Cyberdemocracy and Australian IT
(Identity and democracy in the knowledge nation)
Senator Kate Lundy
Opening Address COMDEX 99 Conference
Darling Harbour, Sydney.
Australia
17 November 1999
Introduction
Cultural identity in a globalised world
The knowledge economy
Connectivity and social justice
Bandwidth and innovation
Learning from others
Strengthening our entrepreneurial landscape
Electronic Commerce and digital intangibles
Conclusions
Introduction
Ten days ago the CBS world news in the US ran a story that carried this headline:
“Australia Vote Keeps Monarchy: Rejects Referendum To Make Country A Republic
The UK tabloids pegged Australians as cowards.
Ten days ago Australians gave away one of the greatest chances to build a fresh, dynamic presence in the knowledge economy and the global community.
More than anything else, the republic referendum was about the future, an opportunity to establish Australia in the eyes of the world as a nation state capable of active and effective participation in a the global economy. Regardless of the issues the referendum campaign was fought upon, the result has meant Australia has given the impression we lack vision, courage and pride as a nation.
If your attitude remains one of ambivalence towards how Australia is perceived by others around the globe, then I would suggest that you are yet to come to terms with globalisation.
Living with globalisation means that not only does Government have to be diligent in managing an economy within the fickle, deregulated international money market, but the Government must also be equally diligent in managing our cultural identity. To use a corporate analogy: you can have the best CFO in the world, but if your marketing division is asleep ‘brand Australia’ goes no-where.
Like many developed countries, the prevailing wisdom has been that the concept of the nation state is breaking down as the ubiquitous internet creates opportunities for new interests to align across old borders. However this attitude fails to recognise that the actual unit in the international community of nations is still the nation state. It is just that the identity of the nation state will be defined far more by cultural identity than by economic identity. It is the economic identity that will diminish relative to other identifying features.
I would like to share the story of just one nation state struggling with its social, cultural and economic identity in the final moments of the second millennium.
Australia arrives at this point with incredible strengths, and unfortunately some significant weaknesses. Government has a specific role to continually analyse the situation and create a policy framework that will make the most of our positive attributes and shore up our vulnerabilities.
I would like to explore the distinction between cultural and economic identity, and how the treatment of each will contribute significantly to Australia’s capacity to progress and grow in the next millennium. I would like to conduct my own brief SWOT analysis and finally reflect on the implications for democracy in an age where the internet’s ubiquitous presence and continuing evolution is reshaping society.
Cultural identity in a globalised world
The definition of globalisation I find most comforting is that of ‘democratisation of technology’, courtesy of Thomas Friedman. However, despite the rosy connotation that accompanies such a definition, this in no way means that somehow globalisation makes technology democratically accessible.
The ‘democratisation’ that has occurred comes after years of computer hardware getting smaller and more powerful, software becoming user friendly and compression of digital information. In a technological sense, becoming digital enabled globalisation, because being digital meant a common standard for the distribution of data, be it in, voice, text, applications, graphics or moving image form.
All these technological developments culminated in the commercialisation of a world wide network capable to exchanging of digital information – the internet. ‘Democratisation’ in this context simply means more people could potentially access the internet.
As a result a world where communications and relationships were previously defined in terms of proximity, has now metamorphosed into a world where distance is merely a question of bandwidth. The capacity to participate in this world, this knowledge economy, is therefore determined by internet access. For technology, epitomised by the internet, to be become democratically accessible, universal connectivity must ascend in political priority.
Accompanying, or perhaps as a result of the shrinkage of the world in communication and information terms, political and economic relationships are continuing to change and adjust to the global environment.
The Internet has enabled unprecedented rates of change in the social, political, economic and cultural spheres. It has redefined the empowered citizen and the nation state. Globalisation is most often the term used to describe the symptoms of the depth of change enabled by the internet.
Thomas Friedman, in his book ‘The Lexus and the Olive Tree’ says ”
Today’s era of globalisation is built around falling telecommunications costs – thanks to microchips, satellites, fibre optics and the Internet. These new technologies are able to weave the world together even tighter.”
