Overview & Comments

The study is divided into three parts,

• Part One is a literature review which canvasses alternative intellectual approaches to economic development, based on innovation and knowledge as the drivers of growth.
• Part Two assesses the shape, structure and dynamics of Australian industry against the factors associated with the "learning" economy, particularly innovation capacity, business linkages, management depth, use and transfer of technology and workforce skills.
• Part Three draws on the findings of the earlier parts and indicates some directions for public policy which all concerned with economic growth in Australia should urgently consider.

The study draws heavily on the work of the OECD on innovation-based approaches to economic development. The theoretical roots of this report lie in New Growth Theories, Strategic Trade theory and evolutionary economics.

The short-hand term we use is the "knowledge" or "learning economy", the features of which are an emphasis on the use and dissemination of information and technological progress as the basis for innovation, competitiveness and growth. The critical factor is a nation's ability to innovate and to do so on a continuing basis.

The research finds that economic success in the future is more likely with a pattern of economic activity and an industry structure that maximises innovation, learning, knowledge creation and dissemination. Firms in these economies are less obsessed with scale and cost, and more concerned about non-price competitive advantage gained from creative uses of information, technology, strategic linkages and skills.

Consequently, the policy challenge is to ensure that what we make and what we trade as a nation is well-represented in economic activity that is high return, knowledge intensive, high growth and globally competitive.

Part Two details a new way of looking at Australia's capability and performance, with particular regard to,
Industry Shares, Concentration and Linkages

• Skills, Employment and Wages
• Innovation Performance
• Trade Patterns

A selection of the main findings follow:

• Australia's manufacturing sector has contracted in relative terms at the fastest rate across the OECD economies and it seems Australian manufacturing is in general not gaining employment in industries with higher R&D intensities, contrary to OECD trends.
• The linkages within and between industries in our economy are shrinking, a trend inconsistent with the characteristics of an innovative, learning economy.
• There appears to have been little net increase in value-adding to our natural resources since the mid 1970s.
• Many of Australia's industries are increasingly concentrated, with already 0.4% of businesses employing nearly 40% of all workers. The position of SME's versus large firms is likely to deteriorate in the absence of greater networking and use of cooperative arrangements, and wages and working conditions in SME's are likely to come under increasing pressure.
• Australian business R&D expenditure is below OECD averages but has grown faster than the OECD countries since the introduction of the 150% tax concession. Most R&D take up has been in the medium-low and low-tech sectors of manufacturing. Australia's services sector R&D rates highest in the OECD.
• Australia's overall internationally poor R&D performance is largely the result of our industrial structure which is concentrated in low-tech industries.
• Manufacturing has been measured as one of the most innovative sectors of the economy. Innovative firms tend to show better performance in sales and export growth.
• Australia's trade structure has serious built-in negative biases, like our poor and deteriorating terms of trade, costs of investment in productive equipment imports, etc.

There are 10 policy pathways for Australia if we wish to take the high road not the low road. These are:-

• Acknowledge the importance of the structure of the Australian economy.
• Integrate trade and industry policies.
• Shift the economy towards greater knowledge and innovation intensity.
• Improve cooperation and linkages.
• Target key productivity drivers.
• Ensure programs are performance-based.
• Build global distribution channels and capability.
• Invest in education and research infrastructure and training.
• Focus public policy and private sector attention on innovation and knowledge as the bases of competition.
• Deal with real industries and their dynamics.

Table of Contents

SUMMARY REPORT: Table of Contents

Background
Introduction

Part One: Economic Growth in Modern Western Economies

Theoretical Background

• The Neoclassical Approach
• The Evolutionary Approach

The New Economy

• Learning Economies
• Learning Firms
• Networking
• National Innovation Systems
• The Importance of Industrial and Trade Structures
• Summary of the Main Points From the Literature

The Importance of Industrial and Trade Structures
Summary of the Main Points From the Literature

Part Two: Australia in a High Tech World

Australia's Industrial Composition and Linkages
The Role of Manufacturing
Industry Concentration
Cooperation and Networking
Industrial Structure and Input-Output data
Human Capital: Skills, Wages and Employment
Management Skills
Scientists and Engineers
Trainaing
Employment and Wage Trends
Australian Industry Innovation
R&D Expenditure
Other Innovation Measures
Productivitiy Growth
Australia's Trade Patterns
Summary of Australia's ProblemsPart Three: The Way Forward

