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Senator Kate Lundy

Shadow Minister Assisting on Information Technology

Senator for the Australian Capital Territory

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Australian 
Information Industry Association - ACT

1999 Canberra 
Managers' Forums ProgramÂ   
Rydges Hotel CanberraÂ   
7 April 1999

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An Alterna  te Strategy for the Australian 
Information Economy

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I want to thank the AIIA for 
the opportunity to be here today to put my thoughts on the issue of 
IT policy to you. As you are no doubt aware, Leader of the Opposition 
Mr Kim Beazley announced earlier in t  he year that our doors for policy development are 
wide open. In the spirit of this I intend to address this issue in a 
way that extends beyond the boundaries of the IT industry sector. I 
cannot approach it any other way because IT traverses the breadth of 
public policy in that it offers society the means by which we as individuals 
and communities, will participate in the information society.

There is so much to say about the changing nature 
of our world with phrases like digital convergence, the information 
economy and the age of learning each seeking to express the magnitude 
of the transformation we are experiencing.

What are the motivators for such change? The concept 
of technological determinism features strongly in my policy considerations. 
I ask to what extent are governments capable of being effective agents 
of change in a world where the pace of technical and scientific innovation 
has become exponential? Far from viewing the role of the nation state 
in the globalised economy as being weakened, I have been inspired by 
the words of Robert Keohane and Joseph Nye. In a recent article titled   'Power and Interdependence in 
the Information Age'  they   assert that 'politics 
will affect the information revolution as much as vice versa'. They 
argue that far from the conventional wisdom that the information revolution 
will have a levelling effect: '  some aspects of the information 
revolution help the small, but some help the already large and powerful.'

To ensure that Australia has equitable access to 
the social, cultural and economic benefits available to our citizens 
through the information revolution, then policy makers in Australia 
would be wise to keep this thought at the forefront of their considerations.

In saying this, I am making a series of assumptions 
that I should share with you because they are not necessarily representative 
of all political parties. The first assumption is that Government accepts 
social responsibility with respect to the people that elect them. Secondly, 
that this social responsibility leads the government to use the tools 
of economic, industry and cultural policy to improve the quality of 
life of the people they represent, and of future generations. Thirdly, 
that to be an effective agent of change, Government must act with credibility, 
accountability and in the interest of the public.

My motivation is simple and can expressed very plainly: 
social equity, sustainable future. To me, the information age brings 
with it a veritable universe of opportunity in pursuing these outcomes. 
The changes that are occurring in the information society are too radical 
and the implications to great for Governments to be complacent, expedient 
or shallow in their approach. Forward looking, comprehensive and cohesive 
policies are required to build the social and economic foundations of 
the twenty-first century. To neglect this challenge is to relegate this 
country to a digital ghetto in the next millennium.

There are five critical elements

ACCESS

Â·  Â The importance of ensuring our society is not divided 
into information haves and have nots must necessarily shape our policies 
relating to access to affordable bandwidth, the ultimate enabler. Access 
is the key to participation.

PARTICIPATION

Â·  Â Opportunities in education are essential if everyone 
is to exercise their right to participate in the information society. 
Achieving high levels of participation in the information society also 
puts Australia in the strongest position to take advantage of the known 
economic benefits of a highly educated and technologically proficient 
workforce. This means jobs for Australians.

HUMAN RESOURCE

Â·  Â The information age invites economic recognition 
of the value of our human resource. It codifies this human capital into 
intellectual property, or IP. The key to harnessing the economic clout 
behind human capital is a system that recognises and manages ownership 
of IP for the purposes of reward and distribution, particularly in the 
digital environment where traditional property and copyright rights 
have no relevancy.

CONTENT

Â·  Â Creativityis one of Australia's greatest strengths: 
we must foster the production of digital content and software. For the 
first time, the internet demolishes the geographical trade barrier that 
has existed for physical exports and allows Australia access to a global 
market in digital products and services: the mega-commodities of the 
information economy.

GROWTH

Â·  Â If the Australian IT industry is to grow, we must 
utilise all our strengths whilst removing barriers to growth. How this 
industry develops and grows in Australia is critical to our future economic 
health. The imperative is a ballooning IT&T trade deficit. This 
indicator alone demands a political response in the form of policies 
designed to grow the Australian IT industry. Other industries too, are 
directly affected. Information technology enables our services sector, 
which represents 84% (ABS) of the Australian economy, to be efficient, 
innovative and competitive.

