Speech
Australian Minister for Trade, Mark Vaile
The Economist Intelligence Unit
Canberra, 31 October 2000
Australia and the Knowledge Economy
Introduction
Thank you ladies and gentlemen. It's good to be here to speak to The Economist Intelligence Unit.
I'd like to talk about the growing importance of knowledge-based industries to Australia's future.
The knowledge economy
Let's begin by clarifying the terminology involved.
I regard a knowledge-based economy as one directly based on the production, distribution and use of knowledge and information. It encompasses the exploitation and use of knowledge in all production and service activities; not just those sometimes classified as "high-tech" or "knowledge-intensive".
The OECD has developed a set of indicators of a country's readiness to move towards a knowledge-based economy. These are business environment, information and communications technology, innovation systems and human resource development.
Knowledge-based industries include a range of services such as education, financial and other business services and communications. They also include high-tech manufacturing and emerging industries such as such as biotechnology.
On the basis of these definitions, Australia is already doing well as a knowledge economy. We are rated above the OECD average for most of the indicators of readiness to move towards a knowledge-based economy. And the contribution of knowledge-based industries to GDP is 48% for Australia, indicating that we have already, to a considerable extent, a knowledge-based economy. We are placed just behind Canada at 51% and ahead of Korea at 40%.
Let's also dispel the myth: Australia is not a resources based economy and hasn't been for at least 10 years. Services now account for 70 per cent of the Australian economy, manufacturing 13.3 per cent, mining 4.6 per cent, and agriculture only 3.4 per cent. Services exports are also an important indicator of progress towards a knowledge-based economy. Australia's exports of services reached $28.3 billion in 1999-2000, 23 per cent of total exports. Second only to manufacturing with 46 per cent. Mining and agriculture account for 18 and 9 per cent respectively.
Services export growth, at 11.2 per cent over the last decade, has outstripped that of manufacturing (9.4 per cent), mining (5 per cent) and agriculture (3.3 per cent). As The Economist itself has reported, the share of commodities in Australia's total exports has declined from two-thirds 15 years ago to a quarter now, and it continues to fall.
The growth in our education exports, for example, prove this point. Since the late 1980s, education services have grown to become Australia's eighth largest export earner, generating $3.3 billion in 1999-2000. This figure exceeds the value of our wool exports and is considerably greater than those for passenger motor vehicles and wine.
Services industries also underpin our export efforts in other areas. Exporting wheat or minerals is not only about a world-class quality Australian product; it is also about the efficiency of the services underpinning that product - the distribution and logistics services, the research and design services, and the financial, communication and business services that make the export transaction possible.
The "old" and "new" economy debate
This reality leads me to the "old" versus "new" economy debate.
There has been some discussion recently about whether Australia is "old" economy or "new" economy. This debate has not always been conducted in clear terms. I suggest that these developments are not mutually exclusive. We should really focus on the way in which information and communications technology is helping to make "old" industries like mining and agriculture so efficient. I'm pleased that some opinion leaders such as have taken the view that the principal beneficiaries of the technologies of the so-called "new" economy are likely to be "old" economy firms. By many measures, the Australian economy is at the forefront of capturing opportunities associated with the new wave of productivity gains offered by the Internet and electronic commerce.
There is a tendency to exaggerate the significance of some indicators in this debate. For example, the recent IMF comment in its World Economic Outlook, that "production of IT equipment in Australia is a small share of total output" received undue attention, to the exclusion of other, more important factors.
In fact, Australia's exports of information technology and telecommunications hardware are significant - $2.5 billion in 1999-2000 - and allied It services generated an additional $2.4 billion in exports in 1999. There are numerous highly capable Australian IT firms that are making their mark in this global industry. Companies such as Keycorp and SecureNet are winning contracts in Asia, North America and Europe to supply e-commerce and smartcard platforms. ERG Transit Systems has developed the world's largest integrated contactless smartcard fare collection system in Hong Kong, known as Octopus. And through its alliance with Motorola, it has won major smartcard-based fare collection contracts in Berlin, the Netherlands, Rome, San Francisco and Singapore.