Whilst Australia’s pre-occupation with the end of the Cold War is far less than others, the implications are still significant. First and foremost is has meant that once and for all there should be no illusion that political decision making is somehow distinct from prevailing market forces. Governments, individually and as participants in international communities will continue to guide the structure of modern society.
Secondly the role of governments as technological drivers in a market economy are no longer expressed almost singularly through expenditure on defense-related research, development and deployment. Instead investment should be spread across innovation industries, including information technology and bio-technology industries.
The realisation that there is a definitive role for government in information technology policy comes as a shock to many who believed the strident, anti-interventionist rhetoric that accompanied economic rationalism extended into all areas of administration and governance.
Whether it is the effect of electronic commerce on taxation framework conditions, fostering an entrepreneurial culture, seeing bandwidth in a new light or recognition that education is the key to a prosperous future, public policy will continue to have a pervasive and essential role. It is a role that must, by definition, protect and enhance the interests of all citizens, so they have the opportunity and ability to participate fully in society as it continues to evolve.
The ability to participate in the knowledge economy is very quickly defining the haves and have-nots of the next millennium. Access to the internet and the skills to use the hardware and software are in my view, a prerequisite in allowing an individual to fully participate in society in the future. This is why universal connectivity must be a right, in the same way as literacy is as far as skills go, and in the same way as utilities like power and water as far as access goes.
Every day more people are confronted with www.somethingorother being advertised in traditional media. This serves as a reminder to the seventy-five percent of Australians that do not have internet access that they are missing out on something. Even Government has been getting into the picture. Unfortunately governments tend to transfer services to an on-line environment as a cost cutting measure. Surely it is obvious that this will only serve to disenfranchise a huge proportion of the population?
Is it no wonder that citizens are disillusioned with government? Identifying the causes of the frustrations felt by many Australians requires a look at these big picture issues, particularly about the role of government. A large part of the backlash against the republic experienced only ten days ago can be interpreted as a stick up the nose of a political establishment seen as irrelevant and therefore undeserving of anything it sought. This begs the question: were the cynical tactics of the No Campaign to shamelessly foster the contempt felt by many Australians towards their political representatives the key to their success?
I suspect as much, but there were other disturbing features. In the same way we saw the country divided in the first term as a result of the profile afforded Pauline Hanson by her conservative peers, we see a nation once again divided along metropolitan and regional lines. The common factors in the two campaigns were the call for Australia’s identity to be re-established using definition of the past. Economic definition, remembering Hanson’s call for greater protection; cultural definition, who can forget the appalling racism that echoed around the globe and finally a public attack on the political process and representatives as being incapable of acting in anyone’s interests but their own.
The insecurities of so many of our citizens drawn out in these experiences and reflected at the ballot box at both recent elections and the referendum support the unequivocal need for Government to address the issue of both cultural and economic identity in a globalised environment. It is a grave reflection and socially irresponsible to exploit the fear and concern people have of change for short-term political goals.
We know that rural and regional Australians are feeling marginalised in the information economy, because at the recent regional summit held in Canberra identified connectivity as one of the single greatest failings of both the market and the government.
We know that the rhetoric accompanying globalisation includes ‘mobilisation of labour and the means of production’, creating concern about employment prospects.
It includes ‘diminishing the role of the nation state’, evoking concern that our national heritage will be lost forever. It includes ‘regionalisation of economies’ worrying those who barely scrape by in the domestic market. It includes ‘a new-world order’ which frightens the hell out of people who have an interest in national security. It includes ‘ how the internet is going to change the way we live our lives’ prompting fear for those who are happy the way things are.
Globalisation includes all these messages and yet the Federal Government continues to merely exploit the concerns rather than show leadership.
A vision is required that puts into context the changes that are taking place with globalisation: a vision that acknowledges the causes of frustration and systematically addresses them. In the first instance this means being open about the strengths and weaknesses as well as opportunities and threats. Not really such an unusual process when you put it like that.
The knowledge economy
The knowledge economy heralds a shift in values, where the management and commercial exchange of intellectual property derived from people who think up new ideas ultimately becomes the source of wealth, rather than the commercial exchange for the products of an industrial process.
