January 26 again, how quickly it comes around. It seems only yesterday I was scratching my brain to put together the 2022 missive without being too rude, utterly distracted by the stink coming from the then government and its tin ear. My distrust of the body politic has not gone away, but the new crowd in Canberra seem to be going about the job in a sensible and disciplined way. That allows me to be a bit broader in this commentary, and there will be no snarky comments on the looming election in NSW where the choice is, well, between a couple of groups, neither of which should be allowed anywhere near a decision-making apparatus more complex than a bathroom tap.
Industry policy
I wonder if we have any focus sufficiently long term to rate as an industry policy. We do have a plethora of disconnected grant programs that suit the political stance of whoever is in government today, but we do not have a national investment focus that is above petty politics. Maybe it is time, so where should we be heading? Following are a few pointers from your scribbler:
Quantum.
Australia is a leader in quantum research, conducted by a consortium of universities, led by the University of NSW. In some form, Quantum technology will change just about everything over the next 100 years, and we need to keep our lead, so the capex comes our way in time. Just for example, researchers at the University of Adelaide recently demonstrated the charging advantages of a Quantum battery leveraging the characteristics of Quantum entanglement. (I do not understand it either) The result is that theoretically a car battery can be recharged almost instantaneously, possibly while not even stopping, just driving through a recharge station. While I will certainly not see this in my lifetime, who would not like the lead in that technology?
Sovereign supply chains.
Covid brutally brought home the message that resilience in supply chains was a necessity, and Australia’s were inadequate in some critical areas. Some sensible steps have been taken to plug the obvious holes, but a wider awareness of the need to be self-sufficient in critical items needs to be high on the national agenda.
We must break our dependence on imported fuels. Having a ‘strategic reserve’ several weeks away by ship in the US would be laughable, if it were not so stupid.
There is significant investment going into the area around Whyalla SA, with its over-supply of sun and wind. A deepwater port at nearby Port Bonython is easily adapted for export of ammonia, there is a world-wide tender for construction of a Green Hydrogen facility to leverage that wind and sun, and the existing steelworks undergoing a massive upgrade to facilitate so called ‘green steel’. This will use the renewables powered ‘green hydrogen’ production and nearby quality Magnetite iron ore held in the Middleback ranges just to the North. The area is also connected to the east west rail line, ready-made logistics.
The result of this investment will be competitive sustainable steel manufacture for domestic use and export, power to the national grid via the multibillion dollar electricity interconnector to connect NSW and Victoria to deliver power to the east states.
The current argument about supply of gas in the eastern states defies logic. There is plenty of supply, it is just that the companies who have drilling rights, who pay no income tax, can sell the gas for more overseas than they can get for it domestically. The management of the facts in this immoral argument makes my blood boil. I have no objection to companies maximising their profits, but doing so at the expense of the communities that deliver those profits to them is immoral in the extreme, and they should be penalised, not slapped on the hand with a feather, as is happening. If nothing else, it is a clear demonstration of the power of money to get your own way via lobbying, and threats of massive politically damaging advertising, and to hell with transparency and truth
Critical minerals.
Australia is blessed with an abundance of the many minerals most of us have never heard of until recently, that have come to the fore in new technology, particularly renewables. We are at risk of, again, being the worlds quarry, while doing little of the second and third level processing ourselves , the stages where the value is really created and captured. If you just take Lithium for example, Australia currently supplies more than 50% of the worlds lithium, but 90% of that goes to China for processing. Australia does have deposits of the 17 rare earth minerals, but not a lot of them, and no processing. China has a stranglehold on both mining and production based on significant deposits, and a forward looking plan to leverage those assets. Like it or not, the world needs China more than China needs the world as technology advances.
Semiconductors.
The Australian Manufacturing forum in Linkedin did a terrific series during 2022 on the history and current shape of the semiconductor industry in Australia. We had one, in some areas leading the world, but the opportunity was fumbled badly, and we are now just another customer of overseas manufacturing. Given the importance of semi-conductors in just about every manufacturing application, not having a domestic manufacturing capability is a huge black mark. We have little hope of being a supplier at the leading edge of chip technology, but that does not rule us out of innovative use of more commonly available technology, the sort of innovation we used to do well.
Tax reform.
There is little argument that over the last 20 years, the rich have become richer, at the expense of the rest. This is not just an Australian challenge, it is global, and many are much further down the track than us.
Tax reform has two sides, domestic and international. Clearly the domestic tax regime is in a mess, the only debate about that statement is from those who have the most to lose by change. We are demanding more of our governments; at the same time, we are motivated at the ballot box by tax cuts. This is unsustainable, all we are doing is building a compounding hurdle for our grandchildren.
