http://www.economist.com/node/21553017

We’ve actually been taking an interest in manufacturing and productivity recently, and Michael and I have both posted recently on the subject.

http://pracsys.com.au/time-to-rethink-our-comparative-advantage-in-manufacturing/

http://pracsys.com.au/manufacturing-clusters-and-wages-in-china/

The main inspiration for declaring this new industrial epoch is the development of 3D printers, allowing manufacturing to be de-centralised. The argument is that these new printers will essentially allow anyone to manufacture anything, anywhere, by downloading the relevant design and then printing off a copy.

As well as 3D printers, robots are becoming increasingly dextrous, software is getting smarter, many novel materials are emerging and a range of web-based services are emerging. Two consequences of these developments proposed in the article are:

• Decentralisation of manufacturing, which implies reduced economies of scale.
• More customisation. In the past (and still today), producing large numbers of similar products, according to a limited range of specifications, has been much cheaper than customising products for each buyer. Decentralised production and smaller batches will allow a much greater range of customised products to be created at a competitive cost.

While the Economist might have gone too far in describing the transformative powers of 3D printing (economies of scale will likely continue to be a feature of manufacturing for the foreseeable future), these new developments in production methods may bode well for Australian manufacturing.

Firstly, the use of labour in manufacturing has been decreasing for some time, decreasing the share of total cost due to the cost of labour. To quote the article: “some carmakers already produce twice as many vehicles per employee as they did only a decade ago”. An increasing number of the jobs are now in upstream design, engineering, IT, logistics and marketing. This is good news for a country with a lot of highly educated and innovative – but expensive – workers, like Australia. Australia has had an enduring competitive disadvantage in manufacturing in the high cost of our labour – a lot of us can simply earn more doing something else. However, as labour’s share of total cost in manufacturing decreases, and what labour is used is required to be more highly skilled, then our disadvantage is reduced. Design, engineering, IT, logistics and marketing are things that we can do, and do well.

Our other competitive disadvantage in manufacturing is our small and isolated market. More populous regions of the world have the proximity to enough customers to be able to scale up their manufacturing, giving them greater economies of scale. Being nearer to enough of their customers also means that this advantage isn’t then counter-balanced by high transport costs as these centrally-produced goods are then dispersed to their buyers. If, as the Economist believes, that new technologies will reduce or eliminate the advantage of scale in manufacturing, then an opportunity opens up for Australian manufacturers – producing competitively-priced products for the (still small) domestic market, and exporting uniquely Australian or custom products to the rest of the world. As well as finished goods, it also creates the possibilities for our manufacturers to become more integrated into global supply chain. It is also worth bearing in mind that products that have a higher knowledge component in their manufacture tend to sell at the highest margin. Producing at a high point in the value chain like this is what is required for high labour cost manufacturing.

Realistically, economies of scale in manufacturing are likely to still be with us for some time, however. 3D printers will more likely be employed as part of a longer chain of production, producing complex components more effectively than traditional methods. Still, these developments may help to level the playing field for our struggling manufacturers.

The linked article by Paul Wallbank explores the career path of Bill Gates if he had been born in Australia.

http://www.smartcompany.com.au/business-tech-talk/what-if-bill-gates-had-been-born-in-australia.html

Australia’s tax system penalises entrepreneurs for taking risks, while permitting negative gearing and capital gains exemptions on homes.

Wallbank imagines that this could have produced an Australian Bill Gates who when hit by funding restrictions and conservatism would have given up his technology dreams to become a partner in a safe law firm – with a string of investment properties to signal his ‘success’.

Australia’s continued economic growth and development requires innovation. But with bank loans prioritising equity and the tax system favouring homeowners, people are putting all their investment eggs into the property basket and there isn’t a lot left to fund new ideas.

Should we be reforming our tax system to enable and encourage the next generation to think big and follow their dreams?

