I think we may be talking at cross purposes here, Chris Lewis.

>>pericles, what about aspects of productivity such as labour costs? How does innovation fit with such considerations in terms of resisting cheaper alternatives that will invetiably come.<<

When the topic is innovation, labour productivity doesn't come into the equation.

As far as "resisting cheaper alternatives" is concerned - why should we? If the existence of cheaper alternatives spurs us to develop replacements for them, that is all to the good. But if we are unable to effect that replacement more cheaply still, we are kidding ourselves that artificial mechanisms such as tariff barriers are going to help Australian industry.

>>Is China's success explained by innovation<<

China's current success has little to do with innovation. They have simply been following the path that has been previously trodden by post-war Germany and Japan, building stuff that people want at prices they can afford, and moving from the low-cost-labour environment through to technology-assisted manufacture relatively quickly.

These scenarios were driven by necessity. Post-war rebuilding on the one hand, and the relatively recent acceptance in China of a form of State Capitalism on the other.

We have had no such economic drivers. From the sheep's back to the mining boom, we have been natural-resource driven. We have a population far too small to support any manufacturing economies of scale, and as a result have never made any serious inroads there.

>>what countries have been the most innovative, did government help them, and did the host country hold on to most of the production? I think of Nokia, Apple, and so on<<

I believe the impetus for Nokia came from the infrastructure, NMT, which encouraged their development of car-phones. Whether they had active government support, I don't know. Apple, of course, was famously started in a garage with $1,300 that Jobs and Wozniak scraped together - Jobs by selling his VW van.

And manufacturing is not important to innovation. The economics are chalk and cheese.

We will never become Internationally competitive in manufacturing. Therefore we need to innovate.

As will China, eventually.

*I think you will find that there are a very large number of start up companies in the US that fail.*

Vanna, start up companies everywhere fail. Especially those backed
by Govt, who are trying to pick winners.

Venture capital in the US, is commonly provided by innovators,
who have made their fortune, by good judgement, in another industry.

These people have the money and clearly the talent as innovators,
they should be encouraged to risk their own money.

The profits come in terms of intellectual property rights, not
trying to make consumer goods for schools.

That's a little unfair, Yabby.

>>If somebody does not believe in their own idea enough to mortgage the house, is it really such a great idea?<<

Your theory would be, then, that only ideas that are small enough to be financed by mortgaging your house are worthwhile pursuing?

I'm pretty sure that isn't what you mean, but you can see how limiting self-financing can be. Let's say you think your idea needs $200,000 of capital to get to production. Along the way, despite the fact that your idea is the greatest thing since mothers' milk, you find it needs another $200,000.

If you are going to lose your house, it isn't a matter of presenting your idea to venture capitalists. It's whether you can explain it to your wife and kids.

The trick with innovation is that it is new. And by definition, when the idea is new, you don't have any benchmarks to work with, or other people's experiences to learn from.

So the lack of enthusiasm to bet your family's future on whether you have sufficiently estimated the development cost - as opposed to the quality of the idea itself - is understandable.

But you are absolutely on the mark re venture capital in Australia.

There is capital, but there's no sense of "venture".

The first thing they ask is your current revenue stream. If you don't have one, or it is embryonic, their eyes glaze over and they drift away.

In the US, they have a high level of tolerance for risk, and a great appetite for potential "ten bangers".

I suspect that tax laws may come into play at some point, they generally do.

A few years back a business acquaintance of mine accepted shares in a US company, in exchange for equity in his local business, that ha'd built up from scratch. The tax department insisted that he pay, real dollars, immediately, on the notional "capital gain", despite the fact that he had received no money.

Iniquitous.

Sadly, the lack of business experience in government and government departments will permanently inhibit any useful tax reform.

Sadly, vanna, these type of talkfests are part of the problem, not part of the solution.

>>There is an organization called Ausinnovation that regularly carries out surveys regards innovation in Australia.<<

This particular one was set in motion by a small Melbourne communications company, in order to generate interest in its magazine business. Nothing wrong with that, of course. Very entrepreneurial.