Whilst this over-simplifies the landscape, there is no doubt that the changing proportion of our economy from manufactures to services is by far the most obvious and powerful indicator of such a shift, with services sector now over 80% of the Australian economy. The use and refinement of information technologies has at the same time facilitated this shift by changing the nature of the workforce and allowed the investment / return ratios that existed by definition in a manufacturing/ resources based economy to be completely blown away.
As a result wealth is being created in ways and orders of magnitude that are reshaping economic hierarchies both within nation state economies and the global economy. The internet has enabled the emergence of another market, a market that thrives in active contempt of the traditional corporate culture. Australia’s capacity to think outside this risk-averse corporate culture has been preceded by recognition that it exists here in droves. It’s true: an agricultural and resources based economy carries the risk in the weather and exploration. Therefore the concept of increasing risk in the value-added aspects of the business did not make good business practice. What was a cultural strength in a commodity and resources economy has become a cultural weakness in a service and information economy.
The challenge is therefore to change our corporate culture so we are best able to place Australia in a position of strength in the global information economy, with the aim of deriving the benefits from growth for Australians.
The enabling technology industries have established themselves as the drivers of growth, with the sector being characterised by high value added and high wages. Here in Australia, the information industry is growing at a rate three times that of the economy.
US Federal Reserve chairman, Alan Greenspan, has stated that the IT&T sector, which provides the infrastructure fort the information economy accounts for one third of all recent US growth, and is growing at two times the rate of the overall economy.
Forrester Research has estimated the total value of goods and services traded between companies over the Internet will reach $2 trillion in 2003. To put this in perspective, a 5% commission on this represents a $100 billion opportunity. (AU$) Business to consumer e-commerce is also growing at phenomenal rates.
From another perspective, internet stocks continue to lead the market, with capitalisation figures outstripping revenues way beyond the normal relativities of other stocks. Despite a series of adjustments, internet stocks have held up despite prophets of doom predicting a devastating bursting of the ‘bubble’.
Connectivity and social justice
Globalisation introduces many challenges to Government, industry and the community. What is the best path to follow in policy terms and what strategies can offer the best chance for success and survival of our national economy, and indeed our sense of Australian identity? Jerry Everard confronts these issues in his book Virtual States which I had the pleasure of launching just a few weeks ago. He has this to say:
‘ Globalisation is above all a social process, and it operates unevenly across society and between societies. This differential quality provides dynamism behind globalisation. It also promotes social inequalities.’
In other words whilst ever there is market driven technological dynamism, there is by definition a role for public policy in countering the social inequities that are an inevitable by-product.
From a public policy perspective, we need to establish, as far as is possible, what constitutes success. Is it an identifiable economic return to a nation that can be quantified within trade balance of payments terms? We know that we have a chronic IT&T trade deficit problem, with recent figures showing a phenomenal worsening of Australia’s position. So would success be turning this trend around? Or maybe, given the emphasis on intellectual property, it is the number of patents held by Australians? Is it the unemployment figures? Whatever the definition of success, the policy framework to achieve it must address social justice.
Defining success in policy terms will always be difficult. The complex relationships between a vast array of portfolios including education, industry, communications and the arts I have found mitigates against defining a clear vision. As a result, assessing the degree of its realisation becomes very difficult.
However, we do know that sustained economic growth offers greater opportunities for employment, and that education offers greater opportunities for those seeking employment. Given that employment in a high wage society offers the best chance to maintain improve one’s standard of living, then investment in these areas by Government makes political sense.
To highlight this point, in 1996, public spending on Australian education, research and training increased to almost 3 per cent of GDP from 2.35 per cent. This has since fallen dramatically to 2.53 per cent in 1999-2000. If the 1996 spending levels had been maintained, $2.87 billion more would have been spent on education in the last budget. The impact of public re-investment of this magnitude in Australia’s skills development, research, innovation and, ultimately, industry growth and ultimately, jobs would have been significant.
We also know that there is a quantifiable relationship between research, development and commercialisation and economic growth. The higher the R&D expenditure as a proportion of GDP, the stronger the growth. And nothing could be more obvious than through the example of internet and technology services based sector.
It is this point more than any other that accentuates why so many Australians were dismayed when the Government pushed internet censorship legislation through the parliament. In addition to the potentially disabling effects on bandwidth and networks, the point made earlier about global positioning is pertinent. As a result of this legislation, a major US industry magazine labelled Australia the ‘global village idiot’. This is precisely what we don’t need at we take our place in the knowledge economy.