One advantage of developing the high-speed rails is the provision of an alternative and/or cheaper alternative mode of transport. It is suggested that it will have lower passenger costs as compared to travelling by automobiles or air. Take for example, the Sydney – Melbourne air route. It is the fourth busiest in the world, and the flight time is about 1.5 hours, with a distance of approximately 881km. According to Google Map, this takes approximately 10 hours if travelling by the cheaper alternative to air travel – the car. However, with the high-speed rails operating at an average speed ranging from 250km to 350km per hour, it would only take about 3 to 4 hours to travel between Sydney and Melbourne. This compares to the total amount of time taken to travel to/ from airport, check in and time to collect luggage if travelling by air, as it would work out to be almost the same.

The high-speed rails are also less environmentally damaging. With the world becoming more aware of global warming and the potential cost of carbon footprint to Australia, high-speed rails offer the alternative solution to automobile and air travel. It is found that the electrically-powered high speed rail reduces pollutant and greenhouse gas emission, and will save on carbon emission costs.

Other advantages of high speed rail over automobile and air travel include lower accident rates than automobile travel. Job creations are amongst the many benefits that high speed rails have to offer. For further information, a thorough study was done by the Cooperative Research Centre (CRC) for Rail Innovation.

Pracsys has done a lot of financial analysis to determine whether various sustainable technologies, such as recycled water, are viable compared with current methods, such as traditional scheme water, in the developments of the future.

There is no doubt we need to embrace alternative technology; the problem is the capital costs associated with these technologies are often very high.  Add the fact that current technology is so heavily subsidised and the comparative cost really starts to add up – and the stakes get higher.

In making investment decision does the developer risk short and medium returns in the knowledge that cashflows will be positive in the future? Alternatively do we sit on our hands, watch and wait and hope that such technologies become relatively more affordable once others pave the way and economies of scale are achieved?

No-one wants to be the first to jump, the one to pay a premium for taking that leap of faith. Particularly given that we’re talking about the basics that everyone should have access to – water, power, transport. If the end user doesnt percieve the full value of these technologies then the developer will need to subsidise the price to make it attractive to market.

If Government, for example, were to embrace sustainable alternatives, who would pay for it? Would it put the basics beyond the reach of lower income residents?

There are some advantages in being the first to take the leap, to set benchmarks for others to follow. Water is a scare resource in Perth; it’s a fact that we need a more sustainable method of water supply.

The trick is to strike the right balance between the  risk and the benefits, both economic and environmental, of such action. And this means Governments making some hard decisions, working to sway public opinion on issues such as recycled water, and ultimately being convinced that they should take a chance, even if the figures don’t stack up in the here and now.

Your grandmother, if she worked outside the home at all, might have been in the typing pool or an old-fashioned secretary who made the tea and took shorthand for her male boss; your grandfather a loans clerk at a bank or a worker at a manufacturing plant.

They might have had six children, but certainly not fewer than four so they never wasted a thing; clothes were handed down; meals made out of the very basics.

Service, they will tell you, was more personal in their day. They knew their bank manager by name, their doctor regularly did house calls; if they needed anything fixed – from the radio to a car engine or office equipment – there would be a guy down the road who’d have it done in a jiffy; rare holidays would be planned with maps, brochures and trusted travel agents.

You, on the other hand, are likely to be working in mining, in IT, or be self-employed. The secretary is more likely to be a personal assistant who also has a degree and multi-skills in computers, office management and accounting.

You probably only have two children and they already have a plethora of “stuff” that you don’t understand and they certainly don’t need. If you want a loan, you apply online and hear back within a few days without ever having a conversation with anyone, let alone going into a bank; if something’s broken you’re far more likely to throw it away than have it fixed; and if you want to go on holidays you probably book the whole thing online.

So many jobs have either gone completely, are on the way out, or will undergo a complete transformation to adapt to a changing society.

In the past we bought more of life’s essentials; now we spend a lot more on things that are not necessary. With rising living standards comes increased consumption and more pressure on finite resources.

Sustainability, then, will be a big player in the workforce of your children’s future. As will the likes of genetic medicine and innovations in technology for the care of an ageing population.

