State of Innovation

In discussions about markets and innovation, I’ve repeatedly made the point that the biggest single innovation of recent decades, the Internet, was not produced by markets at all. It started in the university sector (aided by a little seed money from the US Defense Department) and was developed by amateurs and volunteers for a couple of decades before it was handed over to the dotcommers, who proceeded to waste a trillion dollars or so on silly get-rich-quick schemes.

I’ve never had the time to go much beyond that, but a recent book, State of Innovation, edited by Fred Block and Matthew Keller takes a close look at the process of innovation in the US and the role of government funding. The key conclusion

over the last four decades, government programs and policies have quietly become ever more central to the American economy. From “basic research” to commercialization, the fingerprints of government can be found in virtually every major industrial success story of the late 20th and early 21st century.

At least in part, this reflects the disappearance of big corporate R&D outfits like Bell Labs, and the conversion of General Electric into a finance company. But there are lots more interesting details about the relationship between startups, venture capital and public funding. Well worth reading.

Canberra University stands up for academic freedom

Oz editor Chris Mitchell’s defamation action against academic Julie Posetti is so obviously baseless that his only hope can have been that Posetti would not have the resources to fight. Fortunately[1] Canberra University, where she works, has taken a stand in support of academic freedom, and is defending the action. The letter of reply to Mitchell’s lawyers, posted here, is good reading, including the observation

We note also that, while we appreciate that what is published in The Australian (of which your client serves as editor in chief) may not necessarily always reflect your client’s own personal views and is not determinative of the position, it is nevertheless somewhat telling that the “Media diary” article titled “The Posetti tapes” appearing in the online version of The Australian on 30 November 2010 suggested that the “Tweets are a fair summary of what Wahlquist said”.

The line of defence taken by the lawyers is the correct one of fair reporting of a matter of public interest, but I hope they also do discovery for a truth and public benefit defence – we might find out how it is that News Ltd journalists all know what line to take on so many issues.

fn1. One might suppose this to be a given. Sadly, plenty of corporate universities in Australist have done their best to stifle academics who annoy powerful interests, not to mention those who criticise their own administration.

A tender model for carbon pricing

My UQ colleagues Lynette Molyneaux, John Foster and Liam Wagner have produced a paper arguing for a Tender-Price Allocation Mechanism for reductions in carbon emissions. I haven’t had time to consider the proposal in detail, and I don’t entirely agree with the paper’s characterization of the ETS and carbon tax alternatives (I currently lean to the carbon tax, mainly because the CPRS ended up such a dog’s breakfast that it would be better to restart from scratch). But, I think it’s useful to look at all the alternatives.

Assessing Australia’s Declining Economic Growth: Guest post from Hannah McKale

I’ve been given the following guest post by Hannah McKale. Please discuss, remembering that the usual standards of courtesy and civilised discussion apply with extra emphasis for guest posters – JQ

The effects of the global economic crisis have been wide reaching and dramatic, having an impact on almost all industries, stocks, and housing prices in most developed nations. The fall of Lehman Brothers in September of 2008 was a predominant trigger of economic catastrophe, as it was a sign of just how tumultuous things had gotten in the financial markets. While it would take a degree from any of a number of political science schools to fully grasp the full range and depth of the economic crisis, it is easy to see that the tightening of credit markets, plummeting housing prices, and unprecedented uncertainty in the financial markets started on that cold day in September. As it spread around the world at a fast pace, it was clear that the economies of major developed nations are all intertwined and exert an enormous amount of influence on each other. By May of 2009, twenty-nine of the thirty OECD (Organization for Economic Co-operation and Development) nations were officially experiencing a recession, defined by two straight quarters of financial decline and negative growth. The 1 country that did not enter into a recession, and is experiencing growth at faster levels than all of the other OECD nations, is Australia. While Australia has experienced declines in certain areas of their economy, most notably during the December quarter of 2009, they immediately bounced back in the next quarter, (March 2010), holding off a full recession at a time when all of their economic peers were in the midst of one. It is worth asking the question: how is Australia remaining economically strong at a time of such widespread economic weakness and uncertainty?

Much of its solvency can be attributed to Australia’s ample mineral resources coupled with a lucrative trading partnership with China. While also in the midst of a recession, China’s manufacturing sector is growing at a break-neck pace, though it has slowed in recent months to a growth rate of 10.6%, down from a first quarter growth rate of 11.9%. However, growth statistics like these are enough to make US investors salivate, as US manufacturing output has been growing at a much slower rate of between 3 and 5% for the past 16 months. Australia is the number 1 exporter of iron ore to China, which translates to billions of dollars in revenue and hundreds of thousands of jobs. Australia took a proactive step against the initial financial crisis before it even hit their shores by passing a $42 billion stimulus package dubbed the Nation Building and Jobs Plan. This plan mandated that the money be used for road and rail maintenance projects, updating schools and technologically equipping them for the 21st century, and maintaining social housing projects. Before the Nations Building and Jobs Plan was passed, Australia’s GDP declined sharply by 5.88% in the 2008-09 fiscal year. The passage of this stimulus helped to raise Australia’s GDP by 2 ¾ percent in the 2009-10 fiscal year and looks to have been instrumental in another 1 ½ percent raise in 2010-11. Thus, Australia actually added 210,000 jobs when most nations were losing theirs by the millions.
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