Innovation is universally recognised as a significant contributor to economic growth and higher standards of living. So why is it so difficult to get proper investment and support into local innovation? More specifically, why is there very little attention paid to encouraging superannuation money to be invested in local innovation.
The recently released Cooper report on Australia’s superannuation system contained some useful recommendations, however the report and the public debate have had a heavy emphasis on fees paid for the management of superannuation fund investments. Don’t get me wrong, this is a useful debate to be had. However, it seems to have become the debate about superannuation.
Yet fees only have a small impact on total returns made by superannuation funds. The real debate to have is about how superannuation funds are invested, because this has a far greater impact on return outcomes and the living standards of superannuants. I have noted living standards deliberately, because superannuation outcomes almost exclusively are focused on the returns earned. That is fine, but equally important are living standards. There is no point in having a large pool of retirement income, if living standards are falling. And a sure way to improve living standards is through innovation.
Unfortunately, there isn’t too much debate about this, probably because it is an inherently more difficult subject matter to present. But that shouldn’t excuse the government and the industry from having the debate. Especially in the current climate when there is such an enormous disconnect between the allocation of investable capital and domestic economic requirements and when the broader domestic economic outlook is so strong.
We were reminded of this problem yet again when the Future Fund recently announced that it would invest in Indian innovation. Thereby, continuing a long held preference of it to invest in overseas innovation instead of local innovation. Unfortunately, the Future Fund is not alone in this regard – all local superannuation funds would rather invest in overseas innovation than local innovation. Furthermore, no local superannuation fund is actively investing in local innovation.
As problematic as this is, the problem becomes more acute when one considers how, under a carbon tax regime, this country will develop alternative energy sources when our largest pool of private capital is not supporting local innovation.
Whatever the government allocates to assisting to develop alternative energy (and to other innovation pursuits) will be wasted unless and until private capital is engaged to support local innovation over a sustained period of time (across all segments, not just alternative energy).
And until this happens this country will preside over a massive destruction of economic wealth and our elected representatives will be condemned for riding the mining boom into the ground.
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