Some of their job titles may sound like science fiction to you (and certainly to your grandparents) but as society’s priorities change so will the nature of their employment. Future jobs will include the likes of:

Telemedicine technician. Forget the traditional GP. These guys will act as support assistants who can diagnose conditions using state-of-the-art GPS medical systems; they won’t even need you to be in the same room.

Chief innovation officer. Someone paid to move the ideas along, to organise innovation efforts and find ways to commercialise them, to maximise entrepreneurial outcomes.

Corporate alumni director. If networks are knowledge capital, then places (ie cities) with a lot of knowledgeable alumni are very valuable resources indeed, resources that need fostering and careful managing.

Eco-relations manager. With a growing focus on green energy and sustainability there will be more and more green collar jobs, such as selling carbon credits or managing carbon allocation.

Retirement consultants. With an ageing population, jobs will change to provide greater services to cater for their needs. A wealthier, “younger” aged population will demand better services.

Whatever their jobs, your children will be adapting to changes in society, just as you, your parents and grandparents did before them. As always, developments will be about increasing efficiency, getting more output from the same input, no matter the science and technology behind those job changes.

Rather, it is an economic essential, a critical part of a modern, vibrant city.

What many of the world’s leading cities have in common is their status as an outstanding centre for arts and culture. The Royal Ballet in London, the Met in New York, La Scala in Milan… these cultural drawcards reasons to go to such cities in and of themselves.

And people who come for arts and culture come to spend. This economic reality shows even in Australian cities which still fall short of deserving the mantle “creative capitals”.

Half of all overseas visitors attend at least one cultural attraction while they are in town. If they come for a day, they spend $30 to $35 per head on arts and culture; if they stay overnight, their spend jumps to $120.

Residents, too, show their appreciation, with 65 percent of Australians attending at least one form of arts and culture in a year. This support is particularly evident in people aged over 30.

If, however, a city such as Perth is to grow and prosper it needs to do much more in this vital area. Nice beaches and good weather are all very well, but they do little for the bottom line.

To secure the kind of creative and thinking people who can take a city to another level of competitiveness, Perth needs to offer a lifestyle that this crucial knowledge sector finds attractive.

The presence of a vibrant arts and culture scene is a major drawcard. A city that takes its culture seriously has a major advantage over a competitor trying to secure the services of creative people.

Funding support for the arts varies wildly, with different models operating around the world. In the United States, support comes largely from private or philanthropic quarters. In Europe, where there are 20 times the number of opera houses in major cities than in their American counterparts, support is primarily from government.

In Australia, like Canada, there is a mixture of support from the private and public arenas. In uncertain economic times, sponsorship or direct funding of the arts is often cut back, seen as a optional extra – a spend with little, or no, return.

This is a very short-sighted approach. Arts and culture doesn’t just provide the social return we all acknowledge makes for a better society; it provides real return in areas vital to long-term growth. It is a significant employer – 35 percent of the population either works or volunteers in the area. It encourages people, visitors and residents, to tip money into the economy by attending arts and culture events. And, crucially, it attracts the kind of people we need to develop a city into a major player.

For Australian cities to be in with a fighting chance, it is essential for government at every level to hold firm, to recognise the real and intrinsic value of arts and culture, and lift its support. Culture doesn’t just make us feel good; it makes good economic sense.

Eric Mathews is the founder of Launch Memphis, an organisation that nurtures technology startups in Memphis. Eric talks about how technology can help seed an entrepreneurial community and be used to bring entrepreneurs together.
Click here to view this podcast.

The first, In Search of A New Economy, looks at the changing economy in Spain, where public spending on research and development has tripled, but the private sector has barely budged. The country’s new Minister for Science and Innovation argues that change is needed throughout the economy.

The second, Beyond Oil, analyses the state of Texas and just how well placed, or otherwise, this behemoth is for life after the oil dries up. Energy is still high on the agenda, but from some unexpected sources.

One of the biggest problems in determining the answer is a lack of data – and the lack of a consistent and transparent way of measuring available data to make evidence-based decisions. 

Without standardisation it is difficult to compare, benchmark or integrate information. People just aren’t speaking the same language or are reluctant to learn how to communicate.

