UTSpeaks: Endless Prosperity?

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Can Australia find a business model to keep the good times going? Prof. Thomas Clarke, Professor William Lazonick - 12 July 2012 Use the hashtag #utspeaks to further the discussion on twitter. UTSpeaks is an annual free public lecture series presented by UTS experts discussing a range of important issues confronting contemporary Australia.


<ul><li> 1. UTSpeaks: Endless Prosperity?Professor Thomas Clarke, Professor William Lazononick 12 July 2012</li></ul><p> 2. A BUSINESS MODEL FORA SUSTAINABLE FUTURE ? Thomas ClarkeCentre for Corporate Governance UTS Sydney 3. Business Models A business model conceptualises the explanation ofhow an organisation creates and delivers value(economic, social or other forms of value). The viability of business models in the contemporaryeconomy and society is determined by their capacity tocontinuously innovate. Increasingly business models will be tested also bytheir sustainability not simply in economic, but in socialand environmental terms also. 4. Australian Innovation System Report(2011) Innovation is the implementation of a new orsignificantly improved product (good orservice), process, new marketing method or anew organisational method in businesspractices, workplace organisation or externalrelations. 5. Innovation (US Dept Commerce 2012)The design, invention, development and/or implementation of new or altered products,services, processes, systems, organizationalstructures, or business models for the purposeof creating new value for customers andfinancial returns for the firm. 6. Accelerating Life Cycles 7. National Innovation SystemsKey components include: Firms education and training systems knowledge infrastructures (universities, R&amp;D institutes, standardsagencies, regulation systems) physical infrastructure public macro-micro policy systems 8. Roos et al, National Innovation Systems, ABF, 2005 9. Dodgson et al, Systems thinking, market failure, and the development ofinnovation policy, UQ/CBR Cambridge, 2010 10. OECD (1997) National Innovation Systems Countries have a choice. They can focus on development based oneither: Competition via investment in technology and innovation - which isimportant in high knowledge industries and high innovationeconomies, or Competition via exchange rates and wages - which is important inindustries producing standardised, lower-tech goods and services. 11. OECD (1997) National Innovation Systems The first route will maximise higher-skilled, higher-paid employment growthand living standards. Given the lack of control over the exchange rate, the second route requirescompetition based on wages. It is essential to understand that marketsthemselves wont shift a country from one path to the other. These conclusions arise from the OECDs recognition that technical progress -the creation of new products or the adoption of more efficient methods ofproduction - is the main source of economic growth and enhanced quality oflife. 12. Choiceknowledge industries standardised, lower-tech goods and services 13. THE HIGH ROAD OR THE LOW ROAD? (1997) Australias manufacturing sector has contracted in relative terms atthe fastest rate across the OECD economies and it seems Australianmanufacturing is in general not gaining employment in industrieswith higher R&amp;D intensities, contrary to OECD trends. There appears to have been little net increase in value-adding toour natural resources since the mid 1970s. Many of Australias industries are increasingly concentrated, withalready 0.4% of businesses employing nearly 40% of all workers.The position of SMEs versus large firms is likely to deteriorate 14. THE HIGH ROAD OR THE LOW ROAD? Australias overall internationally poor R&amp;D performance is largelythe result of our industrial structure which is concentrated in low-tech industries. Manufacturing has been measured as one of the most innovativesectors of the economy. Innovative firms tend to show betterperformance in sales and export growth. Australias trade structure has serious built-in negative biases, likeour poor and deteriorating terms of trade, costs of investment inproductive equipment imports. 15. REACHING FOR THE HIGH ROAD Integrate trade and industry policies. Shift the economy towards greater knowledge and innovationintensity. Improve cooperation and linkages. Target key productivity drivers. Build global distribution channels and capability. Invest in education and research infrastructure and training. Focus public policy and private sector attention on innovationand knowledge as the bases of competition. 16. The resources boom and the two-speed economy The stimulus from the resources boom means that miningstates will tend to grow faster than the non-mining stateswhile the mining industry is expanding. Further, faster expansion of mining-related sectors andregions will attract labour and capital away from the rest ofthe economy. In a fully-employed economy, this may imply slower growth innon-mining sectors and regions (Henry 2006). (The resourcecurse/ Dutch disease?) 