Are Aussies crippled by a fear of failure?
A lack of innovation compared with the US suggests while Australians hold back, Americans will take a risk
Aquick comparison of the largest companies in Australia and the largest in the US reveals just how much Oz is lagging in innovation.
Eight of Australia’s top 10 companies were founded at least a century ago. The list is dominated by the big four banks, including Westpac, which this year is celebrating its bicentennial. There is also mining giant BHP (founded in 1885) and conglomerate Wesfarmers (1914).
Only Woolworths (1924) and Macquarie Group (1969) were founded more recently.
In the US, by contrast, five of the top 10 companies have been founded since 1975. These are household names including Apple, Microsoft, Amazon, Facebook and Google.
These facts are a stark illustration of the US’s success in innovation, and more pertinently, of Australia’s failure.
Certainly it’s not for want of trying. Successive governments over recent decades have spent hundreds of millions of dollars, formed countless think tanks, and commissioned dozens of studies on how to foster innovation.
Yet none of them has delivered much by way of results.
There are any number of possible reasons why Australia lags in innovation, but a big one is undoubtedly cultural.
In Australia, there is still a lot of stigma surrounding failure, both legally (look at our punitive bankruptcy and insolvency laws) and in particular, socially.
Where Australians hold back for fear of failure and what others might think of them, Americans go for it.
Given that for every successful innovative, there is a vast number of failures, this is a crucial difference.
None of this is to say that Australia doesn’t have its own tech successes. Chief among them is software company Atlassian, which tellingly decided to list in the US when it went public at the start of 2016. Its shares surged to a new high last week after it paid US$295 million ($450m) to buy US company OpsGenie, which makes software to prevent website outages and downtime.
Atlassian, which builds software to help work teams collaborate, now has a market capitalisation of around A$30 billion ($32b). The combined shareholding of co-founders Mike Cannon-Brookes and Scott Farquhar has jumped from A$8.8b at the start
of the year to around A$17.2b. But this is just one example.
Where Australia struggles is not so much in research and inventiveness, but in turning research and discoveries into commercial ventures. When there is a success, often the company relies on overseas funding, like Atlassian.
Another possible and more recent reason is Australia’s comparative prosperity.
We have sailed through more than a quarter of a century without a recession — longer than any other country in history. It means a whole generation of Australians have grown up without knowing a recession.
It also means that there has been nothing to jolt us out of our complacency and to force us to find new ways of generating wealth and economic growth that don’t involve digging stuff out of the ground or moving money around.
On the 10th anniversary of the collapse of Lehman Brothers in the US, it’s worth remembering that Australia also sailed through the GFC without going into recession — and asking if we would be so lucky a second time around.
When the crisis struck in 2008, Australia was in a very strong financial position. The mining boom had swelled government coffers so the nation was without debt, the economy was growing strongly and official interest rates were sitting at 7.25 per cent.
It meant we could afford to respond. Treasury and the Government quickly swung into action, spending billions of dollars building school halls and new roads, ensuring the economy kept ticking over and employment remained high.
The Reserve Bank of Australia also decisively slashed interest rates, providing a boost to confidence and crucial support to the economy.
As then Reserve Bank governor Glenn Stevens has presciently noted in a speech only a few months earlier: “The capacity to respond, if need be, to developments in the future is virtually without peer.”
But where are we now?
The official cash rate sits at 1.5 per cent, leaving very little scope for interest rate cuts to help the economy get through a shock — certainly nothing like the series of 1 percentage point cuts delivered by Stevens at the height of the GFC.
The Government also has limited capacity to respond. We haven’t run a budget surplus in over a decade and the ratio of government debt to GDP is above 40 per cent (New Zealand’s is about 24 per cent). This certainly isn’t terrible by world standards, but we won’t be able to throw money at another GFC.
Several times a week, an economist, investor or market commentator predicts another imminent GFC, often also claiming to be one of the few who foresaw the original crisis a decade ago.
In reality, their guesses are no better than anyone else’s.
But it is inevitable there will be another crisis somewhere along the line, and when it happens, Australia won’t have another lucky escape.