Centre for Innovation and Entrepreneurship (CIE) | CIE Blog

There have been recent critiques about What’s Killing Australian Innovation (see our commentary on a recent talk by ASB Dean Alec Cameron, and related ABC radio interview). At this week’s TiECon Australia, TiE Sydney chapter president Dilip Rao commented that Australia is ranked 18th globally for having a ‘fear of failure’ (first being worst). Based on the GEM Global Report 2010, Australia actually shows up worse, ranked 16th out of 59 countries.While that sounds quite bad, the spread of the scores shows that Australia is nonetheless close to the average, and not that much different to, say, Germany (see figure below). The classic benchmark is the US, which is ranked 47, and still not close to being statistically significantly away from average (assuming a normal distribution).

Fear of Failure: Percentage of 18–64 age group with positive perceived opportunities who indicate that fear of failure would prevent them from setting up a business

Wait a second, but what’s this other variable, called “Entrepreneurial Intention”? Well, it’s defined as the “percentage of 18–64 age group (individuals involved in any stage of entrepreneurial activity excluded) who intend to start a business within three years” (p. 63 in the 2010 GEM report). Australia ranks poorly on this one as well (39/59) if you take the rankings at face value. Interestingly, the US ranks even lower than Australia here (44/59).

What the heck is going on?

My best guess, is that in some countries, entrepreneurship is not a choice, but a way of life. Almost everyone there has to hustle and bustle to feed their family. Meanwhile in the “Innovation-Driven Economies” it’s an optional career choice. So, focusing on the latter, what do we see?

Well, Australia ranks 6/23 on the fear of failure measure, but still very close to average for the group (US ranks 20/23 in this group). Australia also ranks 7/23 on the entrepreneurial intention measure, again still very close to average for the group (US ranks 11 in this group, worse than Australia!).

=> Claims that Australia has a fear of failure are NOT supported by THIS data
Yours truly,
The Centre for Innovation & Entrepreneurship

This post first appeared on the CIE Blog.

Vic Edwards

China could be about to witness a sharp economic contraction. Although the World Bank has played down fears of a hard landing in China, the dynamics of Australia’s relations with China are undergoing a rapid process of change, and this will reshape international and foreign policy between our two countries.

China’s growth this year is below last year’s level as weakening external demand has hurt investment and exports. Very poor Chinese manufacturing data shows it is at a 32 month low. Alas, contagion from Europe is impacting China, and that is causing pressure on Australia.

China’s economy faces growing risks from Europe’s sovereign debt crisis and from debt held by local Chinese governments but it could engineer a soft landing by easing monetary policy, according to a report yesterday by the World Bank. It expects Chinese growth will slow to 8.4 per cent in 2012.

I feel other events will also cause problems for our relations with China. There will be some reappraisal of where China stands with Australia, following the new Trans-Pacific trade-bloc know as the Trans-Pacific Partnership that includes nine nations including Australia and the USA, but China was not given an invitation to be a member nation. We should be concerned that there is now some doubt in China as to how much Australia can be trusted and relied upon.

For some years now, China has been able to rely on Australia as being a good trading partner and friendly nation no matter whether Labor or the Coalition were in power. However in just the past week President Barack Obama’s strong admonishment of China’s currency policy, the decision by Prime Minister Julia Gillard to reverse Labor’s long standing policy of banning the sale of uranium to India, and the agreement to locate a powerful 2,500-strong American marine task force near Darwin area all reshaping international and foreign policy between Australia and China. This is particularly so because China was not consulted on several of these, and Australia has been closely associated with all events. In China’s eyes, it doesn’t look good.

The World Bank has forecast that inflation will fall further, down from the 37 month high of 6.5 per cent in July, as its economy slows.

Will China react poorly to Australia by not buying iron ore, natural gas, bauxite from us?

I think not. However, it may cause them to re-evaluate their long term trading partnerships and future investments and they will most likely diversify their sources of supply – for example more iron ore from Brazil and Mozambique and less from Australia. They may also invest in developing the plant and equipment necessary to make high grade steel in these countries. However, the measures taken in the last week have also brought Australia closer to India and this may be seen as a good longer term play as India is tipped to overtake China as a production power engine in about the year 2030.