While we can be proud of Australia's production and exports of IT products, it is a misconception to regard IT high-tech manufacturing as the defining feature of a knowledge or "new" economy.
The application of IT to improve productivity in all sectors of the economy is vital. Significantly, the same IMF report that I have quoted from also finds that IT spending as a share of GDP is extremely high in Australia-in fact, second in the world.
Investment house Goldman Sachs - which will locate its Asian venture capital centre in Sydney - has reported that, after outperforming the U.S. on productivity gains in the nineties, a ''highly tech-literate'' Australia is likely to benefit more from ''new" economy factors over the next 10 years. Goldman Sachs expects Australia to catch a second wave of productivity gains, with up to 0.8 percent annual growth coming from IT-related developments.
The information technology revolution
The changes generated by advances in information technology will change how people around the world do business, and it is mastery of them which will help us to prosper in the increasingly globalised world economy.
The impact of new technologies on production, management and marketing is well documented. Just about every area of business activity has benefited from computerisation, and these benefits flow on to consumers in the form of higher quality goods and services at a lower price.
The most noticeable impact on business, however, has been the rise of e-commerce following on from the rapid expansion of the Internet. The latest set of statistics released by the National Office for the Information Economy show that Australians continue to embrace the emerging digital information economy. With adult Internet usage at 43 per cent, Australia ranks as a world leader, behind only Norway, the United States, Iceland and Sweden. Young Australians aged 12 to 24 rank even higher at 82 per cent, behind only the United States. More than 740,000 Australian adults shopped online in the 12 months to February 2000. 74 per cent of them paid online, equal to the United States.
I note that The Economist Intelligence Unit international e-commerce readiness rankings don't place Australia as high as these leading indicators would suggest. I hope that, when the next rankings come out, they reflect some of the statistics published since the EIU report was released and some recent developments in areas such as broadband access.
E-commerce has great potential for Australian exporters, opening a window to the world at very low cost. This is of great value to small and medium-sized enterprises. E-commerce also reduces geographic disadvantage, helping to place firms in regional Australia on an equal footing with those in our capital cities.
Let me give you an example. Goundrey Wines is a small Western Australian wine producer located some 400 kilometres south of Perth. The company has adopted a Web-based marketing strategy that allows customers to order and pay for wine online, from the company's home page. Some 10-15 per cent of the company's production is now exported to markets in the UK, US, New Zealand and Asia, to customers who otherwise would have remained outside its reach. In this way, a small firm, that because of its geographical location may once have struggled to realise cellar door sales to customers from Perth, can now market itself across the globe.
The same story is being repeated all over Australia.
This is not to say that the Internet is all blue sky for SME access to new markets. Many sectoral global e-commerce exchanges have emerged which one day might dominate international trade and generate new market opportunities. However, the opportunities will not come for everyone if their search engines don't find smaller companies. It is also unclear how they will impact on long-term strategic relationships between buyers and suppliers.
These are some of the issues my department is currently examining in a study of medium-term strategic trade issues. There are no easy answers, and the more information gathering and debate that occurs, the better. In this context, I welcome the CEO e-commerce project of the Business Council of Australia, which among other things will examine global trade issues. I look forward to the project's report early next year.
The Government is moving to help Australian businesses reap the full potential of new export opportunities through e-commerce.
In my portfolio, Austrade is responding to the information economy through a number of initiatives. It has spent considerable energy over the past year looking at the needs of exporters and investors.
In early 2001, Austrade will launch a new web site that will include more resources for Australian exporters and give them a higher profile online.
Austrade has also appointed an Internet Adviser, based in Sydney, who will make sure that clients get the best possible advice on exporting via the Internet and competing in cyberspace. Another important aspect of this role is designing and implementing systems that are responsive to the needs of online clients.
Beyond these changes, Austrade is also going out to Australian business and helping them get online and export online. It has held a series of workshops around Australia called "E-Commerce for Exporting," which targeted companies from across the economy. They highlighted the costs savings that the Internet can bring to companies that have an online presence.
