Australia is reeling from two rental crises. One is in housing. The other is in technology and it’s the result of the outsized and ever-increasing rent we pay for the products, services and infrastructure of other countries’ intellectual property and innovation output.
In a technologically-driven 21st century world where information infrastructure and innovation smarts represents real power and agency – for global commerce, national security, and geopolitical relevance – we are not a middle-power country, we are a featherweight and highly vulnerable.
The extent of Australia’s multi-decade lack of strategic foresight and investment was on full display in the past couple of weeks.
First there was the hit on the Australian end of the $360 billion AUKUS trilateral partnership. The US announced it would halve the number of Virginia Class submarines to be built next year, making the commitment to provide Australia with at least three second-hand subs in the 2030s unlikely.
Australia is “mugged by reality” is how former Prime Minister Malcolm Turnbull described the not entirely unexpected news.
Then two consecutive National Press Club addresses by two very different leaders hammered home the sad reality of Australia’s strategic neglect.
Yanis Varoufakis, Greece’s leftist Finance minister during the Global Financial Crisis (GFC) had this and a whole lot more to say:
“Europe and Australia are facing a common existential threat: a creeping irrelevance caused, on the one hand, by our failure to properly invest and, on the other hand, by our ill-considered slide from a strategic dependence on the United States to a non-strategic, self-defeating servility to Washington’s policy agenda.”
Mr Varoufakis, who is an academic and author of the bestselling book Technofeudalism: What Killed Capitalism urged Australia to ditch the old rentier business model of banking on holes and homes.
“That’s now a Ponzi scheme whose maintenance will result in a country marred by minimal investment, low productivity, debilitating inequality, high inflation, and low wages pushing its talented people into a low-innovation sinkhole,” he said.
Then, Sharath Sriram, President of Science and Technology Australia (STA), which represents 225,000 scientists among 140 organisations, followed with this:
“We are paying an ever-increasing rent to the world for their ideas, their products, their services in an innovation-driven global economy… we need to retain our ideas, our intellectual property,” the Professor of Functional Materials & Microsystems Research at RMIT said.
“If we continue to let these slip through our hands, history will judge us very badly.”
Professor Sriram spoke – as have so many others – of Australia’s woefully low investment in R&D (1.6 per cent of GDP compared to 3.5 per cent for the US and 4.9 per cent in South Korea) and stepped through multiple examples of Australian invention that has been manufactured and commercialised elsewhere.
“If we give up our ideas and IP, it’s never coming back. We are just going to pay more for the same products; pay more for the same services. And fall further behind,” he said.
Industry and Science minister Ed Husic has stated he wants to recharge R&D spending to up to 3 per cent by 2030. But few believe it’s going to happen.
Throughout several mega-disruptive phases of the technological and digital information revolution – from microchips to the Internet’s network-effects to the exponentiality of Big Data and Artificial Intelligence – Australia has been the Land of Nod.
We may have been jolted awake by the current AI arms race; by the new era of geopolitical fracture and hostilities, and by the supply-chain disruptions that came with the pandemic.
But the hangover is crippling and there is little to no time for recovery.
“Through Covid, most countries realised the value of science, for multiple reasons. But they also realised the crucial importance of sovereign capability. So, most countries ramped up their investment dramatically. Australia did not. As a consequence, we fell further behind,” Professor Sriram said.
Sriram, like most of us, was using the classic definition of sovereign capability, meaning a country’s home-grown, owned, and developed abilities to produce and maintain critical technologies, goods and services within its borders without having to rely heavily on external sources or foreign dependencies.
Unlike a similar but different term – domestic capability – the sovereign kind encompasses a country’s capacity to control and protect its key strategic assets, IP, industries, and infrastructure with the aim of securing national security, economic growth and resilience. It includes sectors spanning defence, energy, IT, communications, advanced manufacturing, and healthcare.
But that’s not the definition the Australian government has settled on and is expecting genuine Australian industry participants to get behind. This was made clear at the launch of the Defence Industry Development Strategy last month when several journalists sought clarification.
“I acknowledge that people have different definitions,” Defence Industry minister Pat Conroy explained.