Vic Edwards is a Visiting Fellow in Banking and Finance at the Australian School of Business

Nina Mistilis

Qantas is facing a further drawn-out battle with the unions, and that may cause yet more long-lasting damage to its brand. The Qantas dispute is settling in for the long haul, now that it has been taken into binding arbitration – a move that could take months to resolve.

This confrontation with the unions has been building for years and seem and has now culminated in arbitration. All of this has taken place in full view of the travelling public. Qantas – in going to arbitration – has won what it was seeking – which is a stay on industrial action – but in the long term it seems to have lost the war.

I believe it has alienated passengers, the industry and the government, and that’s not a good position to be in. The Qantas brand is tarnished.

Negotiations between the airline and the Transport Workers Union, the Australian and International Pilots Association and the Australian Licensed Aircraft Engineers’ Association collapsed just before a deadline set by Fair Work Australia (FWA).

I believe the longer this dispute rumbles on, the more the Qantas brand image will be badly impacted.

That’s a global perception, because passengers all over the world who want to get to Australia for a holiday, or back home for work, are wondering if it is safe to book a Qantas plane, or whether it will be cancelled again. Many are saying they will never trust Qantas again, particularly in business class, because business wants reliability above everything else. Certainly, in the immediate future, the brand is tainted and they’re really behind the eight ball.

I don’t see how they’re going to catch up easily. Even if the arbitration settles on the side of Qantas, it may still hurt Qantas in the medium to long term, although I think it’s really hard to say what the long term damage will be. It partly depends on how events unfold. If it is solved quickly, which seems very unlikely, then the brand will be restored. But if it continues, and if there’s a perception – as the unions are saying – that service will drop due to the “asianisation” of the airline, then the brand will be completely damaged. Will that mean that less passengers book on Qantas? I don’t know the answer to that. Time will tell.

Qantas chief executive Alan Joyce yesterday said while his preferred option had been to resolve the dispute through negotiation, it was now time to let FWA bring the matter to a close.

But it is reliability is an important factor in terms of the branding of an airline. When it comes to the crunch, we need to get to the destination on a certain date and we cannot afford to be stranded at home, or somewhere in Australia, or abroad. So when it comes to the choice, will we choose Qantas or will we choose another airline?

Nina Mistilis is a senior lecturer in Tourism at the Australian School of Business.

Tim Harcourt

Born in Honolulu and with a childhood spent partly in Indonesia, it is only natural that US President Barack Obama should have a strong affinity with the Asia Pacific and have an internationalist outlook.

His speech to the joint houses of Parliament was a ringing endorsement for America’s economic orientation to the Pacific, the region which holds the most promise of economic growth for the next decades. America, he said, had made a “deliberate and strategic” decision to engage more with the Asia Pacific, which was “critical” to the highest priority of creating jobs in the US.

In making this choice, Obama is following the tradition of other recent Democratic presidents who, contrary to some popular opinion, are anything but isolationist in their world view. And at the same time, he is debunking another old myth: that a free trade agenda is bad for jobs growth and social equality in the US.

The conventional wisdom has been that Democrats are always trade protectionists and the Republicans firm free traders. For example, in his Boyer lectures several years ago, Rupert Murdoch claimed that the Democrats are always protectionist and Obama’s trade policies would hurt Australia. His views were echoed at the time by Australian Industry Group’s Heather Ridout.

But this is a misreading of history. Both parties have moved on both sides of the trade issue depending on the times. In fact, the Republican Party was traditionally the party of the northern states and had a large manufacturing base of support and supported protection whilst the Democrats had a strong southern base too (the so-called ‘Dixiecrats’) and supported free trade.

A glance through 20th century history shows a strong internationalist spirit running through the Democratic Presidents; Franklin Roosevelt, John F Kennedy, and Bill Clinton, under whose administration the North American Free Trade Agreement was negotiated.

Fast forward to today, and Obama’s motivation is plain to see. The US economy has stalled and is proving hard to kick start. Looking across the Atlantic, home of the more traditional economic and financial alliance, and all is chaos and uncertainty.

With Chinese savings funding US debt and economic growth in the region moving along nicely, in spite of the turmoil elsewhere, where else is the US economy going to receive a boost?
US unemployment is hovering stubbornly at just under 10 percent and Obama’s political future, and more importantly the economic welfare of millions of Americans, is dependent on the economy showing even some signs of recovery.