Path One: Acknowledge the importnace of the structure of the Australian Economy
Path Two: Integrate trade and Industry policies
Path Three: Shift the economy towards greater knowledge and innovation intensity
Path Four: Improve the operation of business networks
Path Five: Target key productivity drivers
Path Six: Ensure programs are performance-based
Path Seven: Build global distribution channels
Path Eight: Invest in education and research infrastructure and training
Path Nine: Focus attention on innovation and knowledge as the bases of competition
Path Ten: Seal with real industries and their dynamics
Concluding Remarks

Figures and Tables

Figure 1 Percentage Change in Manufacturing Share of GDP, Various OECD Countries, 1970-90
Figure 2 Industry Employment Growth 1985-95 v. Industry Innovation Propensity
Figure 3 Industry Employment Growth 1985-95 v. Industry Wage Rate
Figure 4 Industry Employment Growth 1985-95 v. Industry Training Commitment
Figure 5 Industry Employment Growth 1985-95 v. Industry Productivity
Figure 6 Australian Business R&D as % GDP
Figure 7 Australian Machinery & Equipment Investment as % GDP
Figure 8 Change in Equipment Capital Stock* per Worker 1965-90
Figure 9 Non-Manufactures Trade Surplus v. Manufactures Trade Deficit % GDP
Figure 10 Australian Manufacturing Trade Balance by Knowledge Intensity (% GDP)
Figure 11 Manufactures Trade Deficit by Technology Classification Various OECD Countries, % GDP, 1992

Table 1 Growth in Australian Employment by Beoad Occupational Group, 1986-96

FULL REPORT: Table of Contents

Part One Dynamics and Capabilities of Modern Western Economies

Introduction
Chapter One: Summary of Traditional Approaches To Economic Growth and Trade

1. The Traditional Growth Model
2. Problems with the Traditional Model
3. New Neoclassical Growth Theories
4. Implications of the New Growth Theories for Public Policy
5. Limitations to New Growth Theory Approaches
6. Classical & Neoclassical Theories of Trade
7. Problems with the Standard Trade Models
8. Strategic Trade Theory
9. Conclusions

Chapter Two: Innovation-Based Approaches to Industrial Development

1. Background
2. Evolutionary Analysis
3. Models of the Innovation Process
4. Conclusions

Chapter Three: Knowledge Generation, Diffusions and Use

1. Background
2. Networked Nations
3. The Generators of Innovation: Firms & their National Support Systems
4. Path Dependence, Cumulative Change & Industrial Structure
5. Conclusions

Chapter Four: The Learning Economy

1. Background
2. Knowledge & Learning
3. Complementary Assets
4. Learning & Management
5. Knowledge Distribution Power
6. Technological Infrastructure
7. Conclusions

Chapter Five: Internationalisation & Human Resources

1. Trade Liberalisation and the Learning Economy
2. Human Resources: Knowledge, Employment & Wages
3. Conclusions

Chapter Six: Conclusions: Industrial Structure & the Learning Economy

1. The National Level
2. The Industry Level
3. The Firm Level
4. Moving to a New Economic System
5. Where to Next?

Part Two Australia in a High Tech World

Introduction
Chapter Seven: The Industrial Structure of the Australian Economy

1. Industry Shares
2. Employment Shares
3. Cooperative Business Linkages
4. User-Producer Relations
5. Industry Concentration
6. Conclusions

Chapter Eight: Human Resources: Skills, Employment & Wages

1. Management Skills
2. Science Skills
3. Employee Skills, Wages & Employment
4. Conclusions

Chapter Nine: Australian Industry Innovation

1. Business Research & Development
2. Other Measures of Innovation
3. Innovation and Firm Performance
4. Australian Innovation Compared
5. Australian Productivity Growth
6. Machinery & Equipment Investment
7. Infrastructure
8. Human Resources Management Programs
9. Conclusions

Chapter Ten: Australia's Trade Patterns

1. Trade and the Learning Economy
2. Australia's Trade Patterns Described
3. Australia's Trade Patterns in a 'Learning Economy' Context
4. Conclusions

Part Three The Way Forward

Chapter Eleven: Policies and Pathways
Pathway One: Acknowledge the importance of the structure of the Australian economy
Pathway Two: Integrate trade and industry policies
Pathway Three: Shift the economy towards greater knowledge and innovation intensity
Pathway Four: Improve cooperation and linkages
Pathway Five: Target key productivity drivers
Pathway Six: Ensure programs are performance based
Pathway Seven: Build global distribution channels and capability
Pathway Eight: Invest in education and research infrastructure and training
Pathway Nine: Focus public and private sector attention on innovation and knowledge as the bases of competition
Pathway Ten: Deal with real industries and their dynamics

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