But the "sponsors" - with the exception of a hotel chain (useful for the "events", eh?), a boutique website developer and a graphic design company - are all governments and government departments.

http://www.ausinnovation.org/supporters/support-groups.html

The result being that the government departments all end up talking to themselves, guaranteeing that none of them actually gets to understand the mechanics of innovation at all.

The three non-government organizations are there, presumably, to solicit business.

Again, absolutely nothing wrong with that. But it doesn't actually progress innovation itself, one inch.

Your take on surplus public servants is also quite indicative, vanna.

>>Percilles has suggested sacking, but that simply puts these people into the dole queue and everyone has to pay to retrain them and get them back into the workforce.<<

The general idea is that these folk were already costing the taxpayer real dollars, when it was determined that their position added no value.

It therefore makes perfect economic sense to take them out of non-productive positions, help them retrain, and put them into economically productive positions.

Meanwhile, lowering the tax burden on business - made possible by the slimmer public service - will actually enable those folk to be employed.

Is that so bad?

Incidentally, forcing government departments to "buy locally" will simply increase the cost to taxpayers, and simultaneously encourage local producers to become fat and lazy on government contracts, protected from competition.

The one thing it will not do, is foster innovation.

Pericles,

With all due respect, as I am listening to your ideas, I do not think that such debate is wasted.

I do think Vanna makes good points.

While I am keen on the importance of innovation, I would like to see some evidence of how it can work. After all, the US is much more innovative than Australia yet it is struggling. Remember Walmart has been innovative in terms of its work organization, but pays workers pretty low wages.

If you have some info, please post sources. Even better, write an article if you do not already.

I have some doubts that any nation’s future cannot be isolated to innovation. After all, many nations are keen to keep their currencies competitive, including the US. Similarly, manufacturing is indeed the greatest source of global wealth, although the US make more from an ipod than the country which produces it in factories.

As I am concerned primarily with the national interest, albeit as a supporter of liberalism (within reason), I also need concrete examples of nations that succeeds on innovation alone.

My gut feeling is that a number of factors always explain eco success: protection, currencies, labour costs, national cooperation, as well as innovation, efficiency and good organisation. There has to be reasons why some nations are gaining more wealth tahan others

As for our argument the West is finished with manufacturing, I am not so sure. In the end, govts need to provide jobs. Now that financial services has been tarnished, it will be interesting to see what professions emerge to fill the hole.

There has to be a better balance between production and consumption, and between wages and purchasing power. This may mean that societies again pick winners if their observations are that they have no other prospects.

Pericles, I guess my main point was, that banks can't be expected to
act as venture capitalists, that is not their role, it is one of
safety and security. As it is, I am always amazed at the tricks
people will play to extract money out of banks, they really are
fair game. That they are cautious and that it pays off, is shown
up in Australian bank figures. Their write offs are far lower
then European or many American banks. At the end of the day,
those write offs are passed on to other customers, as is theft
in supermarkets etc.

As to your tax example, yes that is the sort of thing that is
clearly holding up innovation in Australia.

Chris, if it were not for innovation, America would by now be a
banana republic. I think you underestimate the role that services
can play, in a country's income. I remember when Google was little
more then a house full of computer gear, in the mid 90s. Now
they have 30 billion cash in the bank and have never manufactured
anything.

In fact great manufacturing nations like Germany, Switzerland and
others, rely on constant innovation as well as great engineering,
to achieve their results. But they are less products that you see
in your local Harvey Norman's. They make the machines that others
use to make things. It is a huge market. Much of it protected by
intellectual property rights.

Australia does a bit too, as an extension of what we are good at,
ie farming and mining. We do in fact export some specialised farm
machinery, as well as specialised mining equipment, as an offspin
of ideas that evolved and were developed here. These aren't
machines sold on price, but on an ability to get a job done.
Innovation is the key, all the way.