The reality is that inequality and rocketing executive salaries with declining real wages for American workers have bred protectionist sentiments whilst a fairer America may actually benefit from freer trade.

Real wage growth in the US stagnated under the two Republican decade of George W Bush, while the richest 1 percent of the US population control around 40 percent of the financial wealth. Republican protectionism did little to protect the people it was supposed to help: American workers.

Right now, more than ever, America needs economic engagement with the rest of the world – particularly a region, like the Asia Pacific, which is performing well. Free trade can be a part of the formula to restore growth, reduce unemployment and help make some gains on social equality. Barack Obama the liberal internationalist understands this very well. And the Trade Pacific Partnership agreement recently announced at Obama’s birthplace in Hawaii at APEC is symbolic of the President’s internationalist instincts.
Tim Harcourt is the J.W. Nevile Fellow in Economics with the Australian School of Business, University of New South Wales: www.theairporteconomist.com.

Professor Fariborz Moshirian

Borrowing costs in Italy have surged above 7 per cent, which has triggered a large sell off of French banks that hold much of Italy’s debt, and this has caused volatility in share prices around the globe.

The present turmoil will continue for some time to come, and the spotlight is now fully on France, where bond yields have jumped because its financial institutions have a large exposure to Italian debt, and have the most to lose from Europe’s debt crisis.

I think the country has no choice but to sort it out themselves.

They can’t run to the G20 for a hand out. Italian debt is around two and a half trillion euro – way too big for the European Financial Stability Facility to fund a bail out. The IMF certainly doesn’t have capacity to do that so the Italians have to do most of work to reduce their debt, make the economy more efficient, and reform the Italian labour markets. Italy is going through a major challenge at the present time. However this reform will be worthwhile in the long run and the current crisis could actually accelerate the process.

There are also major challenges facing Greece. I think now the Greek people have a clear choice. They can stay in the eurozone, or cut and run. However 70% of people in Greece say they would like to be part of the eurozone, and that means they have to now fast-track their reforms rather than agonise about them. If they did leave the eurozone, things would be very difficult. Their new national currency – call it the new Drachma – would be devalued by 50%, and that would increase the debt of all companies by 50% because everything at the moment is measured in euro on the balance sheet of companies, and so they could create more problems for themselves if they leave the eurozone. The citizens of Greece want to stay in – and it would cause huge problems if they leave. Therefore, I think they should stay in the euro.

Indeed, the road ahead for Europe looks bumpy. There are many more challenges. It’s not as if leaders got together at last week’s G20 and agreed to some specific measures which are a magic cure. We should unfortunately expect more volatile times ahead; both for countries within the eurozone, and for countries like Australia, where the stock market rises and falls because of concerns about the global economy. We may think we are insulated from the problems down under – but we are not.

France has a major problem with its bond yields, and it needs to look at the medium and longer term vision of the eurozone to see what it can do beyond austerity measures. It needs to create economic growth. Ultimately some eurozone countries might need more support from China or other solvent counties to ease the problem.

Fariborz Moshirian is a Professor of Finance at the Australian School of Business.

Tim Harcourt 

The annual APEC summit has just concluded in Hawaii. The summit ended optimistically, and it could be just the chance Australia needs to boost trade over the entire Asia Pacific region, according to a senior economist at the Australian School of Business.

Prime Minister Julia Gillard, US President Barack Obama and the heads of seven other nations have now reached an agreement on the broad outline of a new trade regime known as the Trans-Pacific Partnerships (TPP).

I feel the announcement of the Trans-Pacific Partnership is good news for Australia and good news for the region as a whole.

Trade initiatives are important for workers as well as business. Exporters, on average pay 60 per cent higher wages and provide more job security than non-exporters.

Prime Minister Julia Gillard and Trade Minister Dr Craig Emerson are to be congratulated for forging the most important initiative since APEC itself was created by the Hawke-Keating Government.

At the APEC summit opened by US President Barack Obama, the APEC members also agreed to cut tariffs on environmental goods to five per cent, as part of a push against protectionism, which grows at times of global economic instability.

Exporters will experience the benefit from being able to get environmental products which we produce into the economies of APEC countries at a lower tariff, and this can only be good news for Australian manufacturing.