This legislation will serves as a continual reminder that a focussed, determined effort by all stakeholders is required to build a knowledge nation. And despite this embarrassing Act, it’s not like we are starting from a low base.
It is generally accepted that Australia is well placed to be successful in the knowledge economy. We have high penetration of PCs per head in both business and home and one of the highest internet connectivity rates in the world. We have a well-educated population and a history of adopting new technologies quickly.
Bandwidth and innovation
However our capacity to keep up with technological progression cannot be attributed to any remarkable effort by government or our corporate sector, rather it has been driven by consumers. This in turn highlights emerging challenges as the drivers of technological innovation change.
The now-familiar innovation cycle, characterised by Moore’s law, where improvements in software bits and processing power created momentum for consumer demand for technological improvement is now being overtaken by a new law.
Gilder’s Law identifies a new set of factors that will take over as the drivers on technological innovation and change. The new factors are bandwidth and content. The innovative tension between content demanding greater bandwidth and bandwidth enabling better content will create the momentum for technological innovation.
However with one of the factors, bandwidth, being determined by communications infrastructure, the capacity for entrepreneurial dynamism motivated by consumer demand to innovate in broad-band technologies is severely limited. Australian consumers will no longer be able to drive our technological progression. Add the current regulatory framework and theoretical competitive environment, recent decision relating to spectrum allocation and the prospects look dismal.
If half of the innovation cycle is incapacitated, where will that leave Australia’s capacity to innovate, to participate in the next big thing? Unless an understanding of the innovation cycle leads to public policy that enables the dynamism to continue, through a priority on high bandwidth connectivity, then Australia may well be dealing itself out of the biggest drivers of economic growth for the foreseeable future.
I am reminded of a fellow I met in Narooma leading up to the last election. He was an engineer and used CAD to design components for an engineering firm in Melbourne. He purchased the bandwidth he required to electronically transfer his intellectual property to Melbourne from Telstra, who was the only infrastructure and service provider available. His requirements were way beyond that of the legislated USO. He told me it took at least five months to get the connection operating satisfactorily, which nearly shut him down. Eventually he got it working but still anticipates his growing bandwidth needs at least eighteen months in advance, just so he doesn’t get burnt again.
This guy’s story taught me as much about bandwidth as it did about regional economic development. His experience demonstrates that connectivity is more than an equity and participation issue for Australian citizens. I am talking about public infrastructure that bears directly on the private sector’s ability to innovate. Gilder’s Law demonstrates that there are incredibly important economic reasons for placing high bandwidth universal connectivity at the forefront of public policy.
Will we even know what opportunities are being lost if we don’t invest as a nation in high bandwidth connectivity? Chances are we won’t and the world will leave Australia in a state of unassuming mediocrity.
Learning from others
It is beholden on us therefore to keep an outward focus and an open mind when it comes to different ways of doing things. With all of our strengths we also have areas where we can do so much better. It is useful to look at other environments that have led the way in adapting to the knowledge economy.
Australians have made a habit of visiting famous locations of IT success stories almost as much as our talent has made a habit of living and working there. Having ‘been there – done that’ myself recently (at least Silicon Valley), there are some obvious elements that can guide Australia in adapting our corporate culture and public policy to offer the best chance for growth.
Contrary to the perception that Silicon Valley grew out of nowhere very quickly, it has had the longest history of a geographically clustered entrepreneurial powerhouse. There is one feature central to its development – and that is Stanford University, which was established back in the 1800’s. Stanford’s business focus is attributed to Professor Frederick Terman, who was central to shifting commercial studies into entrepreneurial business activity. He was the guy who gave Hewlett and Packard $500 to get them started.
What is less well known is the role that the public sector has played in the Valley’s growth. A feature all but ignored in recent forays to the region by Australians. For example, a partnership between the City of San Jose and an association of software firms provides test equipment, lab space and business services for the region’s software developers. The procurement methodology of the US Government also ensures that local businesses will benefit directly. If there is no local capability, then it is developed, perhaps through a joint venture and the university.