For the purposes of my presentation 
today I would like to focus on the latter three elements: human resources 
and intellectual property, content and with particular emphasis on industry 
development and growth.

HUMAN RESOURCE

The information economy is a rather esoteric notion 
that conjures images of universal access to a digital network: the internet 
and rampant electronic commerce. Already however, it is clear that there 
is far more to the information revolution than how commerce and nation 
state economies will function in a globalised environment. A critical 
aspect worthy of Government consideration is the management of intellectual 
property in the digital environment. This has far broader implications 
than just copyright and the digital agenda. Hooton and Perkins, in a 
recent paper state:

"The Government needs to 
recognise that Australia can lead the world in the engineering of asset 
repositories which conform to global standards for intertrading and 
interoperability. We must also recognise te ability of patent law as 
applied to IT systems to undermine the open trading culture of the information 
economy"

A primary function of Government policy in IT should 
be the protection of intellectual property rights for institutions and 
individuals that develop new applications and products.

The ability to manage digital intangibles through 
the internet will govern trading via e-commerce and content-driven revenues. 
The revenue derived from these activities will be the force behind economic 
growth in the future.

According to many industry analysts, industry has 
not fully grasped the potential of the information economy with both 
the Gartner Group and Forrester Research stating respectively:   'Australian companies must move 
now to take advantage of opportunities in electronic commerce or they 
risk being left behind.

and

Australia is a 'straggler' when 
it comes to electronic commerce."

CONTENT

Creative digital content and software manufacturing 
are two of greatest opportunities that exist within Australia. These 
products add value and therefore the margins are comparatively high 
compared to that of hardware. These industry sectors do not require 
large amounts of capital investment, rather the valued resource comes 
in human form.

Software provides the key to unlock digital potential 
in whatever form and the potential for growth is limitless. Australian 
Government must subscribe to the vision of creating a vibrant software 
industry.

Creative content is a great strength of the Australian 
culture and economy. The potential of content can be glimpsed by quantifying 
the economic returns from cultural exports in the form of music, art, 
television film, web content, fashion, radio, crafts and many more examples. 
Only then will the value of protecting and fostering what is uniquely 
Australian be recognised by coalition government policy makers. Only 
then will the critical importance of public investment into all of these 
areas be appreciated.

GROWTH

Government policy must recognise 
the need for fostering innovation, education cooperation and an entrepreneurial 
culture within our educational and research institutions in order to 
create a critical mass of commercial technological opportunities. W  ithout these opportunities, venture capital will 
simply venture overseas. There is currently no intrinsic competitive 
advantage in high technology in Australia.

Australia will continue to be a net importer of technology, 
unless government policy focuses on fostering the development and commercialisation 
of local technology. Policymakers must recognise the failure of previous 
policies in fostering an entrepreneurial culture to support local research 
and development (R&D) and the retention of technological developments. 
It is a cultural truism that Australian institutions are more partial 
to selling domestic technology to foreign enterprises, and technologists 
eager in seeking (PAYE) employment with foreign corporations to develop 
and commercialise technologies. Under the current environment, local 
technology is transferred offshore, negating the need for an organised 
local venture capital market.

Examples of this are readily available. Through the 
1960’s and 1970’s Government sponsored projects resulted in significant 
discoveries, including the Infra-Red Gas Analyser (IRGA), the Atomic 
Absorption Spectrometer (AAS) and breakthroughs in laser and holographic 
technologies. In all cases, Government agencies licensed the technology 
to Australian firms that in tern sold those licences to non-Australian 
corporations without having contributed to further development of the 
licensed technology. Consequently, Australian firms and government agencies 
were buying back the commercialised product and paying non-Australian 
corporations for technology sponsored and developed by the Australian 
Government.

Australian institutions and technologists lack the 
commercial acumen to transform the ‘idea’ into a structured commercial 
opportunity. Without structured commercial opportunities there is nothing 
for venture capitalists to develop.

In short, it is not simply venture capital that is 
the missing ingredient. More to the point, it is the fact that there 
is an insufficient number of home grown technological opportunities 
reaching the boardroom table that is creating the nexus between technology 
and capital in Australia.