The rest of the talks on world trade didn’t go as well, and there has been a lack of progress in negotiating a multilateral agreement following the Doha Round of world trade talks. However I do hope that the APEC talks will achieve a breakthrough. In 1957 Japan helped Australia get into Asia by forging a commercial partnership with Australia, just 12 years after World War II. With the TPP, Japan has supported what could be the most significant trade partnership to date in the 21st Century. Hopefully APEC can get things moving.

Indeed, Australians need to be aware of what is happening in the world. With Greek debt, Roman ruins and Europe in difficulty, it is important the world turns to the Asia Pacific region to be the economic engine of global growth and TPP will help add to this momentum.

Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business UNSW and the author of The Airport Economist: www.theairporteconomist.com.

Tim Harcourt

Imagine a country that is inward looking and rarely notices the world beyond its own borders. It’s a country that has double-digit inflation and unemployment and a poor record of industrial disputation.  Industry shelters behind prohibitive tariff walls, the exchange is fixed and ‘overseas’ trade is an afterthought. There are few tourists and not many foreign students on university campuses and few ‘foreign’ restaurants. The country despite its bountiful wealth is at the bottom of the global premiership table in terms of economic performance.

You don’t have to imagine too hard because that country Australia – the Australia of the past. It’s the Australia that farmer Stan Kelly and his son and fellow free trader Bert Kelly (also known as ‘the Modest Member’) railed against because of what the old Australia was doing to farmers, exporters, workers and the whole Australian community.

But whilst Kelly and son fought hard intellectually for the free trade side of the cause (Bert as a lone voice in the Fraser Government) it took three visionaries of the labour movement to open Australia up and lock in the economic prosperity that the lucky country experiences today. Prime Minister Bob Hawke, Treasurer Paul Keating and ACTU Secretary Bill Kelty lead the reform charge and importantly managed its social and industrial impact. The float of the exchange rate, the reduction of tariffs, the introduction of inflation targeting via the prices and incomes Accord were bold, brave reforms but they were coupled with enhancements to the social wage with the introduction of Medicare, superannuation, tax cuts and reforms to the education and training system to enhance skills for affected workers. They were brave reforms and they were bold. I joined the ACTU at the start of 1991, when the March 1991 tariff cuts were implemented in the middle of a recession and with the Industrial Relations Commission still grappling with enterprise bargaining. They were bold reforms but they enabled Australia to open up to Asia and take advantage of the shift in global economic power towards the Asia Pacific region. The Tyranny of Distance has truly become the Power of Proximity and those 1991 reforms enabled Australia to be in the right place at the right time. This time the lucky country made its own luck.

As Australia faces its next challenge in terms of climate change and the possibility of another global financial shock, what are the lessons to be learnt about how Australia opened up its economy? And which lessons are important to whom as debates get ravaged in the 24 hour news cycle?

The first lesson, perhaps for the leaders of the modern labour movement is that on the whole, trade has been good for workers as well as exporters. Some research I did with UNSW shows that on average, exporters pay 60 per cent higher wages provide more job security, equal employment opportunity and better occupational health and safety (OH & S) standards than non-exporters. Exporters are more profitable and achieve higher standards of productivity and therefore can train and reward their workers better, on average, than non-exporters.

The second lesson, to those on the other side of the fence, is that it is not economically desirable to protect markets it is desirable to protect workers. An open economy does not mean we have to dispense with all notions of fairness in the labour market. An individual bargaining one on one with management will in most cases not win out. It doesn’t matter if you are a cleaner, a computer programmer or even a chief economist; you need protection when negotiating with management to produce a fair and economically efficient outcome. In fact, the UNSW research also showed that export sectors, that were highly efficient also were unionised with coverage by collective agreements. After all Australia has a unique system of industrial relations institutions and its one that produces an unemployment rate nearly half that of the US and some of our other northern hemisphere counterparts. In short, labour market deregulation is not a logical extension of trade liberalisation.

The third lesson is to avoid fads in trade and industry policy. Eleven years ago as the Australian dollar plummeted below the US50 cents mark, the head of Hewlett Packard visiting Australian for the Sydney Olympics warned that unless Australia got out of ‘old economy’ industries like mining and farming and exported software and became more ‘new economy’ like Taiwan, the Aussie dollar would be 30 cents by 2010. The chief scientist expressed similar views. This was of course before we saw one of the biggest terms of trade increases in our history as ‘old economy’ prices increased due to the surge in demand from Asia. We also developed so-called ‘new economy’ exporters selling training, software and IT services to ‘old economy’ exporters of rocks and crops. Policy makers and the RBA did well to hold their nerve.