“The Australian government’s definition – and it’s the one we’ll operate by – is the ability to have an Australian workforce, have access to intellectual property and have the facilities on Australian soil. That gives us the sovereignty we need in all but very limited circumstances.”
It really doesn’t. And if it sounds nuts to pretend domestic capability is sovereign capability, consider some reasons why this is happening with so much at stake.
They range from ignorance; denial; or surrender. The federal government has surmised that we have to prioritise “access” to foreign companies’ IP, infrastructure and scale over developing; commercialising and scaling our own IP-driven industrial and defence capability.
“Let’s be very clear about this, I reject any assertion that the 6,500 workers who work in BAE Australia aren’t part of the sovereign base, or the hundreds of Australian workers working at Thales Bendigo making these brilliant Bushmasters aren’t part of our sovereign industrial base,” Mr Conroy said.
The Bushmaster protective military tanks are however, not the same as missiles, as just one example.
“I fear today that there are many people in Canberra who don’t care about Australia’s sovereignty the way I, and most people do,” Mr Turnbull said in a Radio National interview.
Another senior executive of a successful and sizeable Australian defence industry contractor and member of the Sovereign Australia Prime Alliance (SAPA) said: “Adopting ‘built in Australia’ and ‘Australian-based’ as the threshold for sovereign capability will have the effect of turning Australia’s defence industry into the equivalent of Rugby Union’s Barbarians, with Australia being reliant on capability ‘players’ from around the world providing defence capability ultimately at the approval of their respective home government whom must allow their defence capability to be exported to Australia.”
SAPA was formed by four Australian prime contractors, the global shipbuilder Austal, Gilmour Space Technologies, listed data centre company Macquarie Technology Group and NIOA, Australia’s largest global munitions company.
In November last year, the group joined with Australian Industry & Defence Network (AIDN) to release a comprehensive report – Developing Australia’s Defence Industrial Base – which put the case for genuine sovereign capability development as a national security and economic development priority.
The implications and spillovers go far beyond submarines, AUKUS and the defence industry.
The reality is that industry contributes to national security in a very broad sense the report says, noting that countries with comparable or even smaller populations and economies than Australia have built highly capable defence industries when faced with strategic threats and uncertainties. Those countries include Israel, Sweden, Norway and Turkey.
“By defining and addressing their own priorities, they have developed capabilities they have exported to partner countries, including the US. And a key element of their success has been the deliberate development of sovereign primes.
“Protect the IP first, then export,” agrees Science and Technology Australia’s Sharath Sriram.
Our sovereign capability has been successively eroded and outsourced to foreign tech, health, and defence multinationals over multiple decades as the world shifted on an axis away from commodities to high value IP ownership and commercialisation and data in the so-called post-industrial knowledge economy.
At every new phase of this massive shift in power over at least 40 years, Australia’s leaders shrugged, content to over-weight the agency and prosperity they thought we had via the nation’s plentiful natural resources, growing services economy and relative political stability.
Today, we have little to no agency. Despite some (not nearly enough) pioneering, savvy home-grown outlier companies, we are dependent on foreign multinationals and the so-called digital tech hyper-scalers — their IP; their infrastructure; their competitive intelligence, scale and operational expertise — in every critical technological arena of the present and future. These span AI; data centres; cyber security; advanced manufacturing; space technology; green tech and defence tech.
Mr Varoufakis says Australia and Europe are stuck in a new cold war between the two dominant tech superpowers, the US and China. (The new cold war thesis was first coined by eminent economic historian Niall Ferguson at least five years ago.)
The US announcement of the contraction in the number of submarines it intends to build next year is the latest taste of the reality that even our allies will always prioritise their own needs in times of strategic risk without hesitation. Australia’s need to hedge its own risk against that reality is becoming starker by the week.
But how to do it and how fast is an enormous problem to solve.
Mr Varoufakis is right that neither Europe or Australia possess any significant share of the critical technologies of the present and future and both are facing irrelevance and marginalisation on the global stage.
“It is a little like trying to make our way during the 19th century without steam engines,” he said.
