by Dr Peter Thorne

Dr Peter Thorne was formerly the Head of the Department of Computer Science at the University of Melbourne. He has been a member of Tender Boards for major Government IT projects including the re-equipment of the Australian Tax Office and Australian Customs. He was a member of the National Procurement Board established by the Hawke/Keating Government.

In the “beads and mirrors game” industrially advanced nations acquire primary products won from the land, or even the land itself, from less industrially advanced nations in return for manufactured goods.
Australia was still an economic colony of Great Britain until the middle of the 20th century. Our principal role in this relationship was as a primary production nation. For the past 50 years transnational corporations have taken over from the UK as our masters in the beads and mirrors game, particularly in the advanced technology business.

Despite the fact that we contribute 3.6 per cent of the world’s research publications from 0.3 per cent of the world’s population, ranking 9th in the OECD, we rank last in the OECD on the proportion of businesses which collaborate with research institutions on innovation.
A number of factors contribute to this. I argue that dominant factors within the control of government are taxation laws and public sector purchasing policies and practices.

Taxation

Local branches of many major companies ensure that they never make a profit, and thus pay little or no tax, in Australia. One consequence of transfer pricing is that tax concessions for R&D do not encourage transnationals to do research and product development here – tax incentives are irrelevant if you are paying no tax.
Despite repeated rhetoric about being strategic partners in Australia’s future, most transnational companies do little more than set up sales offices here. They do little R&D and are only concerned to increase our consumption of, and dependence on, their imported products.
Furthermore, when a local tax-compliant company lodges a bid in competition with such a transnational they may find their bid undercut by a company which has been set up in a tax haven and which intends to remit few or no taxes back into the local community.

Public Sector Purchasing

During the late 19th and much of the 20th century, governments provided most services: water, sewerage, gas, electricity, communications etc. The move to outsource these services means that governments have become customers for goods and services, on behalf of the community, rather than providers.
Regrettably, the commercial expertise of governments and their purchasing agencies is, in my observation, rarely up to the task of dealing with highly skilled, experienced and highly paid lobbyists and sales people from the suppliers.
It is notable that whilst selling is highly expert and highly rewarded activity, purchasing is not. In government agencies (including Defence) one encounters public servants, with no experience, who are suddenly responsible for handling multimillion dollar acquisition projects and face sophisticated lobbying and selling campaigns from companies that sell into countries round the world.
A local start-up company will not have a sophisticated lobbying and marketing arm, nor the funds to “duchess” the purchasing officer.
I have encountered public-sector purchasers who unashamedly enjoy “duchessing”. This may extend from long lunches, to tickets to sporting events, through to the opportunity to visit the overseas offices (with side trips along the way) either at the bidders or buyers expense. A local start-up supplier looks pretty unappealing by comparison.
Once they have won the governments business the transnational company makes subsequent purchasing decisions, right down the supply chain. They rarely have much interest in sourcing products locally, nor in supporting local R&D.
It is hard to see how free trade arguments apply in this case. For instance, it is inconceivable that US, Japan, France, or indeed any other nation, would transfer control of their major national information repositories, nor aspects of their defence systems, into the hands of foreign controlled companies.

The Information Colony

The upshot of all of this is that we in Australia are enthusiastic adopters of imported high tech products, but we struggle to grow local industries capable of significantly improving our balance of payments by creating new products for local consumption and for export. The career path for local start-ups is a difficult one.
In 2000 Austrade claimed that more than 5,000 Australians already worked in Silicon Valley and that another 1000 Australians moved there each year. Their predictions were pretty good: by 2015 the estimate was up to 22,000 Australians working in Silicon Valley.
This is an even more dangerous version of the beads and mirrors game. We are not just exporting our primary products – we are exporting our seed corn as well.