely to arise with a different understanding of the economic role of innovation.

Economists currently emphasises knowledge and innovation as key factors in economic growth and competitiveness. Something like 2/3 of the growth of a well developed economy is typically believed to be the result of the deployment of new knowledge.

But there is no agreement about exactly how knowledge has this effect. For example, there are now many different variations on 'new growth theory' which seek to incorporate knowledge (endogenously) within an economic production function.

However all such growth models may be inadequate, because:

The key impact of knowledge arguably lies in changing the nature of the production process (eg involving better products, or lower costs) which creates a (transitory) competitive advantage and allows greater value-added to be captured (ie before competitors catch up).

A production function (by which economists relate economic outputs to inputs) depends on the nature of the real production system. Thus changes to enterprise / economic processes will create or change a production function (ie y=2x might becomes y=2.5x). Such change in a production function could easily predict large output changes with little change in inputs.

Economics has probably tended to treat knowledge as only another input to a production function, because it has sought to be a 'real' science (ie like physics), whose goal would be to understand the causal relationships within an economic system (14). 'Real' sciences (like physics) have no need for (or ways to deal with) changes in causal relationships.

However, trying to understand causal relationships (eg a production function) makes it difficult to see the possibility of systematically changing them, though such changes may well be what happens every day in firms in the processes of innovation. This may also be the basis of economic 'miracles' which have been observed in (parts of) East Asia in the past, where belief in the possibility of understanding is low and where traditional means for problem solving involve the use of knowledge to change real social and economic systems.

And, because competitive advantage is often transitory, the rate at which (market compliant) changes in enterprise / economic processes occur (ie the rate of change in the production function) has a large effect on the value of output (ie it may account for up to 2/3 of growth).

The above hypothesis provides an explanation of the economic and commercial value of innovation. However it also suggests the potential to increase productivity (and growth) by systematically enhancing real economic systems (ie by developing the economy).

Australia's 'free market' reforms (based on microeconomics) have overlooked both the importance of the economic system for competitiveness, and the benefits of enhancing it (15).

However the draft plan can not compensate for this defect, as it merely involves government providing a few economic inputs. Even if these were of high quality, extra inputs can not have as much impact as accelerating development of the real economic system (though the cost of the latter would only be a fraction of the cost of the inputs which might be provided).

The main task in economic development should not be to devise additional economic inputs to an unchanging economic production function (eg inputs such as government innovation infrastructure). Rather it should involve altering the real economic system (eg innovation capabilities within the market economy) and thus altering the causal relationships which the production function represents, so that existing economic inputs produce far greater outputs. Methods whereby this might be achieved by methods which go beyond the limited understanding of the economic role of knowledge in 'new' growth theory are suggested in Developing a Regional Industry Cluster.

Under the option suggested in Item 2 above, enterprises would find that commercially relevant support for innovation (a constantly shifting target) would be always tend to be available much earlier than otherwise would be the case. This would make it easier for them to: create competitive advantages; increase value-added; attract investment; and grow rapidly to provide high quality jobs.


1. Problems with strategic 'planning' included the inability of central planning staffs to obtain access to the knowledge held by line operations (including tacit knowledge); and an inability to capture commitment to plans which operatives believe to be inadequate. This problem is exactly the same as that facing central planners for an economy, as first pointed out by Hayek ('The Use of Knowledge in Society', 1945) which has been the prime reason that market oriented economic change has been sought worldwide over the past 15 years.

2. See Craig J. Strategy Development in Business and Government (an unpublished literature review), Premier's Department, March 1997. The post-1980 strategic 'management' style had been used successfully in Queensland in the 1970s through the role of the Coordinator General - which enabled a cohesive and purposeful system of state administration to grow through focussing practitioners on 'issues of critical concern'. This style was also successfully used for a number of economic development initiatives during the mid and late 1980s, before politicisation of key Public Service positions made it impossible to continue doing so.

3. Required information is unavailable because: much more is needed than published statistics; real insights will not be given away by those who are merely consulted; and much knowledge is tacit (ie able to be given expression in practice, but not able to be explained).

4. State Economic Strategies which adopted the pre-1980 'planners' approach to strategy were Quality Queensland, Queensland - Leading State, From Strength to Strength, and the State Strategic Plan 1997-2007: State Economic Development Strategy

5. A Non-commercial Focus is illustrated by: (a) the attention given to technology diffusion only by governmental institutions. No mention was made of (or attempt to examine the effectiveness of) the major commercial routes for technology diffusion such as foreign investment, joint ventures, trade and technical literature, or travel; (b) emphasising governmental programs (rather than commercial capabilities) to support commercialisation, and making firms business ready; (c) directing advice from a Queensland Innovation Council primarily to government, rather than to those potentially involved in innovation in practice (eg in the private sector). [The emphasis placed on CRCs may also be part of this problem (though the author has not closely studied the situation). For applied research funding to be economically beneficial, micro-control of the research process by persons concerned with solving market oriented problems seems vital. For example, the Australian Mineral Industry Association took 25 years to evolve a process which ensured market oriented research, to maximize the relevance of research work and its prospects of implementation. This included project oriented funding, and strict avoidance of funding pools (because the latter would be allocated and controlled through administrator or research supplier dominated committees). Australia's research establishment - which used politically and administratively controlled research funding methods - never mentioned AMIRA's approach though it seemed capable of producing more valuable outcomes. If CRCs have been designed by Australia's research establishment to maximise administrative and political accountability, rather than market relevance, then CRC's economic effectiveness may be limited - even if they undertake technically interesting work].