Building on Australia's natural strengths
The Internet and e-commerce are creating new opportunities, providing an export platform for our knowledge-based industries in areas such as engineering, education and financial services. The Resource Service Group (RSG), founded in the goldfields of Western Australia in 1987, delivers mining services online in a big way, deriving some 70-75% of its revenue from exports. At its headquarters in Perth, it develops, analyses and models data which it transmits electronically to customers in a range of countries including Ghana, Romania, PNG, Indonesia and Thailand.
Some of our leading knowledge-based companies have emerged from the provision of services to "old economy" industries. Mincom, for example, has done great things on the IT side of mining. Starting life in the late 1970s by developing mining and exploration software, Mincom now provides enterprise applications solutions for capital asset-dependent organisations in sectors such as transportation, utilities, defence, government and mining. Its international customers include the Chilean Navy, Durban Metro Electricity and the Hong Kong Mass Transit Railway Corporation.
Innovation
The Government, like the companies I have mentioned, is aware that now, more than ever before, innovation and technological change are at the core of economic activity and one of among the most important drivers of economic growth.
Despite industry receiving over $500 million per annum through the R&D tax concession and over $150m per annum through R&D START grants, Australia could further improve its performance in research and development. The Government is aware of the need to work with industry and the education and research communities to boost innovation. My colleagues Senator Minchin and Senator Kemp are developing an Innovation Action Plan.
The prominent US commentator, Lester Thurow, Professor of Management and Economics at MIT, has characterised the present phase of the world economy as a new industrial revolution, combining technological change and the emergence of a global economy. In his words, "skills and knowledge have become the only source of sustainable long-term competitive advantage. Intellectual property lies at the centre of the modern company's success or failure."
The advent of the Internet means that the infrastructure exists for knowledge to move faster and more cheaply than ever before, without regard to national borders. So the emerging knowledge-based industries are intrinsically global.
In these circumstances, Australia must look to mechanisms to help ensure that the new global economy runs as freely and smoothly as possible. Foremost amongst these is the World Trade Organisation.
Improving the international trading environment
Experience has shown that broad-based multilateral trade negotiations, such as those facilitated by the WTO, are the best way to deliver more open markets and a more predictable trading environment. Agreed, binding rules, consistently applied by trading partners and subject to the WTO's dispute settlement procedures, are vital for medium-sized economies such as Australia. Australia is working constructively towards the launch of a market access-focused round centred on services, industrials and agriculture as soon as possible
In the meantime, the services negotiations now underway in Geneva offer us an opportunity to seek a greater level of liberalisation and to develop further the international trading system for services.
We expect the services negotiations to cover issues directly related to the knowledge-based industries, such as further deregulation of telecommunications and financial services.
We are aware of the need to integrate e-commerce into the General Agreement on Trade in Services framework in a balanced and effective manner. Australia's fundamental position is that e-commerce is a form of commerce like any other. The GATS at present is technically neutral and makes no distinctions between services delivered electronically or otherwise. It should remain that way.
Given that intellectual property is the fuel that drives knowledge industries, Australia places maximum importance on protecting our intellectual property in export markets. The harmonised international intellectual property system, fostered by the advent of TRIPS, helps sustain Australia's high-value exports. We are playing an active role in the TRIPS Council to ensure its effective implementation. My Department is also working in the World Intellectual Property Organisation to further Australia's interests in this area.
We are also working in regional forums like APEC and at the bilateral level to create further market opportunities for knowledge-based industries. For example, my department and Austrade recently led a successful trade mission to Singapore to promote Australia's information technology skills in the delivery of education services.
Conclusion
We should not look at the new dynamic shaping the Australian and global economy through a prism of defining parts of our economy as "new" or "old". Instead, we should continue to improve our competitive advantages, , think globally and continue to develop a strong exports-orientated business culture.
Australian enterprise must be supported by government polices which provide the essential framework for a globally competitive modern economy. The Government's reforms in the taxation, labour market, financial sector and foreign investment areas have helped create the necessary conditions for Australian companies to take advantage of the opportunities offered by the global economy. We will also continue to work for the improvement of the international trading environment at the bilateral, regional and multilateral levels.
In the spirit of the information economy, I invite you to treat my speech as interactive and seek your interpretation of these developments and their possible implications.
Local Date: Saturday, 22-Nov-2008 06:37:54 EST