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The Forum > Article Comments > Don't neglect innovation > Comments

Don't neglect innovation : Comments

By Nicholas Gruen, published 27/1/2011

Not enough government funding is going to research, even though the returns are on average 50%.

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Peter. I would suggest that we will know the cost of not funding innovation only when our neighbours start out-competing us in economic production. There is no crystal ball, which is why innovation funding that includes less likely new technology is so important.
Given that Asian countries in general and China in particular has out done the West in Science and Maths education for a while now, if innovation was truly important then we should expect to see that innovation and leadership of the world's economy should shift to these countries...
Given that China now owns most of the debt of the western "developed" world, produces most of it's products, and is gradually taking control of resources, us included, I'd say the theory is looking pretty good!
One only has to study European history to see that science and high technology (plus cheap resources) is the main source of modern wealth.
One of the most successful R&D organisations in the USA has made many billions for the US manufacturers (now Chinese!) using the idea of "plan to fail 80% of the time". By aiming high, the 20% that do succeed are world first and truly innovative. Aiming low and looking for 20% ROI over 5 years is *not* how a nation should use it's portfolio...but it is perfectly suitable for individuals looking out for themselves.
Western "leaders" are selected based on boys club membership and their degree of bloody-mindedness. There are practically no scientifically literate folks in our board of directors club, nor our political tribes.
Bag Chinese government if you like, but at least they are going for educated types instead of aggressive last-century experts. They are building from a difficult history, whilst we are squandering our lucky status by letting rent-seeking conservatives steer us toward serfdom.
Posted by Ozandy, Friday, 28 January 2011 11:47:25 AM
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Hey Vanna...you say:

Wage costs are only a small portion of production costs, and high wage costs is the old excuse for lack of innovation in the country.

to which I reply.... you don't run a manufacturing business.. do you?
The fact remains.. Australian labor content vs Chinese labor content.. same time.. aah.. no comparison. End Price of product ?
Chinese LOWWWWW
Aussie HIGHHHH

Labor and compliance costs are a HUGE part of the picture.

You might be thinking of Germany for "higher wages, plus innovation"

I'll give the Krauts this.. they ARE innovative AND dynamic in industry.

Hmmmmmm...I *wonder*....could this just possibly be related to the fact that they also have a strong sense of Germanic racial solidarity ?
Hitler did some amazing things, (besides the bad)..and one of them was to instill in the German race a sense of RACE... and I assure you.. without it.. countries like Australia are doomed economically.

Unfortunately for us.. we can never capture such momentum because we are far too racially diverse. So.. I reiterate "we are screwed"

The progressives will be whistling along to 'celebrate diversity' all along the happy road to an unhappy ending over a sudden and unexpected cliff
Posted by ALGOREisRICH, Friday, 28 January 2011 4:24:37 PM
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Eight posts into a thread on 'innovation' of all things. I would have expected it to take longer.
Posted by Bugsy, Friday, 28 January 2011 4:31:47 PM
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Why innovate something if it is cheap enough to bye elsewhere. You can't reinvent the wheel.
Posted by a597, Friday, 28 January 2011 4:38:16 PM
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Algoreisrich
I don't run a large manufacturing company, but I have worked in some, including one with a turnover of around $170 million per year.

Wage costs were about 20% of costs, and in fact that company actually produced a by-product that paid for everyone’s wages.

In manufacturing, wage costs are normally around 20% of costs, so if everyone’s wages were cut by 50%, it would only reduce total costs by about 10%.

Germany is a country that has higher wages and often better working conditions than Australia, and I found it quite disgusting when the NSW Education Dept spent $500 million of taxpayer's funding on purchasing software from a German company, after the education system has been teaching computing in schools and universities for nearly 40 years (ie. They couldn’t find an Australian company to produce the software after 40 years of education).

Also note that Australia is ranked 14th in the world for external debt.

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

Not bad for a country of 22 million, but maybe if we try a little harder and import a little more we can make the top 10.
Posted by vanna, Friday, 28 January 2011 7:55:09 PM
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I remember when the Chinese were starving by the millions while great crowds were happily waving Mao’s little red book. I’d much rather see them trading peacefully and making themselves and others better off.

China proves the exact opposite of what you are urging. They aren’t succeeding by more socialism, but by less.

To say innovation is loss-making, therefore government should do it – to lead the way to a better economy - just doesn’t make sense.

“One only has to study European history to see that science and high technology (plus cheap resources) is the main source of modern wealth.”

Science and technology, of itself, doesn’t produce wealth. It has to be directed to a productive purpose – ultimately to satisfy human wants. In a modern technology, the methods of production are complex and roundabout. It is difficult enough for anyone to figure out how the factors of production can be combined in a profitable way, even with the direct incentive of ownership, and the ability to calculate what is more economical and what is less. It is virtually impossible without them. You are missing the most vital factor – economic freedom.

If the presumption were available that government can rationalize the scarcity of resources in such a way as to direct the factors of production to their most urgent and important uses, then it would be true that total governmental control of the economy would be better.

Innovation, in its nature, is anathema to bureaucracy which, without the instruments of profit and loss, must perforce resort to rules and regulations ultimately directed by arbitrary political demagoguery facing the above knowledge problem.

Also, innovation is important, but so are lots of other things. The only effect of government funding of innovation will be to waste funds that would have been better spent on innovation or other things.

Exactly the same arguments that are being used for government funding of innovation are used for government funding of everything else.

If they were true, their advocates should have no problem answering my questions. No-one has even tried.
Posted by Peter Hume, Saturday, 29 January 2011 8:13:00 AM
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