Taking the reins back in September Turnbull made it clear innovation, technology and entrepreneurship would form a key pillar of his policy agenda. In his first speech as Liberal leader, he sounded like an entrepreneur pitching a startup, throwing around tech industry terms like "disruption" and "agile".

His first big policy announcement involved tax breaks for venture capital investments, funds to commercialise research and a loosening of bankruptcy laws to promote risk-taking. Then there was a $28 million (taxpayer funded) advertising blitz, which saw the "Ideas Boom" emblazoned on bus stops around the country, and smattered across TV and social media.

Nobody cares

The tech industry and broader business community rejoiced. Policy wonks and commentators nodded in approval.

There was just one problem. Nobody outside of these circles seemed to care.

Magellan's Hamish Douglass: "I think we need to question whether we are entering a new technological and machine age... that could disrupt most businesses and possibly society as we know it." Jessica Hromas

Despite all the political capital spent promoting it, Turnbull's innovation pitch fell on deaf ears, and failed to yield any discernible returns at the ballot box in July.

That, along with the hostile parliament the election produced, has sparked concern in the technology industry and the commentariat that the government will abandon, or at least de-prioritise, what is a crucial policy for a nation at the economic crossroads.


The Prime Minister rejects this out of hand. "The government is totally committed to our innovation agenda which is an essential part of our economic plan," he tells AFR Weekend.

"In order to remain a prosperous, high wage, First World economy with a generous social welfare safety net we must be more innovative in business, in administration, in every aspect of our lives."

Malcolm Turnbull and the struggle for innovation. David Rowe.

It's an emphatic statement. But doubts remain about the government's ability to actually make inroads with the agenda.

"The 2016 election might prove to be one of the most expensive elections in Australian history in terms of our national prosperity," says Dr Andrew Charlton, a one-time adviser to Kevin Rudd who now runs economic consultancy AlphaBeta, "if the chastened Coalition turns the dial of economic policy away from its innovation agenda and towards the protectionist tendencies of the senate crossbench."

What went wrong

It would be wrong to attribute the election result to an ideas bust. Innovation didn't feature prominently during the campaign. Other issues such as healthcare took more prominence. It is worth examining why.

One senior adviser to the Prime Minister described last year's Ideas Boom advertising blitz (which came well before the election) to AFR Weekend as "hopeless" and "abysmal".


Ideas Boom, or bust? Andrew Meares

"Some of the early language alienated voters," the person said. "We turned it into a more basic message during the campaign, which was fine. [But] it took a lot to make up for what was an abysmal advertising campaign."

"The political narrative about transitioning from the old to the new was reasonably successful," added the source. "It does confront people, but any sort of policy confronts people."

"It's pretty obvious what happened," said a financial markets observer. "Turnbull was going out and telling people in western Sydney and Queensland they needed to be agile and disruptive. Well, they don't want to be agile, and they don't want to be disruptive. They are worried about being disrupted".

Opportunity or threat?

Voters might not like what they see. But as Australia faces the end of a once-in-a-century resources boom, it is not hard to understand why innovation appeals to policymakers.

“We’re incredibly lucky to have someone of her calibre," says ISA director Daniel Petre of Beth Comstock. Lee Besford

A huge amount of wealth has been created (or captured) by the technology sector over the past two and half decades. That period, which encompasses the rise of the internet and the mass adoption of personal computers and smartphones, has seen corporate empires built and personal fortunes amassed like never before.


Five of the 10 biggest companies listed on stockmarkets in the world's biggest economy are now tech companies (Apple, Google, Microsoft, Amazon, Facebook). Three of the world's 10 richest individuals are US internet entrepreneurs (Bill Gates, Jeff Bezos, Mark Zuckerberg).

As a nation, Australia can only look on at this enviously.

Yet embracing innovation and technology is not solely about unlocking new sources of wealth to replace dependence on natural resources. It should also be viewed as a defensive measure, a rearguard action, something we need to do to safeguard our prosperity in a rapidly changing world. That's how Daniel Petre, a former top foot soldier for billionaire Bill Gates at Microsoft, who was chosen by the PM to sit on a new federal innovation council, sees it.

"It's like saying we are going to opt out of oxygen," he says of suggestions the government could walk away from innovation and focus on more relatable policy areas. "It's like someone saying 'I'm coughing up blood but I'm not going to go to the doctor because he's going to tell me I have a terrible disease'."

Bleak outlook

Petre these days runs an investment firm, AirTree Ventures, which invests in technology startups. Venture capitalists are typically optimistic by nature, but Petre's outlook for an Australia that fails to embrace innovation is bleak.

"If we continue on our current rate and speed we are completely screwed," he says. "There will be mass jobs lost overseas, complete destruction of industries and an erosion of the tax base."

Petre is not alone in espousing this world view, and that helps explain why talk of innovation and disruption during the election didn't go down so well. People are worried about their jobs.


Paul Bassat is one of the high-profile signatories to the statement. Pat Scala

Earlier this year, the World Economic Forum issued a paper arguing the world is on the brink of a "fourth industrial revolution", with artificial intelligence and robotics poised to transform the global economy in a way that is "more comprehensive and all-encompassing than anything we have ever seen".

As many as 7.1 million jobs in 15 major economies, including Australia, could be destroyed by 2020. Over the same period, just 2 million new jobs would be created, the study argued.

The striking thing is, the jobs at risk aren't just in manufacturing or in transportation (the latter being an industry that looks especially vulnerable to job losses, amid the inexorable rise of ride sharing and inevitable rise of self-driving vehicles).

The bulk of the jobs lost – 4.8 million of them, according to the WEF study – will be in "office and administrative" work. In other words, white collar jobs.

