Reserve Bank Governor Glenn Stevens has waded into the debate about whether Australia needs a strong home-grown IT sector, claiming the nation hasn't been disadvantaged by failing to grow one since the dotcom bubble burst a decade ago.
Over the past few months the issue of how Australia should attempt to grow a powerful technology-based economy has been at the forefront of the industry's mind, due partly to the Labor Government's focus on "digital economy" outcomes spurred by its massive investment in its flagship National Broadband Network project.
Several seed funds have been launched with the aim of boosting the IT start-up sector, and even industry warhorses such as Intel have been discussing how investment can be brought down under. However, in a speech to the Australian Industry Group's Annual National Forum today, Reserve Bank Governor Stevens poured cold water on the whole idea.
"Ten years on," Stevens noted, referring to the dotcom bubble and bust, "it does not seem to have been to Australia's disadvantage not to have built a massive IT production sector."
On the contrary, Stevens pointed out Australia's terms of trade were currently at a 60-year high, and the national currency was close to equalling the American dollar. Investment in the resources sector was also booming.
"In the area of information technology, meanwhile, the pace of change continues to be rapid; prices continue to fall, profits have proved very hard to come by and a number of prominent names from 2000 have disappeared," he added. "It is still better, it seems, to be a user than a producer of IT."
Stevens' comments did not appear to be directly targeted at slamming Australia's IT sector or its development. Rather, he appeared to be putting the idea in context that forecasting the future was quite hard to do, especially in situations such as the dotcom bubble, which had delivered an incredible amount of hype into the business community.
"Australians were told by more than one prominent visitor that we lived in an 'old economy', with the implication that we needed to shift towards the production of IT goods," said Stevens. But the reality didn't match the hype. "Blue-sky valuations were being applied to companies that had not, at that point, earned a single dollar of profit (and many never would)," he added. The economist referred to what appeared to be a speech given at the time by Tim Harcourt, the then- and still-chief economist of the Australian Trade Commission.
In the speech, Harcourt referred to what he said was the notion that Australia had an "IT deficit": in short that Australia was a good user of IT goods but did not produce many.
Harcourt argued that in fact, the nation shouldn't worry about the IT deficit, for several reasons. Firstly, he said, Australia ran large trade surpluses in some areas, such as agriculture and mining, that could fund deficits in areas like IT production.
Then, too, while Australia was not necessarily good at manufacturing IT products, it was good at services, which could be built around such products. And IT was, in general, embedded in the economy anyway, through such mechanisms at the time as "e-commerce servers" and internet usage.
"Economies are not static machines," said Stevens today. "They are a complex and dynamic combination of actors, all continually seeking to adapt to changing conditions. That is one reason that economic outcomes are very hard to predict, and why I am circumspect about predicting 'Australia to 2020'."
"No one can give you a blueprint for which areas will succeed and which will not, any more than the pundits a decade ago, at the height of the 'new economy' fad, could foresee the shape of Australia's economy today."