The final lesson is that trade policy has moved well beyond tariffs. Whilst the WTO may not be as dead as a Doha yet, and Craig Emerson’s new initiative shows an innovative way to break the dead lock, most Australian exporters are concerned about behind the border issues and seek off-shore government assistance when trying to understand new business networks and cultures particularly in emerging and frontier markets.

Another Kelly, Paul wrote recently, in reference to events at Qantas, that traditional Australian industrial relations are not compatible with us engaging in the ‘Asian century.’ On the contrary, many people of Asian descent have come to Australia to experience the fairness and freedom in the labour market here that is denied to them in their countries of origin. The Australian model allows us to trade with Asia, but to work and live according to Australian traditions of fairness and flexibility. The ‘Kelly gang’ (Stan, Bert and Paul) got it right in terms of free trade, but it took Hawke, Keating and Kelty to make it work by managing the social and economic impacts in the true Australian tradition

Tim Harcourt is the J.W.Nevile Fellow in Economics at the Australian School of Business UNSW and the author of The Airport Economist: www.theairporteconomist.com. A version of this opinion piece first appeared in the Australian Financial Review 10 November 2011.

Peter Shergold | CSI Blog

At the end of August I attended a forum organised and hosted by the Business Council of Australia (BCA) on ‘The Sustainability Challenge’.

The invited guest was Bjorn Stigson, President of the World Business Council for Sustainability Development.   His presentation was relatively downbeat, reflecting how difficult it is proving to make significant progress on global issues such as climate change in a ‘nobody-in-charge’ world.

Part of the problem, as BCA’s CEO Jennifer Westacott emphasised, is that a sustainability agenda is too often portrayed as at odds with an economic growth agenda.  “Indeed”, she argued, “the sustainability agenda is the natural home of business and it should never have been captured as part of some extreme political or ideological agenda.”  For business, environmental good practice remains “fundamental to the social licence to operate”.  Yet the present debate on emissions reduction “seeks to paint big business as the culprits” rather than a partner for sustainable development.

How does one overcome that perceptual categorisation?   How can one portray business as part of the solution rather than simply castigating it as the cause of the problem?  Those were the implicit questions in my recent blog on the causes of the anger that have characterised the Occupying Wall Street protests.  One answer, I suggested, drawing heavily on the recent work of Michael Porter and Mark Kramer, was for companies to articulate their ‘shared’ economic and societal value.

Perhaps it is not surprising, then, that for me the highlight of the BCA forum was the presentation by Matthew Quinn, Managing Director of Stockland.  He argued eloquently the business case for sustainability but in a highly distinctive manner.  I am happy to be corrected but to my knowledge his speech represented the first time the corporate ambitions of an Australian company had been presented as “creating shared value for all stakeholders” (Matthew’s emphasis).  It was not a desultory genuflection to the latest business school semantics.  The speech, from beginning to end, was permeated by the concept.

Stockland, of course, is known for its development and management of residential, retirement living and commercial property assets.  It builds homes, retirement villages and shopping centres.  Profits are important.  They fund future projects and provide a return to public investors.

Stockland, as a good corporate citizen, could have continued to present its accountability in terms of separate ‘sustainability’ and/or ‘corporate responsibility’ reports.  What Matthew’s presentation recognised, however, is that environmental and community benefits are not additional to Stockland’s business model – they are central to it.

Shared economic and societal value begins by understanding that what Stockland is building are not properties but communities.  Residential development is not simply a financial transaction based on subdivisions.  It’s about creating places where people want to live.  Social value (the provision of local schools, childcare and health, retirement and shopping facilities) and environmental value (planning for open space, parkland, water recycling and low energy houses) are not costly ‘add-ons’ to the business.  They represent the lifestyle which is being purchased.  Societal benefits contribute to economic return.

Similarly, shopping centres can be made more valuable to the extent that they are designed and managed as community hubs.  Commercial property, not just residential, can bring greater economic returns through the creation of societal value – making malls a pleasant and safe venue to meet and talk not just a place to park and shop.