"The reason why there is so much angst at the moment, is because a lot of what is at risk now is middle to upper income jobs, rather than lower income jobs," says James White, an economist at Colonial First Stage Global Asset Management.

Glass half full

But you can't fight progress, and turning our backs on innovation wouldn't achieve much, besides squandering big opportunities.


"Innovation and productivity growth is the main engine of rising living standards for the next several decades," says AlphaBeta's Charlton. "If the 2016 election serves to reduce the policy focus on innovation, it will come at a high price to future generations".

Paul Bassat, the co-founder of $5 billion jobs website SEEK who now runs Melbourne based venture capital firm Square Peg Capital, is more upbeat. While some jobs will invariably be lost due to technological change in coming years, new ones will be created. Thus it has always been.

"It doesn't matter where you live and what area you work in, all people in Australia are concerned about ensuring there will be jobs for their children and grandchildren," Bassat tells AFR Weekend. "And many of the most productive and highest paid jobs globally are being created in the tech industry.

"Whether it's software engineers, data scientists, in design and UX [user experience], we are seeing creation of a huge number of jobs that are productive and well paid in tech," he says.

The WEF report concurs, predicting many of the new jobs created will be in computer, mathematical and engineering roles.

The challenge will be ensuring they are created in Australia rather than elsewhere."It's a very competitive environment globally to encourage the building of robust tech ecosystems, and those countries that do it successfully will reap huge benefits." Bassat says.

Looking to Israel

For all the praise and attention given to Silicon Valley, both Bassat and Petre point to Israel as a potential guiding model for Australia.


"If you look at Israel, it has built an incredibly successful tech ecosystem, off the back of many different drivers, some of which are relevant to us, some of which aren't," he says. "But favourable policy settings from government was a core element of Israel's success."

Israel has more startups per capita than any other country, and it is the second biggest source of foreign listings on the US Nasdaq exchange behind China, despite its relatively small population.

"They are producing cool company after cool company, and they get acquired and the that flows back into the ecosystem," Petre says.

Some of the keys to Israel's success that could be relevant to Australia include incentives for angel investors in startups and aggressive government spending on research and development. Factors that aren't relevant include the country's unique form of compulsory and un-heirarchical military service.

Above all else there is a level of fearlessness and alacrity in the Israeli startup scene that few other hubs can match. This may reflect the existential threats facing the country and its people, and as such, would also be difficult to replicate.

Yet, Australia is arguably too complacent about its economic future at the moment, so some Israel-style urgency would surely help.

"We need to have an ecosystem that is constantly building and constantly looking over our shoulder," Petre says. "We are playing in a global world and it's not going to stop."

The real problem: culture


There are limits to what governments can actually do to stimulate innovation. The biggest Australian technology success stories to date – Atlassian, which listed on the Nasdaq last year, and Campaign Monitor, the email marketing startup now valued at $600 million – didn't need any policy or government support to get where they are today. Likewise, Silicon Valley arguably emerged in spite of any government influence, rather than because of it.

Both Petre and Bassat acknowledge that in theory, there is now broad bipartisan political support in Australia for building a strong technology industry, and many of the things needed to do that, such as boosting STEM (science, technology, engineering, maths) education and making it easier for startups to remunerate staff using equity.

Arguably the biggest issue is not political but cultural, specifically our financial culture.

Why would an individual or investor deploy capital into a risky technology venture when it is easier to negatively gear an investment property or buy a high yielding dividend stock? Why would a big company invest for growth when it's easier to pay shareholders a tax free dividend?

Petre suggests Australia's biggest companies and fund managers are inhibiting innovation. "How do you get oligopoly Australian companies that have never had to compete, how do they become globally competitive?" he says. "That's where you will get some magic".

"Generally, we have a pretty disengaged corporate sector. They don't do R & D because they haven't had to. We have boards and management teams who have never had to play globally, so they don't know what it means.

"And they are bullied by fund managers who don't want to see a drop in dividends. That's a really bad thing. The short termism of the fund management industry is causing systemic issues in out companies being able to innovate for the long term."

Magellan is one exception, but it invests in offshore stocks.


Hope springs

Fortunately, moving further up the investment food chain into the realm of superannuation funds, there are some glimmers of hope.

Domestic venture capital funds (who admittedly have historically had poor track records) have found it near impossible to get funding from local institutions. That in itself has inhibited the growth of the local tech sector, which needs patient capital to thrive.

The venture capital industry in the US has traditionally sourced funds from university endowments, which are relatively small in Australia, and pension funds, which often have higher risk tolerances than Australian super funds, because they are structured differently.

Now, a shift in attitude is under way with super funds such as First State Super, HOSTPlus, AustralianSuper , StatewideSuper and Hesta allocating money to domestic venture capital funds such as Blackbird Ventures and Brandon Capital.

Funds raised by Australian VC hit a record high of $368 million in 2015, according to the Australian Private Equity & Venture Capital Association, and it's on track to treble that amount this year.

"There is a significantly increased appetite for domestic institutions to participate in venture compared to a few years ago," says Bassat, who is in the process of closing a new $200 million fund, which he says will be backed by super funds.

"That is the result of the emergence of some good VC's in this country, and a lot of good tech companies have emerged in the last few years."


As to whether innovation will remain a priority in Canberra, as the government contends with a hostile parliament and a restive backbench, that's anyone's guess.

The PM and his new innovation minister, Greg Hunt, have relentlessly pushed the innovation message at numerous events since the election.

Sources close to the Prime Minister insist he remains deeply committed to, and passionate about this area.

But politics can be a messy, unpredictable game. It's one of the few pursuits that makes building a startup from scratch look simple.