My speech at the recent CapTech 2022 Conference on the topic of Technology, Innovation and Capital

The Hon Paul Fletcher MP

Address to the Global Tech, Innovation and Capital Summit

(CapTech 2022)​, Sydney

Tuesday 18 October 2022

Introduction

It is a pleasure to speak at CapTech 2022 – with the theme of ‘Empower Your Future in the context of technology, innovation and capital markets’

As Shadow Minister for Science and the Digital Economy, I am very pleased to welcome delegates and offer my perspectives. 

Today I want to speak about the importance of innovation; policy settings to encourage innovation; and the critical role of the private sector, markets and capital allocation in fostering innovation and turning it into products and services which benefit millions and even billions of people.

Importance of Innovation

Let me start with the proposition that technological innovation is key to growth in prosperity, and improvements in quality of life. This is obvious when we think about the way that key developments in technology have in turn driven rapid improvements in living standards.

Consider the industrial revolution – driven initially by steam power – in the eighteenth century. Then there is the arrival of electricity in the second half of the nineteenth century. You can look at the development of information and communications technology over the last forty years, including the arrival of computers after World War II, the rise of the internet from the mid-1990s and the growth of the smartphone from 2007. 

Most recently we have seen the huge benefits to humanity in the response to COVID, including in particular the rapid development of vaccines.  This was nothing short of a scientific and technological triumph.

There are great examples here in Australia of which we can be proud. Cochlear was established around 40 years ago to develop, make and sell  cochlear implants.  This was a product invented in Australia by surgeon Prof Graeme Clark and his team at the University of Melbourne.

Cochlear went from start-up status to being a major ASX listed company with a strong global market share in the hearing implant category, and market capitalisation of  $12 billion.

Seek was founded in 1997 and became a top 100 company. Today its market cap is $7 billion.  Atlassian was founded in 2001, and now has a market cap of $48 billion.  Canva began in 2013, and today is valued at over $30 billion, even after recent market gyrations.

Globally, companies such as Amazon, Apple, Alphabet Inc, Microsoft, Samsung and Tencent have achieved extraordinary growth very rapidly through developing and bringing to market new technology.

We can point to whole countries which have seen very strong growth associated with companies developing and selling innovative technology. Israel and Singapore are two which come to mind.

Thanks to technology, whole categories exist today which did not 30 years ago. Consider streaming video, mRNA vaccines, drones, low earth orbiting satellites and additive manufacturing.

A key feature of innovation is its cumulative impact. A few years ago the then CEO of Cochlear, Chris Roberts delivered the JJC Bradfield Lecture at my request on the topic of innovation. He observed:

The other important lesson from the history of science is that progress is more often than not made by step by step building on what has gone before, over long time frames.

One good example is the arrival of the smartphone.  This brought with it the app ecosystem – which in turn brought many subsequent innovations delivered through apps. 

Another example is the way that the arrival of the internet in turn brought new innovations.  As narrowband was replaced by broadband, we saw the arrival of streaming video.  Netflix initially, famously, was a service to mail out DVDs to subscribers but they found a much better way to do it by delivering video over broadband.

A third example is the way that smart manufacturing is spurring extraordinary innovation in healthcare through the printing of replacement body parts.

The economy wide consequence of innovation is higher living standards.  Innovation drives overall economic growth and it creates jobs. Start-up businesses are disproportionately generators of jobs. From 2006 to 2011, 1.4 million Australian jobs were created by firms less than 3 years old.

Innovation has been a key factor behind the extraordinary growth in global wealth over the past two decades.  Global GDP almost tripled, from USD 34 trillion in 2000 to 96 trillion by 2021– over a period when global population rose by about a third. 

Policy Settings to Encourage Innovation

Given the economic importance of innovation, it is little wonder that governments everywhere have a strong focus on policies to boost innovation. Let me mention some of the policy priorities in this area that our Liberal National Government pursued over the last nine years.

The first was to fund and support fundamental scientific research. In 2020-21 Australian Government spending on science reached $11.9 billion.  As Shadow Minister for Science I have been visiting some of our leading scientists who are putting this money to very good use.

Former Australian of the Year Michelle Simmons & her team at the University of NSW are doing ground-breaking work on developing a quantum computer.  At RMIT University the dynamic husband and wife research team, Professors Sharath Sriram and Madhu Bhaskaran, jointly founded and lead a team in 'Functional Materials and Microsystems’ aimed at creating better health and technology outcomes.

John Rasko and his group at the Gene and Stem Cell Therapy Program at the Centenary Institute in Sydney are doing remarkable work in this exciting field – which today means that somebody suffering from a dangerous disease like haemophilia can effectively be completely cured.

A second priority for us was to support the commercialisation of research. Our March 2022 Budget committed $1.6 billion to kickstart Australia's Economic Accelerator, a competitive funding program to support research projects with high commercial opportunity.  

