THE OPPORTUNITY COSTS OF POOR PUBLIC POLICY

Reports suggest that the Australian taxpayer has provided some A$19 billion in financial support to the Australian automotive industry this last 10 years according to the Australian Productivity Commission and reported by Henry Ergas (Australian May 25th 2013).

This is government venture capital that should earn a return based upon its opportunity cost. If you were a venture capital or private equity fund manager investing over a period of ten years, you would expect to generate a portfolio of assets which have a return of several times the initial investment amount. Normally this is measured as an internal rate of return and/or a multiple of the original investment.

What did Australian taxpayers get in return for this investment? A truly independent economic analysis may not exist. Perhaps a Ph.D or Post Doctoral Fellow might give this a thought.
I last published in 1988 on such a topic when applying venture capital rates of return to publicly funded University research. Stirred up a hornets nest actually.

What could have Australia achieved with this quantum of venture capital? Probably 19 industries, all based on sectors where Australia and Australians do have some comparative advantages which could become sustainable, not from mineral wealth, but from human capital.

Australians do not generally understand the present economic arguments about "productivity". Most think it will mean working harder for less. Indeed, many people are experiencing declining standards of living as GDP and GSP per capita decline. That's what they feel and no one is providing leadership to demonstrate otherwise.

Productivity can mean working less, but a lot smarter. If there is going to be a replacement for economic activity from quarrying of resources, in what is a hollowed out economy, then some serious strategic thinking about the future needs to occur.

This will need to include the elimination of the present Federal government vilification of entrepreneurs and wealth creation and a return to the previous and productive environment where wealth creation based on innovation and entrepreneurship was encouraged by both mainstream political parties. Peter Beattie, the former Queensland Premier writes regularly on this topic. If there is no wealth creation, then there is less to distribute, and the whole population becomes poorer. This is happening in Australia today.

So what are these industries where there is the opportunity to create sustainable competitive advantage? What could we have had? All of these industries are labour intensive, not easily commoditised or replicated, and are high value adding, high reward industries. A$19 billion invested in accordance with venture capital criteria would go a long way to advance the economic and social wellbeing of Australians.

Here are 9 examples:

1. A world class venture capital industry, well funded, with the capital and skill sets to finance the next generation of Cochlear, Resmed, CSL, Vaccine and drug development start ups.

2. A world class arts sector, building on the magnificent success of the Queensland Art Gallery/Gallery of Modern Art in cultural tourism. This would include full sized orchestras, ballet, opera and theatre companies in each major city attracting higher paying international tourists from around the globe. Competitors to Berlin, London, Paris, St Petersburg and New York; Bayreuth and Glyndebourne. If we want to get away from the economic and social tyranny of low end volume based tourism, this is a strategy.

3. Astrophysics and the management of space, a scientific sector where geography and intellect combine to generate a national sustainable competitive advantage.

4. Clean energy from nuclear power for domestic consumption and for the servicing of nuclear fuelled ships. Baseload power to complement irregular power from solar infrastructure. Stability in energy input costs is fundamental to all manufacturing.

5. Research universities equivalent to Stanford or MIT, with the spin offs from them generating our own Silicon Valleys instead of exporting scientific and entrepreneurial talent to the US, Singapore, and other countries.

6. The built environment. With limited exceptions, people do not come to Australia for its built environment. The value of design and architecture is not a quality generally recognised in this country.

7. Embrace online merchandising of products and services. The quality of the internet today and the devices that allow access to it is such that the whole world is now the market place. Printing books was the precursor to the Renaissance and the Enlightenment in Europe. Similarly today, the internet enabled the "Arab Spring". This global shift in the sourcing and distribution of value added products can change the demand profile of most industries.

8. Medical and dental services and the provision of telemedicine internationally, and especially into growing and modernising middle classes in Asia.

9. The recent Federal Governments' "Asian Century" White Paper is "laudable", but "disappointing that it fails to discuss how Australians can engage more meaningfully with Asia"..." it needs to develop its comparative advantages - and an understanding and respect of Asian culture" says Mr Trevor Rowe one of Australia's leading business men with close links to Asia and to academia. (The complete article is found at Asia Today International authored by Florence Chong).

My own experiences in Europe & Asia demonstrate just how right Trevor is.

There is a whole new industry to be had, not only in language training but in the development of much deeper cultural and historical understandings. It is the combination of these which make for successful business engagement.

What Australia has at present is nostalgia masquerading as sound policy. Please send this blog to your Federal and State members of parliament. Ask them to explain the opportunity cost of their policies.

David Millhouse is an international entrepreneur with over 30 years in venture capital and private equity internationally. Based in Brisbane Australia he is a specialist in venture financing and capitalisation, as well as the management of high growth companies, many of which proceed to IPO. He has conducted business in the UK, Germany, Switzerland, USA, Canada, Singapore, Hong Kong, Australia and New Zealand. A scientist by original profession, with an MBA and LLM from Bond University in Australia. He is a trustee of Bond University, Australia’s premier private University, and was formerly a trustee of the Queensland Art Gallery/Gallery of Modern Art. There are 30 years of publications and media on his professional activities and he has had a stellar career at CEO level since 1983.

For personalised solutions to the issues raised in the blog, please contact Corpbuilders TM at www.corpbuilders.com.au