The second side is international. It is easy to get emotional about multinational corporations taking advantage of differing rules in jurisdictions, and paying no, or little tax as a result. The problem is what to do about an international problem that occurs in national boundaries. To date, all that has happened is that jurisdictions compete for business residency for tax purposes on low rates. The UK and several states in the US are amongst the worst offenders, along with the island nations typically known as tax havens.
In October 2019 136 countries signed up to an OECD plan to implement a global minimum tax rate of 15% starting in 2023, this year. Predictably, the implementation timeline is being pushed back by a combination of lobbying, and national jurisdictions simply not getting their shit together, but it is happening. Do not expect big results quickly, but any improvement is both worthwhile and will compound.
The recent decision to allow Santos to rape the Pilliga Forest around Narrabri for gas is just another example of how deeply the fossil fuel companies are embedded for their benefit in the Australian political system. I have no argument about the profit motive driving investment decisions. However, when the Cost of Goods Sold after the capital invested is effectively zero, at the long term expense of the community, and no tax is paid on profits I do have a problem. Businesses have a responsibility to make a contribution to the social and economic infrastructure of the community that owns the resources they use. In this case, Santos is avoiding that responsibility, as well as risking irreputable damage to fragile eco and hydro environments, so I do have a real problem on behalf of my grandchildren.
Science and research.
We underspend in aggregate, and what we do spend is uncoordinated across universities, states, research organisations and private investment. We have not yet figured out how to align the expenditure in such a way that there is a cumulative benefit from the whole investment. Australia is slipping downthe various lists of innovative countries is the outcome at least partly of this decline in the importance placed on science, and general research. As a marker, CSIRO in the 40 years I have been actively observing the breadth and depth of its activities, has shrunk to a shadow of its former self.
Education.
As with the point above, it seems we are falling behind what is required to at least maintain our relative position in the world, while standards are falling behind our major competitors. This is particularly evident in the work I do in advanced trade skills necessary to manufacture complex products. It is not a matter of pay, the trained personnel you need are simply not there, and with the difficulties of international movement, and the idiotic complexity and cost of the visa systems, we are missing opportunities. Perhaps it is for the better, as it removes from consideration the moral question of our right to plunder the educational outcomes from economies usually less able to educate their own people, and more in need of them than us.
Evolving over a long period has been a shift of education, from pre-school, to post tertiary, to advanced trade skills and back, from being a publicly funded foundation of a prosperous society, to a for profit industry. This is to my mind a hugely damaging erosion of a core principle of a successful economy.
Climate policy
The new government has, in my view, started well on climate change policy. After 20 years of unforgiveable hubris, we now have a direction. Not as specific or aggressive as many would like, but nevertheless a huge improvement from the previous lot, whose antidote to a thrashing at the ballot box is to move further to the right. How insensitive to public opinion, scientific reality, and just plain stupid must they be?
After several years of fires then floods, during the chaos of the pandemic, we have come out of it OK, unless you are one of those directly affected, in which case, you have been whacked. A mate has a house near Lismore, well above previously seen flood levels. He will no longer be able to insure it, so the future of Lismore must be in question, along with a number of other areas in NSW. However, we do need to remember that many areas in the state are called ‘flood plains’ for a reason, and stop development in those areas, rather than allowing short-term focussed development to build, only to find an unwanted swimming pool in the kitchen at some point in the future. This is a political web of influence that goes to the heart of the ingrained ‘gravitational’ pull of politics in this country.
Technology commercialisation
Commercialisation of technology is accelerating at an unprecedented rate. With that comes both benefits and costs. It seems the benefits will be accrued by a few, while the costs spread widely, socialised if you like. This can only accelerate the rate at which the wealth of the community migrates to the top and bottom, at the expense of the middle. The equitable distribution of the benefits of technology is a question tangled up in our education, infrastructure, and social priorities, and presents a Gordian problem to legislators who would much rather kick the can down the street than try untangling it. This is a short-term strategy that will haunt us in the long term.
Cyber security
Cyber security has been an emerging issue since the birth of the net in 1993, when Tim Berners-Lee released the first version of HTML. The breeches of Optus and Medibank last year brought it into public focus in a way that it had not been before. On November 30 last year ChatGPT was released. Like many, I have played with this and been blown away by the capabilities, and when added to the graphic capabilities of Dall-E2 released by the same research group, it is I believe an inflection point in our relationships with automated creative and intellectual work. Suddenly digital tools can create value, rather than just regurgitating what they have been given. We have yet to see the uses that crims will find for the emerging technologies and capabilities. At the very least, ChatGPT will correct the scam give-away spelling and grammatical errors that are often present in mass scamming emails and messages.
Fit for purpose
In ‘Venture Capital land’ there is a core idea that there must be a product/market fit for success.
Product/market fit in a commercial context assumes there is a strong demand for the product being considered, and assumes the ‘Purpose’ has been defined.