The decision to change the driving force of growth in Israel to high technology-related industries was a political one. Vast sums of public money were spent on incentives to attract IT corporations. A scheme to introduce venture capital was also put in place. The scheme, Yozma licensed US VC funds to participate, and provided for public money to top up the funds. However it is widely acknowledged that public expenditure in defence technology industries that enabled Israel to move so quickly to establish their presence in the global IT&T sector.
In all the case studies available it is plain that the policy settings of federal state and regional government are key determinants of growth and opportunity. Believe it or not there are now over 25 federal government programs alone pitched at the IT&T sector. These programs range from the new BITS program through to the well-known, albeit reduced, tax breaks on R&D investment.
In all of these programs, and some operate with a degree of success, the policy foundations for education and industry are weak. For a government that claims it is devoted to the macro policy settings, this is a complete contradiction.
Universities and industries form alliances, allowing an entrepreneurial culture to emerge as a natural by-product of their relationship. Investment in higher education becomes a direct investment in industry development. Recognising spending on education as an investment in industry growth is just the start.
Strengthening our entrepreneurial landscape
Having the brainpower to drive ideas and the skills to add firepower to innovation. The adaptability of our education system to the demand of the knowledge economy is critical. It must however, be matched by an equal commitment to the creation of employment opportunities too, otherwise Australians will continue to fund the best of the best in the IT talent that is scattered around the world.
While I hasten to add that part of our strength as an IT nation is our roving brainpower – because some do come home, we cannot sustain the current losses – estimated by Morgan and Banks to be about 1000 people per month in the IT&T sector alone.
Tackling Australia’s dire IT skills shortage is essential. The hang-up seems to be: why invest in education if the best and brightest are lured overseas by high wages, stock options and start-ups? An emphasis on real industry growth must accompany investment in education if we hope to entice our own to stay, or at least return.
Part of our problem may be the study-work transition. The relative lack of collaborative relationships between industry and education institutions whilst improving all the time, continues to distinguish our education environment from other, more entrepreneurial cultures. It is an irony that a tradition of distance between education and industry could also be partly responsible for our capacity to come up with very clever innovations. It is almost like our thinkers are sheltered from the inevitable homogenisation occurs when one’s research is sharply focussed on development and commercialisation for the market. No wonder there is international interest.
Our entrepreneurs are the human resource needed to derive economic benefit from ideas. They are link between innovation and commercialisation. The ability for entrepreneurs to secure investment for this process is a critical, tangible aspect of building a knowledge nation. That is why access to very early, or start-up investment capital is worthy of a particular emphasis.
A consistent theme that emerges in any geographically clustered entrepreneurial environment, is the all-pervasive power of the informal networks that exist. It is the culture of sharing ideas that so distinguishes Silicon Valley in particular from other corporate cultures. The concept of corporate loyalty has diminished to the point where personal commitment is extended to the technology and the profession.
This attribute allowed individual investors like business angels to make the most of their range of experiences, as many have been entrepreneurs or worked in start-ups. This is experience that has served them well in analysing future investment opportunities, not to mention knowing who’s who in the zoo for the purposes of pulling together a strong team to manage the start-up.
There are some good economic reasons for creating a competitive environment for investment, but it is also important to ensure that sources of capital are as diverse as possible. Attention has been paid to VC to date, with the Israeli inspired Innovation Investment Fund seeing public investment along side private investment. However the lack of recognition of the role Business Angels play continues to be a real threat to establishing a robust capital food chain in Australia. Securing sources of capital in stages creates momentum as each stage of investment establishes important credentials for the next. It is rare that the VC will enter at this really early stage. This initial investment in start-ups is invariably in the hands of independent business Angels.
One of the more enlightening moments whilst spending time in San Francisco was the apparent recognition by some business angel investors of Australia’s desire to retain intellectual property. It seems that in a departure from the established practices of US investors, these business angels are not devoted to shifting the whole enterprise to the west coast as part of their strategy to realise their returns. This only emphasises the state of flux that we are in and that Australian leaders should not merely plead for US investor interest, but assert what is in our national interest, which is keeping what we can on-shore.
The knowledge economy will continue to generate new and different corporate relationships, where location is as much about marketing as it is about tax treatment.