17. The Curse of Resources The resource curse (Paradox of Plenty) refers to the paradox that countries and regionswith an abundance of natural resources, specifically point-source non-renewableresources like minerals and fuels, tend to have less economic growth and worsedevelopment outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons: including a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities). 18. Jan du Plessis, Chairman, Rio Tinto We are going to have to be much more responsiveto how the public perceive us, more responsive tohow our shareholders perceive us, and more sensitiveto how our employees perceive us.Royal Institute for International Affairs, London, 4 July 2012) 19. Sharing the benefits of the resourcesboom Minerals Resource Rent Tax Fixed-price Carbon Tax commencing 1 July2012, transitioning to a Cap-and-Trade ETS on1 July 2015 20. E EN DH UA CN AC TI IN OG N 21. The largest tertiary education systems in 2020 China (37m); India (28m); US (20m); Brazil (9m); Indonesia (7.8m) Russia (6.3m), Japan (3.8m), Turkey (3.8m), Iran (3.8m), Nigeria (3.6m)Growth Rates: Highest growth in tertiary enrolments expected in China from24% to 38% India to reach 23% from 16% Other emerging economies with significant growth: Brazil (+2.6m), Indonesia (+2.3m), Nigeria (+1.4m),Philippines, Bangladesh and Turkey (+0.7m each) and Ethiopia (+0.6m) 22. IB NU FI RL AD SI TN RG UCTNUERW E 23. R ME AV NI UT FA AL CI TS UI RN IG NG 24. EB NU GS II NENSES OS FIC NL NU OVSAT TE IR OS N 25. International Focus on Innovation,Competitiveness and Jobs 26. 2009 27. Australian Government (2008/2009) 28. Australias performance in innovation outcomesagainst other OECD countries (OECD 2009) 29. Australias performance in innovation outcomesagainst other OECD countries (OECD 2009) 30. Australia Selected Industries, contributions toGVA, employment, exports, innovation and R&amp;D (ABS 2011) 31. Australias WeaknessesDon Scott-Kemmis (2010)The Australian economy maintains a high level of dependence on natural resources and is failingto develop new areas of specialisation and growth.Recent productivity growth the result of one-offs: micro-economic &amp; ICTThis performance masks underlying weaknesses in new firm formation and in the growth of newinternationally competitive industries.The poor performance of Australian firms in R&amp;D and patenting signals the weaknesses inmanagement, scale and international positioning.Australias declining position in high tech sectors indicates the extent to which Australia is beingleft behind the frontier of innovation and growth in the world economy. One of the lowest in the OECD in BERD, investment in venture capital;and internationalpatenting activity (per mill. Population) 80% of the top fifteen export products are resource-based commodities with a low level of processing; large and growing trade deficit in ICT products and services 32. Australias Strengths Don Scott-Kemmis (2010)Australia is a broadly based dynamic and flexible economy, diversified across markets, and increasingly sectors, underpinned by competitive domestic markets and flexible labour markets. High-level human resources and strong research organisations facilitate the rapid uptake of new knowledge produced anywhere.Imported knowledge and equipment combined with local knowledge and capability supports active problem solving and systems integration in a range of sectors generating relatively high levels of productivity.A fast-user strategy combined with natural and human resources is a sound basis for future prosperity. High and increasing productivity; Relatively high level of public sector R&amp;D [R&amp;D intensity in some sectors &gt; the OECD av.]; Substantial growth in niches markets in key manufacturing sectors: telecom equipment, wine, boats, automobilesand components; Maintaining strong competitiveness in resources sectors through the effective application of new technology,including IT; A strong ICT services sector and high growth in knowledge based services; Rapid and broadly-based uptake of new ICT. 33. OECD Green Growth Strategy: A new driver of innovation In June 2009, all OECD member countries signed a Declaration on GreenGrowth, recognising their ability to drive economic development while addressingurgent challenges including climate change, environmental degradation andenergy security. The Declaration tasked the OECD with developing a Green GrowthStrategy, which was released at the OECD Ministerial Council Meeting on 2526May 2011. Green growth means: fostering economic growth and development while ensuringthat natural assets continue to provide the resources and environmental serviceson which our well-being relies. It is also about fostering investment and innovationwhich will underpin sustained growth and give rise to new economic opportunities. It has the potential to secure future growth and build prosperity by promoting newmarkets and economic opportunities that also help us to manage wickedproblems, such as climate change and unsustainable natural resource depletion. 