Reserve Bank Governor Glenn Stevens has waded into the debate about whether Australia needs a strong home-grown IT sector, claiming the nation hasn’t been disadvantaged by failing to grow one since the dot-com bubble burst a decade ago.
Over the past few months the issue of how Australia should attempt to grow a powerful technology-based economy has been at the forefront of the industry’s mind, due partly to the Labor Government’s focus on “digital economy” outcomes spurred by its massive investment in its flagship National Broadband Network project.
Several seed funds have been launched with the aim of boosting the IT startup sector, and even industry warhorses such as Intel have been discussing how investment can be brought down under. However, in a speech to the Australian Industry Group’s Annual National Forum today, Reserve Bank Governor Stevens poured cold water on the whole idea.
“Ten years on,” Stevens noted, referring to the dot-com bubble and bust, “It does not seem to have been to Australia’s disadvantage not to have built a massive IT production sector.”
On the contrary, Stevens pointed out Australia’s terms of trade were currently at a 60-year high, and the national currency was close to equalling the Americal dollar. Investment in the resources sector was also booming.
“In the area of information technology, meanwhile, the pace of change continues to be rapid; prices continue to fall, profits have proved very hard to come by and a number of prominent names from 2000 have disappeared,” he added. “It is still better, it seems, to be a user than a producer of IT.”
Stevens’ comments did not appear to be directly targeted at slamming Australia’s IT sector or its development. Rather, he appeared to be putting the idea in context that forecasting the future was quite hard to do — especially in situations such as the dot-com bubble which had delivered an incredible amount of hype into the business community.
“Australians were told by more than one prominent visitor that we lived in an ‘old economy’, with the implication that we needed to shift towards the production of IT goods,” said Stevens. But the reality didn’t match the hype. “Blue-sky valuations were being applied to companies that had not, at that point, earned a single dollar of profit (and many never would),” he added. The economist referred to what appeared to be a speech given at the time by Tim Harcourt, the then- and still-chief economist of the Australian Trade Commission.
In the speech, Harcourt referred to what he said was the notion that Australia had an “IT deficit” — in short, the argument that Australia was a good user of IT goods but did not produce many.
Harcourt argued that in fact, the nation shouldn’t worry about the IT deficit, for several reasons. Firstly, he said, Australia ran large trade surpluses in some areas – such as agriculture and mining — that could fund deficits in areas like IT production.
Then, too, while Australia was not necessarily good at manufacturing IT products, it was good at services, which could be built around such products. And IT was, in general, embedded in the economy anyway, through such mechanisms at the time as “e-commerce servers” and internet usage.
“Economies are not static machines,” said Stevens today. “They are a complex and dynamic combination of actors, all continually seeking to adapt to changing conditions. That is one reason that economic outcomes are very hard to predict, and why I am circumspect about predicting ‘Australia to 2020’.”
“No one can give you a blueprint for which areas will succeed and which will not, any more than the pundits a decade ago, at the height of the ‘new economy’ fad, could foresee the shape of Australia’s economy today.”
Image credit: RBA
Who does he think produces the IT services he uses? I wonder if he’d notice if his sys-admin disabled his account?
Out of touch with reality…
Australia punches above its weight in Open source, but really, where is the Australian innovation?
The frightening thing is how Stevens assumes Australia’s economic performance over the last decade has been due to good economic management.
We’ve managed to dodge two recessions by ramping up the property markets, by Howard in 2001 and Rudd in 2008, and we’ve had a dream run with commodity exports.
None of these three are the basis for a long term successful economy.
In Canberra, the prevailing view seems to be that we can sit back and ride on the coat tails of a rapidly and ever expanding China and that Chinese growth will never falter.
Should that growth be interrupted we’re in trouble as no-one — Glenn Stevens, the RBA or either of our political parties — seem to have a Plan B.
Incidentally, it’s worthwhile reading Tim Harcourt’s October 2000 speech, particularly this passage;
“Investing in people is therefore the best way to improve effectiveness and competitiveness. Australian exporters have made significant commitments to education and training (especially in IT) and this helps the rest of the economy.”
I’m simply astonished at Stevens’ comments. It seems to me Australia has sleepwalked into the Dutch Disease and we have no idea of the high risk path we’re taking.
Bit harsh to tar the whole industry with the same brush. We as an industry have some of the best software quality assurance and testing resources in the world. If we let the the software developed by so-called leaders in the industry go live he would soon change his tune. Must also point out that software built by the ‘leaders’ often does not ‘fit’ our Australian user requirements and needs to rewritten or tweaked by the local bodies before it can be used. He should pull his head out of the sand.
I’ve put a rant about this on my own blog.
http://paulwallbank.com/2010/10/27/australiasone-trick-economy/
The frightening thing with Stevens’ comments is they reflect the government, political and business establishments view that the China boom will go on forever and we can just sit on our well padded Anglo backsides and clip the tickets.
It’s a nice life if it works out, but history isn’t kind to those who assume this.
It seems a pity that such an uneducated statement has been made by an individual to whom we expect to have his finger on the pulse of the economy. The IT Sector is extremely strong in Australia. These comments reference a small sector only, the Internet and its development. Not all IT skills are Internet-related. There is a massive IT Sector which requires specific skills that are not only Internet-related.
I think that Mr. Stevens has missed the fact the the all of Australia’s businessese, both public and private, and the underlying IT infrastructure that support these enterprises, use Australian resources and skills. This is the real IT Sector. The sector one that “supports” and allow all Australians to access the Internet., not just the Internet alone.
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