Australian Lefty on Politics, Governance, Science and Info Management

Rudd fails Mandarin test

Posted by Dave Bath on 2007-11-12

Rudd might have learnt to speak Mandarin, but he refuses to learn from the mandarins.

This week’s The Economist (2007-11-10) has a liftout on science and technology in China and India that highlights the dangerous lack of appropriate policy in Australia.  It’s worth noting some hard facts about Chinese use of human capital, how it benefits the Chinese economy, then contrast the Australian situation.

China – The Last 10 Years

In the last decade, Chinese spending on research has increased sixfold and staffing for R&D has tripled, implying a doubling of resources available to each technologist, and causing The Economist to suggest that the Chinese government has done the heavy lifting, and can sit back and reap the rewards.

Its monumental efforts to educate and train have filled the tanks of its innovation engine.  Now it is time for it just to let the water flow.

A stand-out example of economic benefit from a focus on R&D is the Chinese company Huawei. Not just a supplier of consumer electronics, Huawei has the sixth-largest sales to telecoms carriers, ahead of well-known companies such as Motorola.  Here are the approximate figures for sales to carriers in 2006:

  1. Ericsson (Nordic) : US$25 bill
  2. Nokia-Siemens (Nordic) : US$22 bill
  3. Alcatel-Lucent (FrancoYank) : US$17 bill
  4. Nortel (North Am) : US$10 bill
  5. Cisco (US) : US$9 bill
  6. Huawei (Zh) : US$8 bill
  7. Motorola (US) : US$6 bill

Huawei has achieved this by devoting 10% of revenue and 50% of manpower to R&D

In the late 1980s, I worked in R&D in a company with similar spending patterns: and we were selling real-time telecoms monitoring and management systems to Sweden!  Oz could have been a significant player, but now we’re not even in the game.

The Nordics, with their small population but large investment in human capital, are reaping the economic rewards, but even they better watch out for the likes of Huawei.

At the lower end of the market, the Chinese government doesn’t just stuff more money into Bill Gates’ overflowing pockets like we do, but got Richard Stallman (aka rms) to teach them about software strategies, then sponsored development of a Chinese version of Linux to be distributed for free, now known as "Red Flag Linux".

China – The Future

The Mandarins have impressive plans not just for investment in human capital, but will spend money to actually use those skills:

  • By 2015, China’s scientists and engineers will outnumber those of any other country.
  • By 2020, China aims to spend a bigger percentage of GDP on R&D than the EU.

Oz politicians don’t get it

Rudd might speak fluent Mandarin, but I wonder if he can read it, or appreciates Chinese acumen enough to peruse the background papers that gave the Chinese government no option but to set these policies.

Has Rudd’s ALP talked of targets for R&D spending by Australian companies as a proportion of their revenue, or by the government as a proportion of GDP?

Rudd’s ALP has learnt nothing from Barry Jones’ celebrated 1980s analysis ("Sleepers Wake") of post-industrial economies, has forgotten the at least somewhat useful Beazley plans for the "Knowledge Nation".

It seems that any plans to make our economy fit for the modern world were retired with the last of the Ministers from the Hawke/Keating years, the only government in recent times with any runs on the board for useful economic reform.

Seen in this light, Rudd is not a man with "fresh plans for the future", but someone who gives no evidence of understanding the past or present.

At best, the ALP is talking of supplying skills to plug existing gaps in Australian business, or plug holes in household plumbing.  This is the full extent of Rudd’s plans for improving productivity.  He hasn’t spoken of developing a better product line of high value-added goods, one that can be supported by a small population with large shipping costs to the rest of the world.

The Howard/Costello Coalition is worse: R&D spending in Australia compared to OECD countries is heading for the wooden spoon – the Libs/Nats have a "race to the bottom" strategy for our economy that will force our relegation to the amateur league.

The importance to the economy

If the focus of the election is economic management, then the public discussion of R&D spending should reflect the proportion of pages in The Economist devoted to science, technology and deployment methods:

  • A science and technology section in every issue.
  • A "Quarterly Review" supplement.
  • The general news often includes articles on innovation strategies such as Google’s demand that all employees spend 20% of their time doing something that interests them as individuals rather than as directed by managers.
  • Special reports on science and technology in particular countries, like this week’s liftout.

This gives an indication of how important these topics are for economists, politicians, and business leaders, according to the judgement of both the publishers and their readership.