The ability of Australia to develop a self sustaining 
leading edge information technology economy could be broadly attributed 
to the following factors:

Â·  Â articulated strategic government policy

Â·  Â the recognition of Universities as a source of talent, 
information and new technology

Â·  Â recognising that information networks between experts 
contributes to the process of innovation

Â·  Â the importance of an entrepreneurial spirit, and

Â·  Â the availability of venture capital

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The development of Information 
Technology (IT) policy in Australia had traditionally developed within 
a fragmented and myopic framework.

The debate surrounding technology 
policy in Australia tends to be rapidly   polarised between advocates of national efforts to 
promote particular technologies or industries and those who believe 
that market forces will successfully guide economic adjustment. For 
market liberals, the pressures of unfetted market competition automatically 
ensure industrial adaptation and industrial dynamism. Although this 
may be the case in larger economies with highly integrated industrial 
structures, it has been less than evident in Australia.

Proponents of national industry policy argue that 
competition depends on carefully targeted national economic programs. 
In this context, Australia cannot match Japanese, American and European 
integrated government-supported producers. As such, national technology 
policy should not be focused on competing with international comparative 
targeting of industries, nor solely on playing international ‘highest 
bidder’ for corporate relocations.

Neither of these approaches alone offers a convincing 
agenda for policymakers. The widespread failure of science parks and 
other efforts to grow the next Silicon Valley underscored the limits 
of an approach that focuses   solely  on the 
free flow of capital, labour and technology needed for market adjustment.

National policies that direct 
public resources toward particular technologies or sectors are seldom 
effective mechanisms of industrial adaptation. It is notoriously difficult 
for public officials, with or without the collaboration of the business 
community  , to pick winners and effectively concentrate resources 
on future technology.

Despite the merits of recent policy development, 
government’s have failed to understand that the development of IT 
require more than human resource development and access to capital, 
it requires a dramatic change in cultural values and a recognition for 
the need of a convergence of national and economic forces.

Given the natural limitations of private capital, 
consumer markets, business networks and entrepreneurial skills in Australia, 
government must act to facilitate the transition of domestic technology 
into commercial opportunities by promoting or stimulating structural 
readjustment, through:

Â·  Â leadership, accompanied by coherent & articulated 
government policy

Â·  Â funding institutional research & development

Â·  Â supporting private and public sector collaborations

Â·  Â promoting commercial ambitions of research institutions

Â·  Â government as consumer of domestic technology

Ultimately, policies that 
help companies learn and respond quickly   to changing conditions, rather than policies that 
either protect or isolate them from competition or external change best 
serve our society and economy.

High technology has the ability to attract venture 
capital because of the possibility of future high returns, reflecting 
the high level of risk, the rapid process of change in technology and 
its information intensity.

Policy makers need to overcome outdated concepts 
of the firm as a separate self-sufficient entity. Policy makers need 
to recognise that innovation is a collaborative or collective process 
as well as an individual one.

They must also face the challenge of creating institutions 
that promote a decentralised process of industrial self-organisation 
without sacrificing individual autonomy and flexibility. Unlike traditional 
top-down intervention or laissez-faire approaches, industry policy should 
be organised locally and designed to catalyse and coordinate - rather 
that directly manage - relations among the public and private sector.

Policies that see cuts to public funding for education, 
research, training and tax policies that discourage venture capital, 
undermine institutions and infrastructure that support network based 
systems. Information networks between experts primarily drive technological 
innovation, and universities are fundamental in fostering talent, information 
and technology.

Â·  Â   the availability of venture capital

Any model for providing capital gains tax relief/exemption 
should be assessed on the basis of its capacity to stimulate and support 
the development of local industry, and sustain technological innovation 
locally.

As a backdrop to any capital gains tax reform, policymakers 
must acknowledge that specific initiatives aimed at stimulating venture 
capital will be revenue raising in the long term. Any short term revenue 
loss from capital gains tax reform, will be outweighed in the medium 
to long run from a natural decrease in government assistance to industry, 
increased revenues from corporate taxes, PAYE taxes, international income 
flows from investment, sales and royalties.

Initiatives aimed at stimulating the development 
of a domestic venture capital market will create investment opportunities 
that were previously unavailable. The resulting capital flows between 
market participants will develop the necessary level of transactions 
to reduce associated (financial and search) costs to a commercially 
viable level.

In addition to the policies outlined by Labor in 
the lead up to the 1998 federal election, there are several other areas 
of capital gains tax reform that may be considered as potentially easing 
the transition of capital towards venture capital. Some of these ideas 
include relief for venture capital held till initial public offering 
(IPO) stage, reduced capital gains tax for R&D transfer between 
entities, and relief for technology transfers to Australian firms.

