San Francisco 

Does Australia have the stomach to do what it takes to fully engage in the emerging knowledge-based industries?

Or will it be satisfied to continue to be a part-time player, continuing to be happy to be perceived as a resource and agricultural economy in international markets?

Implicit in much of what leading San Francisco-based venture capitalist David Blumberg had to say in a lengthy interview with the Australian Business Foundation is his view that Australian business leaders and policy makers do not yet understand just how tough the new world economy is. See article: Blumberg Interview.

Blumberg was brought to Australia this year as part of a capital city "roadshow", organised out of Austrade's San Francisco office, because of his experience in backing successful Israeli start-up companies launching themselves onto the world stage. He sees many parallels with Israel at the time that country began its remarkable transformation into one of the leading information industries-based economies in the world.

He is heartened by the fact that Australia is starting to try to emulate the efforts of Israel, Singapore, Ireland and other countries that have sought to rebuild their economies, based on encouraging emerging knowledge-based industries. He has good things to say about the Investment Innovation Fund initiative to kick-start a domestic venture capital industry, for example.

Cause for optimism for Australia? Sure. But behind Blumberg's unfailingly polite remarks are some less than flattering observations. He feels compelled to lecture us on the freezing effect capital gains tax has on venture capital. Simple logic, given that venture capitalists seek to make money not from dividends but from equity growth, but Blumberg was in Australia long enough to realise that this message is not sinking into policy-makers' heads.

There is no excuse for the Federal Government to have missed the message. Some of the most respected policy researchers and some of its own most senior policy advisers have been complaining since last year that no venture capital industry will take off in this country until US pension funds have their tax-exempt status recognised when they invest together in Australia through limited partnerships. The advocates of the change include the recently resigned chairman of the Industrial Research & Development Board, Dr Terry Cutler, former Industry Department secretary Dr David Charles, the Information Industries Taskforce chairman Prof Ashley Goldsworthy, the Australian Venture Capital Association and even two Cabinet ministers, Industry Minister John Moore and Communications and Information Industries Minister Richard Alston.

With all of this information available it is surely a matter of time before the change is made. But the fact that there has already been 18 months of unrelenting lobbying to get this far says much about the isolationist - if not jingoistic - outlook that continues to pervade much of Australia's industry policy.

Blumberg also issues a veiled rebuke to the business leadership, questioning whether they understand or are willing to accept that the old ways of doing business are unsuited to the emerging industries and the talented people on which they rely - people with piercings, ponytails and jeans in the office.

Israel, he points out, had to make the same cultural transition. But it also faced a far more hostile world environment - surrounded by potentially aggressive neighbours, a diplomatic pariah to many, and became a nation only in 1948. As many Australian businesses have discovered in the past 20 years, fearing for one's survival can be a great motivator for change.

Does Australia yet feel that fear? Is it ready to put its money where its mouth says it would like to go? As Blumberg points out, Australians enjoy a lifestyle the envy of the world, and it is quite legitimate for people to take that into account when they make choices about their business lives. But that is a trade off - familiar comfort for future wealth creation.

Ultimately, for people such as Blumberg, it doesn't really matter what Australia as a nation decides to do. He has confidence in the younger generation of Australians that is growing up immersed in the products of new industries. They will have the ideas and ambition, Blumberg says, but will be global enough in outlook that they won't feel constrained to realising it in Australia, but will go to somewhere more hospitable if that is what they think is required.

Whether they base themselves in Australia or go to Silicon Valley, they still present potential clients for his business. But they may well be emigrants Australia can ill afford to lose.