It seems the purpose of politics has devolved to a fight every three years for the trappings of power and incumbency, and while I cannot get into the heads of those writing the constitution, I am pretty sure that was not their intention. Rather, they intended for there to be a system that governed behaviour and the allocation of resources for the best long term interest of the country.
Given the constitution was drafted over the 7 years between 1891 and 1898, and was fit for purpose at that time, it would be a brave person to suggest that the environment in which we live has not changed dramatically over the following 125 years, and perhaps the degree of ‘fit for purpose’ has been depreciated substantially.
The coming referendum ‘debate’ on a ‘voice to parliament’ will test that proposition. The political heat is being wound up currently. The PM has been roundly criticised for a combative performance on Sydney radio 2GB, where the host sought more and more detail on the manner of implementation of the voice to parliament, and held the view that in its absence, the vote should be ‘No’.
Common sense says that if the detail is included in the referendum, then passed, it becomes part of the constitution, changeable only with another referendum. To address the complex challenges we face with the equality of first nations people, the notion that we cannot experiment to progressively improve the social and economic position they hold is absurd. We need to acknowledge their right to a voice in the constitution, then leave it to parliament over time to evolve the best ways of delivering on that constitutional responsibility, and hold parliamentarians accountable.
SME funding.
While we acknowledge that SME’s are the backbone of the economy, employing and training thousands, and spawning innovation, sourcing funding if you are an SME has never been harder.
Borrowing is difficult, as institutions require security which many SME’s and almost all start-ups do not have. Finding equity funding is a full time job, one that cannot easily be done while building and scalinga successful SME. The grant programs that are around can be a lifesaver, but the time and effort necessary to secure one is significant, and the chances of missing out for reasons that are often opaque is high. Even when you are successful, there are often limitations that are onerous. Rarely can grant funds be used for Capex which is often the tipping point for success, variations to the plan funded can be difficult to have agreed as is required, and in most instances, the grant funds must be matched, and then the funds are counted as revenue for tax purposes. Somehow, we have to do better.
VAD laws
All states now have Voluntary Assisted Dying laws on their books, although the details do differ.
These VAD laws have had a difficult road to walk to confirmation, cutting across as they do a range of deeply ingrained practices. Our life expectancy has gone up substantially in the last 50 years, driven by a better understanding of what is healthy, and medical science. Sometimes, a life is driven beyond what can be deemed as worth living, the hugely emotional challenge being, who is doing the deeming.
Our collective retirement funds.
Over the year the stock market fell 5%, affecting the retirement incomes of most Australians. Our compulsory super system relies on the contributions we make through our working lives to fund retirement, and there are not enough of our children coming through to do it for us. The demographic changes are slow, long term, and utterly inconsistent with our short election cycles, and temptation to spend money as it arrives in our pockets. The compulsory nature of the super regime, for all its flaws, is saving us from ourselves.
Our global impact.
We remain somewhat insulated from world affairs. The war in Ukraine, fuelling economic stagnation in most countries as fuel prices rise, the lunacy of Brexit, and the revolving British political door that makes ours look stable and sensible, the pressure being generated by China’s political re-engagement with the world after spending 25 years pulling hundreds of millions out of poverty, an extraordinary feat. We feel the winds of these changes, but are not as directly driven by them as most OECD countries.
Despite the problems we have, the economy is strong, amongst the best around on the back of the exports of iron and coal to China. When, rather than if, the China bubble bursts, we will be deeply in the poo if we do nothing, which makes the thawing of relations with China that the new government has undertaken so crucial.
On a brighter note
I continue to be encouraged by the reports of innovative manufacturing across many sectors that seems to be popping up, despite the best efforts of the status quo to keep them from happening.
On January 1, we had another annual windfall as the copyright on many major works came to an end. Copyright in most developed countries is conferred on the creator at the point of creation, and lasts for the life of the creator plus 70 years. We can reasonably expect a host of adaptations and newly ‘freed’ works to appear this year.
In addition, to the joy of the few supporters left, the Wallabies performance shortfall over the past few years has been fixed. We brought back a coach we fired 17 years ago. For an old Rugby tragic like me, despite my cynical response to the phoenix like re-appearance of Eddie Jones, he will at the very least liven up the back page of the dailies.
Finally I ask you, where would you rather be?
Living with the political chaos and divisions of the US, in Europe, where the economies have been going sideways for years, despite being the centre of culture and the ‘good life’, England, a basket case hung by the balls in a basket of their own making, China, where any sort of criticism, whoever you are, (Jack Ma, are you listening) can land you in quicksand, and vulnerable to the tsunami of Covid about to hit them?
I would pick to be exactly where I am, despite the shortcomings.
Go and put another chop on the barbie, open a coldie, hug your loved ones and get ready to do it all again in 2023.
Have a great day.
Header photo credit: ABC.