Labor must be credited with 
opening the door on capital gains tax reform for the purposes of increasing 
opportunities for growth, particularly in the IT industry. I listen 
to the debate within the Government as to how they will deal with this 
issue, with g  reat interest. The incremental announcements on behalf 
of various government Ministers indicate belated movement in the direction 
of reform. The outcomes remain to be seen.

Â·  Â   government as consumer of domestic 
technology

There is one other policy area that represents a 
significant determinant in the future direction of Australia's IT industry. 
It is procurement policy.

Australia has disproportionately high percentage 
of IT&T expenditure by Governments - nearly 40%. This represents 
massive market leverage that if used cleverly can support local industry. 
It is important to note that in Australia, the Commonwealth is the largest 
purchaser of IT services and technology. We don’t have the same corporate 
demographic with large corporations like the US, UK and other countries

Using government procurement is a sensible and practical 
policy tool available to Governments pursuing an industry development 
agenda. To ignore the opportunity to grow local industry does not make 
sense. It seems that even if all the social arguments for the need to 
grow our own IT industry were to be ignored, there is still a powerful 
economic argument (in the growing IT&T trade deficit) to justify 
using every policy means possible to grow our own.

At this point I would like to draw your attention 
to the distinction between IT outsourcing and the Government's IT Outsourcing 
Program. Contrary to statements by Finance Minister Mr Fahey, Labor 
is not opposed to IT outsourcing. It has always formed a part of government 
IT, indeed around 50% of IT expenditure before losing office in 1996. 
Labor is opposed to the Government's IT outsourcing Program as it actively 
denies opportunities for Australian SME's to participate as principal 
contractors to the Commonwealth Government. Labor has justifiably called 
for a moratorium on the program to stop the damage that is being inflicted 
on both the public sector and on the Australian IT industry.

As part of evidence collected by the Senate inquiry 
into IT outsourcing, an Australian specialist IT company summed it up 
by saying that for many Australian companies, their entrÃÂ©e to export 
markets was a Commonwealth contract. This 'export credential' is critical 
for growing export markets, especially in securing contracts with other 
governments around the world. This is turn can lead to access to their 
respective domestic markets, and so on. This opportunity has been ruthlessly 
denied to Australian IT companies.

There is no comfort in the 
platitudes offered by the Mi  nister with respect to providing the Group 5 contract 
(incorporating a number of Government agencies) to an 'Australian SME'. 
Congratulations to Advantra for winning group 5. Whilst an SME according 
to the Minister, this particular company has the combined market capitalisation 
of the partners of over $200 billion!

Surely it makes sense to use the leverage provided 
for by procurement to advantage Australian business, after all it is 
taxpayers money. On the issue of savings and efficiencies, there is 
little evidence to demonstrate that projected cost savings arising from 
claimed economies of scale will be delivered through the program. Surely 
the treacherous growth trade deficit we are faced with justifies supporting 
Australian industry.

In recent estimates hearings we heard the capacity 
of to Government to enforce the industry development provisions within 
the contracts is limited by practicalities, if not politics. A decision 
to pursue enforcement with a vendor alleged to have breached their industry 
development commitments is contingent on fiscal considerations by the 
government. Overall value and progress of the service aspects of the 
contract would, it seems, form part of the considerations. At any rate, 
we will never know because the terms, conditions and sanctions applicable 
under the contract are hidden behind claims of commercial-in-confidence, 
defying public accountability.

So where does this leave Labor 
in a few years time if we are fortunate enough to form the next Government? 
The Coalition Government has made it clear they intend to continue, 
albeit falteringly with their IT Outsourcing Program. Ultimately the 
nature and l  ength of the contracts will determine what flexibility 
if any exists and what directions Labor can take.

I am concerned as to how much the ability of Government 
to effectively provide services to citizens is hindered. Why? Because 
services provided through information technologies is the public interface 
between Government agencies and citizens. It is the technology that 
allows changes in policy direction to be implemented. It is the technology 
that allows improvements, adjustments.

IT outsourcing is s an issue of great political significance. 
It is about the role of Government, and the ability of a government 
to be an effective agent of change. I leave you with this thought.

Thankyou for listening.

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jyÂ  1999-07-28Â  10:26