34. Sustainable Prosperityin the New Economy? William Lazonick University of Massachusetts LowellThe Academic-Industry Research NetworkPresentation to UTSpeaksEndless Prosperity? Can Australia Find a Business Model to Keep the Good Times Going?University of Technology Sydney July 12, 2012 35. Sustainable prosperityMacroeconomic Objectives:Equitable and stable economic growth Growth: real per capita productivity gains thatcan raise standards of living Equity: gains from growth shared fairly amongthose who contribute to it Stability: employment and income that is notsubject to boom and bust 36. United States: Economic growth Real States, real GDPcapita, 2009$, 1960-1969 United GDP per per capita, 1960-2009 50,000 45,000 40,000Real GDP per capita, 2009$ 35,0002009 dollars 30,000 25,000 20,000 15,000 10,0005,000 00060 6366 6972 7578 8184 8790 9396 9902 050819 1919 1919 1919 1919 1919 1919 1920 2020 37. United States: unstable growth, 1960-2009United States, annual growth rate, real GDP per capita, 1960-20098 Annual growth rate, real GDP per capita6annual growth rate420 6164 6770 7376 7982 8588 9194 9700 0306 09 1919 1919 1919 1919 1919 1919 1920 2020 20 -2 -4 38. Instability and structural changes in corporate employment 12.01980-82 recession, 1990-91 2001 recession,rationalizationrecession, marketiglobalization 10.0zation1970s stagflation,8.0financial deregulation percent6.04.02.0 2008-09 recession, financializationUS unemployment rate, 1945-20100.01945 19491953 195719611965 19691973 19771981 198519891997 20012005 2009 1993Current unemployment percent unemployed 39. Inequitable growth, 1979-2009http://www.motherjones.com/politics/2011/06/speedup-americans-working-harder-charts 40. The Great U-TurnGini coefficient for all US families, 1947-2009 0.460 0.440Gini coefficient 0.420Gini coefficient 0.400 more equality 0.380 growing inequality 0.360 0.340 4751 5559 6367 7175 7983 8791 9599 0307 1919 1919 1919 1919 1919 1919 1919 2020 41. Concentration of income at the topShares of total US income of highest income households, 1913-2010 42. Old Economy Business Model (OEBM)OEBM: foundation for somewhat equitable and reasonably stablegrowthCareer employment with one companyLimited role of the stock market in the operation of the corporation: separation of ownership and control Creation of high quality jobs in the United States A progressive income tax structure: 91% marginal tax rate on highest incomes in the 1950s; 70% in 1980 Government investment in physical infrastructure andthe knowledge base (US: the most formidable developmental state in history) 43. New Economy Business Model (NEBM)NEBM: high-tech innovation based on technologies developed with massivegovernment support, often in OEBM research labs, but with the stock marketplaying major functions in the allocation of capital and labor NASDAQ as an inducement for venture-capital investment: exit investmentsvia a speculative market Interfirm mobility of labor over the course of a career, with stock options asprime inducement to change jobs Top executives especially highly paid via stock options In name of innovation, High-tech NEBM lobby seeks and gets low taxes Outsourcing of manufacturing and globalization of the value chain 44. WINNER OF THE 2010 SCHUMPETER PRIZE COMPETITIONThe shift from the Old Economybusiness model (OEBM) to the New Economy business model (NEBM) hasresulted in a highly financialized US corporate economy that contributes to inequity and instability, and threatenseconomic growth Published in September 2009 by theUpjohn Institute for Employment Research1. What is New, and Permanent, about the New Economy?2. The Rise of the New Economy Business Model3. The Demise of the Old Economy Business Model4. Pensions and Unions in the New Economy5. Globalization of the High-Tech Labor Force6. The Quest for Shareholder Value7. Prospects for Sustainable Prosperity 45. What do business models do?A business model transforms productive resources into goods andservices that can be sold to generate revenuesA business enterprise engages in three generic activities: strategy: allocates resources to investments in human and physicalresources organization: develops the productive capabilities of these resources finance: seeks to generate returns on the resources that it hasdeveloped through sale of goods and servicesInnovation: generation of higher quality products at low unit costs 46. Innovation is uncertain, collective, and cumulative Uncertainty: Innovation is not optimalInvestments in innovation are made in the face of technological, market, andcompetitive uncertainty, with the expectation, but no guarantee, of futurereturns need for strategic control Collectivity: Innovation cannot be done all aloneWorkers with different...</p>