A conference in Melbourne recently, State of the Cities: Unlocking the Data, highlighted how critical good research data is to the success of cities. Data is not merely facts and figures, used properly it can enable improvements in three key areas:

• Productivity
• Liveability
• Sustainability

But what is being done to ensure that an evidence-based system for collecting, compiling and sharing essential data is adopted across the board?

Government departments have in the past been opposed to giving out information, stating privacy issues or concerns that the data would be used inaccurately.

However, the more information is publicly accessible the greater the opportunity to be efficient and proactive; the greater the opportunity for collaboration and innovation. 

This is particularly important for long-term sustainability. To get an accurate and holistic picture of the sustainability of everything from housing and employment to the environment (and how they interact), you need a better understanding of indicators, how they should be measured and compared.

It is all very well, for example, to proclaim Perth or Melbourne as one of the world’s most liveable cities, but why is it so? Such statements regularly grab the headlines but there is little if any discussion of how the researchers reached that conclusion. What measures did they use? What does the data really say? Is it an accurate assessment?

There are many different people and bodies gathering data but no real central governance of the issue that is so critical to our future. Infrastructure Australia, the Federal Government’s new national approach to the development and implementation of infrastructure, is a step in the right direction. Funding for the Cooperative Research Centre for Spatial Information (CRC-SI) will be another important step. 

But it is vital that everyone comes on board, and understands the value of quality, timely data – to make good decisions and to measure society’s progress.

Less evident is research on the role of cities as stimulators of design, a critical ingredient in the causal chain linking creativity on one hand and innovation, productivity and business performance on the other.  

To understand the role of cities in design, it is helpful to understand the role of design in the creativity – innovation –productivity continuum.   Two reviews of creativity, design and business performance in the UK conducted by the Cox Commission (2005) and the Dept of Trade & Industry (2005) provide a useful framework for thinking about design.  

Creativity and design are overlapping concepts and so it is helpful to think about the articulation between them.  Borrowing from the Cox Commission (p2), the concepts of creativity, design and innovation can be defined in economic terms as follows:

• Creativity is the generation of new ideas – either new ways of looking at existing problems, or of seeing new opportunities, perhaps by exploiting emerging technologies or changes in markets.
• Innovation is the successful exploitation of new ideas.  It is the process that carries them through to new products, new services, and new ways of running the business or even new ways of doing business.
• Design is what links creativity and innovation.  It shapes ideas to become practical and attractive propositions for users and customers.  Design may be described as creativity deployed to a specific end.

Borrowing from the DTI (p3), creativity and design can be linked to business performance through:

• The ‘traditional’ R&D channel, where improvements in productivity and business performance stem from innovation through advances in scientific knowledge or new technology.  This is particularly evident in the higher tech, hard science sectors of the economy.
• The design channel, where improvements in productivity and business performance can come about from advancements delivered through process design, branding and marketing.  This is more evident in sectors without substantive R&D.  
• The ‘less-traditional’ creative climate channel, where advances in business performance can occur as a result of environmental factors like organisational culture.  

Conceptually these channels can be mapped as follows (see Figure 1 below, quoted in DTI, p 3, 2005).  

If the activity of design is thus defined as shaping new ideas (generated by creativity) into practical and attractive propositions to be successfully exploited (as innovation), it logically leads the urban analyst to explore where the practice of design occurs within the urban employment and economic structure.  

Again, borrowing from DTI, at one end of the spectrum, design is evident in the production of goods and services with a high content of expression and symbolism, associated with industries such as graphics and fashion which have a strong artistic base.  At the other end, design is evident in the production of goods and services that are more obviously functional and material, such as engineering and component manufacturing, which have a strong scientific base.  

Within this spectrum lie a number of industry sectors which the Queensland Smart State Council has attempted to define in a recent submission to the Queensland Government.

References: Cox Review of Creativity in Business: Building on the UK’s strengths, Nov 2005; DTI Economics Paper No. 15: Creativity, Design and Business Perfomance, Nov 2005; Smart State Council (2008) Smart State = Design State, prepared by a working group of the Smart State Council