Thirdly, we delivered critical enabling infrastructure like the National Broadband Network. By the time we left office there were 8.4 million premises connected to the NBN across Australia.

A fourth priority was immigration policies to help attract the most talented people from around the world. It is no accident that many of the outstanding scientists I have been meeting have come from other countries and chosen to make Australia their home.

Fifth, we had a big focus on making it more commercially attractive to invest in innovative and start-up businesses.  Our 2016 National Innovation and Science Agenda created more attractive tax settings for early-stage venture capital limited partnerships (ESVCLPs), and tax breaks for early-stage investors in innovative start-ups.

The Coalition remains strongly committed to policies to build Australia’s digital economy. One important area of opportunity is to build Australia’s digital games sector. In government we committed to a 30 per cent tax offset for digital games, a sector in which Australia is significantly underweight.  The new government has not yet taken this forward and it is essential that they do so. 

In government we committed to Australia becoming a top ten digital economy.  We needed a clear and measurable goal – to attract the right people and to drive the right activities. And of course we also needed to stake Australia’s claim in the face of intense global competition.

Singapore has enacted broad measures to attract and boost start-up companies, Israel is a leader in defence, water and communications technology, Estonia leads on digital delivery of government services and the UK has a big focus on fintech.  The US and China have enormous scale in both fundamental research and in the commercialisation of technology.

Given this intense competition, in office the Coalition also recognised the opportunity for Australia to leverage its strengths.  Our economy has big, efficient, world class sectors like mining, agriculture and retirement savings – in turn it is no accident that we have very capable digital businesses serving these sectors.

Our government therefore had a clear strategy to develop Australia’s digital economy.  In contrast, the current government’s commitment appears much less clear. 

Indeed the risk is that the digital economy will be harmed by Labor’s preference for more regulation and higher taxes.  Minister Burke has called the gig economy – companies like Uber and Airtasker and Freelancer – a ‘cancer’.  He is seeking to impose onerous new workplace rules, even though many Australians value the opportunity to work flexibly when it suits them.

The recent Jobs & Skills Summit proposed changes that will make it harder, not easier, for tech companies to attract international talent in areas of skills shortage like coding and user experience and project management.  And Minister Husic is working to impose union controls on our tech industry.

Private Sector, Markets and Capital Allocation

Let me turn from government policy to the critical role of the private sector, markets and capital allocation.  Without these engines of innovation firing, we will have a flat and unremarkable economy.

Of course a necessary element of innovation is the detailed work to develop the technology or discover the science. But for innovation to deliver benefits to millions or billions of people it needs to be crystallised into better products and services which better meet customer needs.

That requires serious business capabilities to market, sell, distribute and improve the product or service.  A good example is the successful COVID vaccines. Several were developed by smaller companies or researchers.  But to get those vaccines into the arms of billions of people took the manufacturing and distribution capacity of big pharma companies.

Let me touch on the critical role of angel investors, venture capital and private capital more generally. Thanks in part to the policy initiatives of the previous Liberal Government which I mentioned, the venture capital and private equity industry in Australia has grown strongly.

Cambridge Associates reported last year that some $30.3 billion of capital has been raised to date.[i] The latest KPMG Venture Pulse report shows first quarter 2022 venture capital deals in Australia were worth $1.919 billion, the second biggest quarter ever, and second quarter 2022 at $852 million.

The KPMG report also highlights the dramatic change in scale from just eight years ago.  The average across the four quarters in 2014 was only $103 million.[ii]

Turning innovative ideas into commercial success and long-term prosperity is all about private sector investment.  This is the vital role of the people in this room and participating online in this important forum.

To be a country where such investment flourishes, there are important conditions you need to meet, including:

• Strong property rights and fair and accessible dispute resolution.
• A regulatory framework encouraging competition so that disruptive businesses can build their market positions without being crushed by regulatory and other barriers orchestrated by incumbents with close links to government.
• Talented, creative and entrepreneurial people, working in both start-up and established businesses.
• An ecosystem in which capital can be raised, deployed and generate a return in businesses established to bring to market innovative products and services.

Conclusion

Governments, then, cannot build a vigorous innovation economy by themselves.  There are clear enablers that Government can deliver – and certainly this was focus for our Liberal National Government.

But much of it depends on the drive and spirit of people like those in this room.

So I congratulate the organisers of the CapTech 2022 global summit and I wish all participants a constructive and fruitful participation.

I hope many deals result from the connections made here.

 

 

[ii] Australian Private Equity and Venture Capital – Looking Past the Pandemic (aic.co), https://aic.co/AIC/AIC/Articles/Blog/2021/08-August, downloaded 18/10/22

[iv] Venture Pulse Q2 2022 (assets.kpmg), downloaded 18/10/22