Electronic Commerce and digital intangibles.
Electronic commerce, the implementation tool of a globalised economy presents a significant opportunity for Australian industry to reach new markets. But it goes both ways and there are strengths and weaknesses in Australia’s position.
Australia faces on the one hand a release from the shackles of geographic isolation, at least with regard to the distribution of digital products and services. In itself, this is a remarkable opportunity and one that justifies an increased industry policy emphasis on growing our digital industries.
Digital content, which may be everything from applications to multimedia to online services, has the enviable status of being an Australian strength as well as providing the critical service of ensuring a permeating presence of “brand Australia” on the Internet and in the global market place. It therefore makes good policy sense to facilitate an optimal environment to encourage diverse, quality, digital content.
Fortunately for us, the talent and reputation we have has already made Australians leaders in this field. While in the US recently I met the president of a production company that makes commercials for Fortune 500 companies. He had just returned from filming in Australia. He told me his company was able to wear the costs of travel to access the talent because the internet was facilitating the production process to a degree that it almost offset the difference.
On the other hand, the implementation of the goods and services tax has the potential to directly undermine the capacity of local producers of digital products and services to compete in the domestic market if there are international competitors. Why? Because any digital product or service produced and distributed locally on-line will attract a GST. Imports will not. Domestically produced exports don’t either. Does this mean local producers will be forced to set themselves up on a server overseas to give themselves status as an importer, just so they can compete in their own market without a ten percent cost penalty? Or does it mean that this sector can forget about using the local market as a base for export growth? Makes it kind of tough for such a critical industry.
Despite having asked the Minister Senator Alston how the Government intends to address this extraordinary digital products and services market anomaly in the implementation of the goods and services tax next July, I am yet to receive an answer.
The collection of goods and services taxes within electronic commerce environments presents a significant compliance problem for the Government anyway, for tangible or intangible products and services. It is a tax invented for isolated national economies, where revenue collection is structurally linked to domestic consumption. With the internet as the medium and electronic commerce as the mechanism for economic globalisation, the goods and services tax is clearly a tax for times past. At this stage it appears that a series of bilateral and multilateral taxation treaties is the best Australia can hope for in reducing the revenue loss from their new GST revenue base in a globalised digital economy.
Conclusions
Preparing the policy foundations for active participation in a global economy requires foresight and a continual high-level presence in international fora. More than ever the rules for participation in the global economy will be determined in these environments. Australia has shown itself to be a global leader and can be again.
As Australia opens it’s doors even wider to new sources of capital – new ways to fund innovation and build identity and presence in the global information economy will emerge. Our path to becoming a knowledge nation will be served well served Australian ideas. An entrepreneurial environment is but one stepping stone along this path, albeit a crucial one. It also serves to remind us that our future does depend on people and their capability to participate in innovative ways to build a society that will serve the community well into the future.
This means education will always underpin opportunity and growth. Governments too must take their own education seriously and be willing to look around and learn from other nations in the search for effective policy solutions. Ensuring our infrastructure serves the needs of the community and innovative industries means a new emphasis on high bandwidth and connectivity is required.
We must address the social challenge of the information haves and have-nots. To be able to use the internet as a mechanism to close the gap, rather than widen it, we must be in a position of strength in the information economy. The aspiration of universal connectivity is therefore an essential foundation to a knowledge nation.
Recognising and articulating the challenges that arise from the need to redefine cultural identity, as distinct from economic identity in a globalised society also demand serious attention from policy makers. Only then can democracy in the information age be built on a foundation of understanding. Leadership must emerge from this understanding so that the path forward is clear and open. I remain optimistic that an opportunity exists to rebuild trust between citizens and their political representatives because I reject using fear and trepidation about change for political manipulation.
More than anything else, the referendum held only ten days ago showed me how damaging the tactics used in the No campaign had become. I want to live in an Australian Republic and I look forward to taking an active role as a member of the Labor Party in Australia’s future – a future where a democracy is a celebration of our cultural identity.
I would like to conclude with another quote from Virtual States:
“National government will still set connection standards, and still operate with a duty of care to their citizens, so there will remain a strong role for states to play, no matter how globalised the economy becomes.”
Jerry Everard, Virtual States 1999
