4 April 2004

Email to all MLAs

More Evidence against Smart State

As you may recall, an email of 22 March 2004 which I copied to you outlined the concerns which Commerce Queensland had expressed about a lack of substance in the Smart State agenda.

My email also suggested that what is wrong with Smart State is that its programs basically involve increasing 'smart' inputs (eg education and research) to an economy which lacks the systemic capabilities to use them effectively (and Smart State's 'commercialization' component is unrealistic). That email also outlined a realistic way to really achieve a smarter state.

An additional strong reason to believe that this issue needs to be taken seriously has now emerged from an article by the OECD's Chief Economist (see Cotis J., 'Australian policies show world the way', Financial Review, 30/3/04). He stated that Australia has been found to be most unusual amongst OECD economies in that investment in an additional year's schooling here did not result in any increase in per capita GDP. His conclusion was apparently based on a multi-year, world-wide OECD analysis of the structural features which aid or impede economic growth.

Needless to say if Australia's economy did not have a very weak systemic capability to use 'smart' inputs effectively, investments in additional education would produce a significant economic benefit. Other indicators of a lack of systemic capability to make productive use of the type of 'smart' economic inputs which Smart State programs are generating are presented in the addenda below, together with a comment on how the OECD's conclusion seems to demolish the excuse that Treasury has offered for Queensland's chronically poor economic productivity.

While the significance of these indicators may seem hard to interpret, their effect on the credibility of the way the Smart State has been addressed is devastating.

Addenda

1. Other indicators of systemic inability to use 'smart' economic inputs (eg education and research) effectively include:

• the emphasis that was given during the 1990s to enhancing employment opportunities for young people by increasing skills has been ineffective because the economy generated jobs for young adults that mainly required only elementary or intermediate skills (Australia's Young Adults: The Deepening Divide, Dusseldorp Skills Forum, 1999);
• expatriate Australians, with skills gained through international experience, reportedly have great difficulty in gaining employment here - because their abilities are often seen as a threat by their potential bosses (Priest M., 'Why Australians won't come home', Financial Review, 17-18/1/04);
  there has been no requirement to take professional competence seriously in making senior Public Service appointments in Queensland (noting also The Growing Case for a Professional Public Service);
• a study has shown that Australia's efforts to become a leading innovator in the globalized economy are being undermined by short sighted business managers. Companies employ fewer potential innovators than in leading nations. Venture capital is misunderstood to mean risk capital (Marris S., 'Falling behind in rewards of innovation', Australian, 4/12/03);
• Australia has low levels of business R&D expenditure by OECD standards [indicating that firms seek other sources of competitive advantage];
• those concerned with creating competitive advantage in business tend to be separate from those concerned with intellectual property (Roberts P., 'Lack of investment in future a worry', Financial Review, 29/3/04)
• Australia's innovation-capability ranking seems to be declining rapidly (Hart M., 'Our R&D left in the lurch', Courier Mail, 6/12/03).

2. The Queensland Government has commissioned and undertaken research which purports to show that improvements in the state's productivity have occurred and that this demonstrates the effectiveness of Smart State (see comments in Does Productivity Growth Confirm Smart State?).

In summarizing the conclusions of this work in Drivers of Economic Growth in the Smart State (August 2003 - of which a brief outline is presented in Does Productivity Growth Confirm Smart State?), the Queensland Treasury argued that 87% of Queensland's chronic deficiency in per capita gross state product relative to New South Wales could be accounted for by the state's lower Year 12 completion rates.

Unfortunately this excuse does not hold water if the OECD Chief Economist is right in stating (as noted earlier) that additional educational investments do not tend to improve per capita GDP in the Australian environment. If he is correct about the Australian economic environment, then additional educational achievement can not make any significant difference to economic performance.