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From dirt to digital

By Damian Jeffree - posted Friday, 21 April 2006

Sometimes you cannot help dumb luck. With resource prices booming, Australia’s export economy is riding high on the commodities boom (pdf file 2.51 MB). But for all the Keating Government’s talk of Australia becoming a “clever country”, economically we remain resolutely stupid: still digging dirt and growing plants for an export buck (pdf file 254KB).

This result should not be surprising, however, as the Keating plan for Australia to become a “content provider” for the technological revolution always was a cop-out. As a plan it has worked only to avoid our involvement in the new economy during its explosive formative years. Under the Howard Government this approach has continued: Australians should be content to be intelligent users of technology according to the government (pdf file 1,018KB). We are clever enough to drive the car but not enough to worry ourselves with its production.

I would argue that Australia owes it to its highly urbanised, and educated, population to think a little bigger and a little beyond our natural resource strengths. Resources may be where we come from, but we should put the spoils to good use to ensure our future does not depend on them so entirely. Many of them will, after all, run out and with the booms in the cycle so there are busts.


Australia got off to a running start in the computer era. With Federal Government backing, the CSIRO designed and built the world’s fifth electronic computer; CSIRVAC in 1949. This was a major technical achievement and saw Australian computer technology at the forefront of international development.

Since then, however, government support for the establishment of a local electronics and computing industry has been notable for its absence. Now in the early years of the 21st Century Australia finds itself with no local computer manufacturers, no local semiconductor industry and no significant local manufacturers of consumer electronics. I think it is time to question the wisdom of allowing our involvement in high technology electronic industries to fall so close to zero only 50 years after these industries first appeared. Many of our trading partners have significant sections of their economies in these sectors; it would appear prudent to similarly diversify our economic bets.

A telling example of how it got to this came in January with the announcement that Australia’s last remaining television factory, located in Penrith,NSW, will close, with the loss of 160 jobs. This factory was producing 100,000 television sets a year as recently as 2002. But as Australia had not chased involvement in the new flat panel technologies, the closure was inevitable.

Politically in Australia there has been a consensus that we should stick to our strengths and that the government should not try to pick winners when it comes to industry formation. But these industries have been major winners for the countries sensible enough to get involved in them. There is no need to pick a winner. As for sticking to our strengths, to a large extent they are what we make them.

If countries as diverse as the US, Japan, Korea, Ireland and Taiwan can have major sections of their economies based on these high-tech industries then surely there is scope for some involvement on our part. Arguments against our involvement based on our cost of labour or lack of scale could be equally well applied to our local car manufacturing industry or Japan’s electronics industry, both of which are doing well in a globalised economy.

To see a little of what could have been in semiconductor manufacture, we need only look to Ireland where through industry incentives an IT industry was created in the late 1980s. Intel built a semiconductor fabrication plant in 1989 and has since invested €5 billion and currently employs over 5,000 people at the plant. The Leixlip plant is the largest Intel facility outside the US and has spawned a sizeable high-tech industry for Ireland.


Recent developments in India have demonstrated that it may yet not be too late for Australia to get significant involvement in the semiconductor industry. Despite its large software industry, India had no local semiconductor design and manufacture. A company, SemIndia, was created with the intention of establishing such industries in India and recently it has signed a deal with processor giant AMD to create a manufacturing facility in Bangalore using AMD technology. The benefits to India of having a local semiconductor fabrication plant will be enormous. Had we been aggressively pursuing involvement in the industry it is possible that this could have been Australia’s new plant.

Ignoring the computer, electronic and semiconductor industries for their first 50 years has been a losing bet for Australia, and it may be that we have left our run too late. It is imperative that we now acknowledge “sticking with our strengths” has been a mistake and that we should now be taking a long term view of where we would like to position the Australian economy.

We should aim to make a significant part of the Australian economy engaged with the new economy industries. To this end Australia should aggressively pursue partners to establish local computer and semiconductor manufacture and consumer electronics industries. Tax concessions, Fox Studio-style sweetheart leases and innovative incentive schemes are likely to be required. If we can make it happen, then history may judge Australia’s late involvement as a very prudent just-in-time move.

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About the Author

Damian Jeffree is an equities trader for an investment bank.

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