This is a repost from Tony Ferguson’s Blog Battling Entropy. See the full Battling Entropy blog site here.
So Donald Trump has been elected and the Trans Pacific Partnership looks to be as dead as a Norwegian Blue. There is no doubt that much of the world is entering a new phase of populist isolationism and nationalism led by the Trump followers in the US and the Brexiters in the UK. The benefits of free trade and open borders are being shunned by a displaced mass of “salt of the earth” voters still hurting from the post-GFC recession that rocked most of the world. Unfortunately the new isolationism being propounded – and soon implemented – in the US and UK is going to hurt Australia as well as themselves.
As Australians, let’s think this situation through from a selfish perspective, as President-elect Trump would surely encourage. What is in this for us?
As Trump’s victory became clear the conservative US Drudge Report tweeted “Silicon Sultans s__t themselves” after Iranian-American entrepreneur and venture capitalist Shervin Pishevar called for California’s secession and offered to fund a new movement. A few hours later, #Calexit surged on Twitter with one man suggesting that California, Oregon and Washington secede to form a new country called COW. The Tech Crunch Report notes that “A Trump win is antithetical to a Silicon Valley culture that prides itself on (rightly or wrongly) on meritocracy, openness, and rationality.” In the period since Trump’s victory some Silicon Valley leaders have softened their stance but many, particularly those of nationalities targeted by the Trump campaign, are vocally exploring their emigration options.
The Prime Minister’s launch of Australia’s innovation agenda last December has lost momentum – or perhaps it is more accurate to say that it hasn’t gained enough. Our major challenge is simply the lack of critical mass in the tech sector . Right now we also lack the technical and social infrastructure and the capital base to support them. A successful tech sector is a complex ecosystem of entrepreneurs, investors, skilled workers and researchers. Israel has shown that such a critical mass can be built from scratch but it takes both time and luck. In Israel’s case it took around 20 years from its seeds in the early 1990s and was significantly aided by the mass immigration of hundreds of thousands of highly technically trained Russian Jews in the 1990s.
Perhaps Australia will be able to build a tech sector of critical mass over time anyway, but what an opportunity to make a huge leap forward by encouraging a core of the world’s best talent to move here from Silicon Valley.
Let’s take a reality check on Australia’s qualifications to do that:
Liveability – big tick. The Economist Intelligence Unit’s 2015 Global Liveability Index ranks Melbourne, Adelaide, Sydney and Perth in the Top 10 cities. Canada’s Vancouver, Toronto and Calgary also make the global Top 10 as does Auckland. The USA has no cities in the Top 10 with Honolulu at 19 and then Washington at 31. San Francisco ranks a surprisingly low 49 due to infrastructure, healthcare and education.
Proximity – We’re a lot further away than Canada but the five to seven hour time difference between Australia’s East Coast and the US West Coast is quite manageable for a business. Mining companies such as Homestake and Placer Dome (now both part of Barrick) have demonstrated the feasibility and effectiveness of businesses with management teams spanning the Pacific.
Language and culture – tick. There really are a limited number of English-speaking countries with a democratic heritage and a decent sized economy – the US, UK, Canada, Australia, South Africa, New Zealand and Singapore.
Political climate – tick, for now at least. Australia’s populist, isolationist and protectionist movements remain in the minority thanks largely to our markedly lesser economic damage from the GFC. The recently released 2016 Scanlon report on social cohesion finds us to still be a generally tolerant and confident country although more Australians from ethnic minorities are reporting discrimination. Overall, I would argue that right now, politically as well as culturally, California is quite a bit closer to Australia than to the American Midwest.
Tax rates – a mixed bag. Australia’s 30% company tax rate is actually lower than the US’s current 35% although Trump has said he will slash that to 15%. Our top personal income tax rates at 47% at first look competitive with the combined US Federal 39.3% plus California’s effective 13.3% but Australia’s top rates kick in at much, much lower income levels. Perhaps most critical for the tech sector is capital gains tax (capital gains being how most managers as well as investors hope to create their wealth). We may think this is reasonably competitive at 25% but it presents a clear disadvantage to the US system which tops out at 15% for almost everyone.
Australia looks to be in a reasonably good position to capture any Silicon Valley diaspora but we are clearly in competition with Canada and other countries. Canada has a remarkably similar cultural and political match, similar tax rates and is much closer to the USA (and much colder than Australia).
The world’s tech leaders and investors will probably continue to cluster in several discrete locations, as they have so far, and achieving critical mass can’t be taken for granted. The 2016 Global Innovation Index produced by Cornell University and INSEAD ranks Australia at 19 and Canada at 15. The top five are Switzerland, Sweden, the UK, the USA and Finland. Success is far from assured.
Australia should reach out and make it easy for the disaffected tech sector leaders, innovators and investors from the USA to move in serious numbers to Australia, bringing their capital and business plans with them. If we really want to do this we must welcome them here with open arms and create a climate and framework around them that maximises their chances of success. Critically, we must also ensure that any such influx leads to greatly increased opportunities for Australians more broadly and particularly our young people. If we simply create a technocratic “1%” elite who further drive up property prices in our capital cities we will have failed miserably.
So, how can we spread the benefits and ensure that this works for Australia, not just those who might lead the move here? We should think of tech as driving value added exports, not just creating software and internet platforms. The tech sector in both the US and Israel is a major export driver for many value added products and services. According to World Bank data Israel’s high technology exports totalled US$10.2 billion in 2014 compared to Australia’s US$4.7 billion (which needs to be put in context – Australia’s GDP is five times Israel’s so they are outgunning us by a factor of ten). Israel’s tech exports include many manufactured items – for example flight simulators, telecommunications equipment, drones, medical equipment and environmental technology – as well as software.
Why not create a free trade zone around Port Kembla to encourage the development of Wollongong and the Illawarra as the Australian manufacturing tech hub? We also have an under-utilised airport which can be part of the free trade zone for time-sensitive freight. Hundreds of tech sector leaders and specialists could relocate to the delightful Illawarra if they find Trump’s America unpalatable and the businesses they establish could drive jobs and opportunities for tens of thousands of Australians in the new Illawarra Free Trade Zone.
Our proximity to Asia is an advantage for component imports as well as exports. We have a highly trained technical workforce many of whom are tired of commuting to Sydney as local industries have shrunk. Wollongong University could add to its already excellent standing with new blood from overseas becoming Australia’s Stanford. High tech R&D working hand in hand with industry.
Australia should offer incentives in the form of reduced capital gains tax when investors transplant businesses to the Free Trade Zone, perhaps linked to minimum employment levels.
To twist the Statue of Liberty’s inscription a little:
Give me your energetic, your successful, your individualistic leaders yearning to breathe free, the shining lights of your teeming shore.
Send these, now dispossessed, Trump-tossed to me, I lift my lamp beside the golden door!
The Scanlon report cited above also noted great dissatisfaction with politics, particularly Canberra, by voters of all political affiliations. Andrew Markus of Monash University for the Scanlon Foundation comments “There’s a high level of community unease about the quality of government,” says Markus. “We don’t seem to be within a bull’s roar of getting anywhere with that because the political class is so divided.”
Wouldn’t it be great if we could unite on this? Of course the Illawarra is a Labor heartland – of the seven state and federal seats in the region five are held by Labor and two by the LNP. We will need to rise above partisan politics and work together to make this happen.
What about it, Mr Turnbull & Mr Shorten, Mr Baird & Mr Foley – and leaders of the Illawarra?
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