6. Technology Parks: Claims are made about the benefits of technology parks (p18) - while noting that Queensland's parks have been 'disappointing'. Parks are also described as a 'new' phenomenon - whereas in the USA such facilities were well established thirty years ago, and the most successful were those created before the field became over-crowded (Money M..' University Related Research Parks', Industrial Research, May 1970). Such parks tend to have provided useful infrastructure in regions where a strong commercial innovation capability existed, but not to have created that capability. A key requirement for success (according to the above early investigation) was a large available group of post-graduate research students to make inexpensive leading edge technical skills available to participants. (See also Premier's Department, The Role of Research and Technology Parks in Queensland's Technological Development, June 1984).

7. The Bias to Government Programs: despite the introduction of budgeting techniques which are supposed to focus on outcomes (ie how programs affect the community), there remains a strong bias in both government budgeting and Public Service career advancement to favour the direct production of (measurable) outputs - even where (as arguably is the case for innovation support) doing so is contrary to the community interest.

8. The Quality of Innovation Support is critical. But a high quality of commercial assistance is not possible through governmental entities because: staff gained from departments will lack a commercial orientation; and staff recruited externally will rapidly lose any commercial edge - given a lack of ongoing exposure. And programs will not adjust to market requirements (as they would in a commercial situation) due to a lack of pressure to do so. Thus such entities often provide second-rate 'assistance', to third-rate clients - which (while it makes it look as if government is doing something useful) can get clients into trouble when they: graduate to being second-rate; start to encounter first-rate competition; and find that first-rate support is nowhere to be found. There is a large literature about government 'assistance' programs - which do not tend to be associated with regions which succeed with innovation, and whose economic effectiveness is seldom properly evaluated (eg evaluation may be limited to counting clients (how busy a program's providers have been) without considering the significance for the economy as a whole). Quoting such literature does not prove that any proposed initiatives will be useful.

9. See Craig J. Transforming the Tortoise: A Breakthrough to Improve Australia's place in the Economic Race, Prosperity Press, 1993. The suggested technique has been applied in practice in Queensland on several occasions, though it really requires different institutional arrangements to those currently available. Similar approaches appear to have been used in the UK under a 'Technology Foresighting' label.

10. Government's Role as Consumer: can be a major stimulus to innovation if it specifies technologically challenging products and services which are appropriate to its needs (ie without second guessing the market).

11. The Failure of 'Missing Factor' Programs: One popular post World War II theme in attempts to develop less developed countries, was that the problem lay in the absence of particular strategic factors (eg savings, foreign exchange, education, technical skills). However, whenever 'missing factors' were provided it usually emerged that they were misused (eg savings were wasted, trained people emigrated), because other strategic factors were still missing. Only by growing an integrated system with mutual interaction and causation amongst the various parts can it be ensured that other missing factors do not prevent success being achieved. It is no more possible to 'do a Frankenstein' (ie create a living person by assembling a collection of body parts and galvanise these to function as an organism) with an economy, than it is with an organism.

12. Picking Winners: is illustrated by the proposal to develop a pilot program for commercialisation in industries assessed to be of critical importance to the economy. It is also illustrated by the proposal under the 'Smart State' budget strategy to inject large funding to development of knowledge and skills relevant to bio-technologies. [Unfortunately it is likely that bio-technologies will NOT be the next rapidly expanding technology to follow information technologies, because bio-technologies contain an inherent health and safety risk which requires close supervision - and thus they can not be the basis of unrestrained and dynamic entrepreneurship].

13. Picking Winners is Impossible for central planners because determining what is going to be economically productive requires information which is only available in hundreds or thousands of enterprises. Thus such decisions must be made at enterprise level, not on the basis of aggregated economic data. Governments are safe investing in basic research (though Australian states are not well positioned to do so given their narrow tax base which does not capture the economic benefits), but the further such efforts shift towards commercial application, the more important it is that decisions be made at the commercial coal-face.

14. See Craig J., Transforming the Tortoise: A Breakthrough to Improve Australia's Place in the Economic Race, Prosperity Press, 1993. This suggests the relationship between the emphasis on understanding (rather than trying to change) the causality in an economic system and the (classical Greek) foundations of Western thought, which provide the basis for rationality and science. East Asian societies with an ancient Chinese heritage, tend to adopt a different epistemology which does not emphasise absolute truth, or a direct relationship between abstracts and reality, and this has been a major factor in their rapid economic development (and also in the difficulties which many have had in dealing with finance in ways which satisfy Western expectations).

15. An Inadequate Basis for Economic Reform: Emphasis has been placed on economic liberalisation (eg deregulation, reduced tariffs, competition policy) on the basis of microeconomic theory, which assumes that this will lead to the best use of economic inputs. Unfortunately this theory contains defects as a formula for building economic competitiveness. Two of these are that microeconomics does not properly deal with: (a) the 'systemic' capabilities within (regional) economies, which must be effective as a source of support if firms and individuals are to successfully compete (see, for example, Michael Porter's work on The Competitive Advantage of Nations); and (b) the effect which knowledge can have in accelerating the emergence of those capabilities. Examples of the 'systemic' capabilities needed include arrangements providing: market and technological intelligence; support in business development or innovation; business relevant training. There is a need for leadership in developing such integrated systemic capabilities, as well as liberalizing the economy (because sometimes no component of such a system can be viable unless all the others also exist). Without leadership of such development, growth can be limited by the weak capabilities of under-developed economic systems (eg in rural and regional areas).