Oz people don’t get it

Why do Australian voters ignore the importance of technological investments to the economy and their wellbeing?  The "in your face" evidence is overwhelming:

  • For me, the changes are dramatic:
    • To have the same capacity as the data stick around my neck, the punched paper tape I used in my early days would have to stretch from Melbourne to Sydney.
    • I’d slave for a day or two with restriction endonucleases and micropippettes to get a chunk of plasmid that probably contained a gene of interest, while now automatic gene and protein sequencers generate 3D models of receptors to guide development of profitable drugs.
  • Those older than me might not know the details, but their difficulties adapting to new technology underscores the significance of the changes.
  • Those younger than me must grok the rate of change, and possible economic benefits, every time they feel compelled to upgrade their mobile phone or MP3/MP4 player.

Oz Business won’t – Government must

The necessary changes must be driven by long-term government vision.  Pure capitalism through equity can rarely afford investments that pay off a decade or two down the track, and the shift in market emphasis to "buy today, sell tomorrow" derivatives punishes any such investment.

There is no excuse for federal government inaction, no excuse for silence by the major parties.

A while back, CSIRO was a world leader in giving economic benefit from government investment.  Every dollar given to CSIRO increased the size of the economy by ten dollars.

Compare the current annual Commonwealth funding of CSIRO (a few hundreds of millions) to the tens of billions in promised tax cuts that will be squandered on Chinese plasma TVs, fueling the ballooning national deficit, and adding to pressure on inflation and interest rates, and decreasing the funds available for productive investment.

CSIRO has been turned into a eunuch, little more than a prostitute for short-term business projects and an advisory council that is ignored whenever it calls for tough decisions.

While this is patently a national issue, it is only a few state governments that are taking any action, and that action is paltry:

  • Queensland has a few IT parks and incubators, and has given technical leadership in the adoption of IT disciplines in the real world.
  • Victoria is making a moderate investment in facilities for biotech and materials science.

I’ll admit, there is a fair bit of pork going to military R&D north of Adelaide, but the federal government is not leveraging this for economic benefit.  We’ve had no economic return from our DSTO when compared to Al Gore’s stimulus to the US economy when he pushed DARPA’s ARPAnet into the big wide world as the internet.

We are falling behind with biotech and IT development, but we’ve completely lost the plot in space.  Satellites for remote sensing and communications are critical for national security, business infrastructure, agricultural planning and discovery of resources, yet we’ve turned Woomera into a garbage dump for inconvenient refugees and vulnerable citizens.  Plans for using the near-equatorial advantages of Cape York for launches have died in utero.

Even without looking at current Chinese policy or the result from the leadership of Al Gore, economic history is full of lessons about the impact of government-sponsored research on the wellbeing of nations.  England’s rise as an economic powerhouse was pushed along by Charles II’s creation of the Royal Society and instrument-making skills stimulated by the Navy’s lucrative prize for a decent clock.

The poms invested, got calculus and accurate technical instruments, then ruled half the world for a couple of centuries.

The major parties are clueless, and have no plans, otherwise, during this election, they’d be detailing long-term spending programs for R&D expansion by both government and business.

It seems our politicians are condemning us to the worst possible outcome as we face the choice of "adapt or perish", while Australians are even too dumb to say "Doh!"

Notes/See Also:

  • Thanks to Peter Martin for pointing to the interesting set of paper on the RBA – where I found a 1995 gem (after I wrote this post), The Determinants of Long-Run Growth by Steve Dowrick (1995, 41pp, decent bibliography) which included the following (my bolding):

    Romer has turned more of late to emphasise the public good nature of knowledge, rather than spillovers from physical investment, as the primary source of growth.  His 1990 paper presents a vivid image, particularly appealing to academic researchers, of investment in knowledge not only generating useful ideas for current production, but also aiding the generation of further knowledge.  Knowledge stocks increase through a continuous feedback loop which provides the economy with an ever increasing supply of blueprints for new products and processes.
    Many other models of endogenous growth have been proposed. Lucas (1988) and others have emphasised the role of human capital as a complementary input into production alongside physical capital.

    When it comes to research policy, it is much less clear what should be appropriate public policies for a relatively small population in a resource rich country.  Whilst feedback loops in the development of the world’s knowledge stock may well be the driving force behind much of what we loosely term technological progress, it is less evident that a country like Australia need be at the forefront of this knowledge creation.  A free-riding strategy might well be optimal. On the other hand, there is substantial microeconomic evidence that the ability to absorb appropriate knowledge does depend to some extent on maintaining one’s own research capability and research networks.  There appear to be compelling arguments that one important way of maintaining such a research capability is to facilitate cooperative research ventures and industry-wide research boards.


2 Responses to “Rudd fails Mandarin test”

  1. […] November 13th, 2007 — Dave Bath I’ve put a fairly large and significant postscript (not an edit) to my 2007-11-12 post Rudd fails Mandarin Test, after just reading a paper from a […]

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