What Stockland is effectively doing is rearticulating in contemporary language the vision of its founder Ervin Graf.  Graf, sixty years ago, argued that the purpose of his business was “to not merely achieve growth and profits but to make a worthwhile contribution to the development of our cities and great country”.

Matthew Quinn’s presentation recognised that these two goals are integrated within a single strategic enterprise.  Profits (economic return) and community development (societal return) are the business’ shared values.  In the long-term they leverage off each other.

Stockland is not defining its community activities as ‘giving back’ to society.  Its ethos is driven by social investment not charitable endeavour.  The initiatives are the business:  it is the nature of the business itself, properly framed and implemented, which creates beneficial social and environmental impact.

Shared value cannot be just a well-intentioned statement of faith.  The challenge now is for Stockland to demonstrate, through robust liveability metrics, that the property developer’s investment in community provides superior financial outcomes and improved shareholder returns over the long-term – higher sales, greater occupancy and faster speed to market.

If so, as Mathew Quinn concluded, shared value “is a win-win.  It is a better way”.   In my next blog I’ll talk about another iconic Australian company which has the potential to present its activities as ‘shared value’.  I’d be delighted to have other instances drawn to my attention.

Peter Shergold is the Macquarie Group Foundation Professor at the Centre for Social Impact (CSI) at UNSW. This blog post first appeared on the CSI Blog 28 October 2011.

Cheryl Kernot| CSI Blog

The applicability of the model of Social Impact Bonds[i] (Social Benefit Bonds in NSW) is shown in their adoption in the UK by three separate entities: a Council, a charity and a social enterprise. All offer innovative possibilities for Australia.

At local government level, a Social Impact Bond (SIB) to tackle obesity is being planned by Leicestershire County Council. The focus on obesity emerged from discussions between the council and the voluntary sector. The Council (along with three others) is already involved in a national £40m social impact bond pilot project to use bonds for charities that work with problem families. The Council hopes to raise £1 million for the obesity bond project and will allocate £400,000 of its own funds.

The Council identified a need to increase the number of voluntary sector suppliers in the market and also wanted to trial a payment-by-results mechanism. The Council has Conservative Party leadership and SIBS are seen as part of the Big Society agenda.

The disability charity Scope has launched a £20m bond program, the first by a major operational charity. The money will be used to finance the growth of Scope’s fundraising program and network of charity shops. Under recent Charity Commission guidance it is acceptable for charities to make this kind of investment.

The bond will be targeted at investors who need to make a return on their money but are also keen to achieve a social good; it will be launched in several tranches, including one this year which is likely to be about £2m.

The first investment in the bond has been agreed “in principle” with the Big Society Finance Fund, a fund set up by National Endowment for Science, Technology and the Arts to trial products that might grow the social investment market.

Scope has not yet decided the time period the bond will cover or the interest rate it will pay but it is envisaged that the rate paid would be lower than that for a traditional first-time issuer. The bonds would be listed on the Euro MTF market in Luxembourg, a recognised stock exchange meaning that they can be traded freely.

And the third example is a social enterprise Community Interest Company[ii] which plans a £1.6m bond scheme to help ex-offenders. The CIC, Bristol Together, wants upfront investment from the bonds to help it expand its construction training scheme for former prison inmates where it employs ex-offenders on building projects to develop skills before it helps them find further employment.

Money raised from the bond will be used to buy properties in Bristol that ex-offenders can renovate before those buildings are sold, bringing in further cash to buy more buildings and employ more ex-offenders.

Bristol Together worked with Triodos Bank[iii] to develop their model: a bond issue worth £1.6m over the next year, with the first £600,000 issue of five-year bonds, paying 3 per cent interest a year. This has been bought by the Esmée Fairbairn Foundation and one private individual.  (A future model for Australian banks and foundations?)

One important feature of the social investment landscape in the UK is the existence for many years of community investment tax relief. SIBs sold to private individuals will qualify, allowing investors to reduce their tax bills by 5 per cent a year.

In Australia, in a pioneering initiative begun by the Keneally government, the current NSW Government intends to establish two pilot Social Benefit Bonds in the areas of out-of-home-care and recidivism. An indigenous impact bond has also been proposed by Ecotrust.

Many commentators in the UK believe SIBs will be a big market/new asset class relatively quickly.[iv]