​Productivity Commission: Technology uncertainty is not a reason for government inaction

A report by the Australian Productivity Commission has called for the federal government to acknowledge 'digital disruption', and prepare legislation and policy that is suitable for such an economic climate.

The Australian Productivity Commission has recommended the federal government acknowledge "digital disruption" as it is usually the key influence in the development and pace of adoption of new technologies.

In addition, the commission has said that uncertainty around future technology and infrastructure needs is not a reason for inaction by governments, and that the costs of inaction, in terms of slower diffusion in technology, can be widespread and significant.

In its report [PDF], the commission said the purpose of the research, Digital Disruption: What do governments need to do?, was to provide context for the federal government around how to best regulate and provide policy around digital technologies.

The commission said that the role of the public service should be about identifying the risk factors and risk tolerance levels around new technologies and not about trying to eliminate all risk.

While historically the view has been that governments are inherently slow or inept in applying digital technologies, the commission said that digital technologies, if adopted well, could fundamentally change the way that governments operate.

"While Australian governments are lagging households (but on a par with the private sector businesses) in their low rates of adoption of new technologies, there is little evidence that they are passive in adopting digital technologies," the report said.

"Regardless of the pace at which initiatives are developed and introduced, there remain genuine issues that confront governments in fully realising the benefits of digital technologies, and the solutions are not necessarily straightforward."

As citizens are increasingly demanding faster, more efficient, and higher quality government services, the commission suggested government ensure the skill sets of its public service staff evolve in tandem with technological change.

"At a minimum, a core set of public servants need to be able to understand new technology sufficiently to assess its risks and likely impacts, and provide appropriate advice," the report said.

The report also said that good government policy design and implementation necessitates good coordination between government agencies.

In addition to direct benefits to taxpayers and those using government services, the commission believes that there is also potential for secondary flow-on benefits to the broader community from government adoption of technologies.

In a statement made on Wednesday, Peter Harris, Productivity Commission chairman, said that despite promising statements made by the government, Australia has been unremarkable in its adoption of technologies to improve public sector processes and service delivery.

"Digital technologies offer governments scope to improve their own service delivery, including through better assessment of risk in regulatory activities, integration of human services, and infrastructure management," he said.

"Digital technologies will also make governments more publicly accountable than in times past and raise pressure for greater transparency."

He said that by showing leadership in their own practices, redesigning regulation to enable rather than block the adoption of digital technologies, and mitigate community-level risks where practical, governments can do more than they appear to envisage today.

When it comes to innovation, the paper said Australia's innovation policy needs to evolve.

Prime Minister Malcolm Turnbull unveiled his AU$1.1 billion National Innovation and Science Agenda in December, which covered more than 20 measures centred on his "Ideas Boom" rhetoric.

The Productivity Commission believes there should be clear and credible rationales for government to provide public support for innovative activities and the likelihood that such action will provide net national benefits. It was also suggested that government involvement may need to change in order to best enable innovation and maximise its benefits.

As previously highlighted by the Committee for Economic Development of Australia, the commission too believes funding is often not the missing ingredient in driving innovation and that a skills shortage is.

Turnbull pledged AU$51 million as part of his innovation agenda in a bid to help students in Australia embrace the digital age and prepare for the jobs of the future, along with AU$48 million to inspire STEM literacy, over five years.

"Of our 600,000 workers in ICT, more than half work outside the traditional ICT sector," Turnbull said previously.

"75 percent of the fastest-growing occupations require STEM skills, but only half of year 12 students are studying science; that's down from 94 percent 20 years ago. That is really a retrograde development, and we have to turn that around."

Similarly, the Australian Trade and Investment Growth Parliamentary Committee recommended last month that the federal government review the initiatives introduced as part of its innovation agenda after three years of operation to determine its effectiveness and whether the programs should be expanded.

Although the foundations of Australia's innovation system are strong, committee chair Ken O'Dowd said the nation's record of building on such foundations has been mixed.

"Australia's efficiency in translating investments in the research sector into outcomes that have tangible social and economic benefit could be improved," he said.

"Australia's level of research collaboration between universities and business is amongst the lowest in the OECD. An avenue of opportunity for improvement is the exchange of knowledge and meaningful information between business and the research sector."

Often coupled with the term innovation is collaboration -- a concept the Productivity Commission said the government is not quite up to speed with.

"The very low levels of collaboration between the research community and business in Australia suggest the presence of barriers, some of which government may be able to lower," the report said. "These barriers range from perceptions of high transaction costs relative to expected benefits, to the reward structure facing academics."

The report recommends the government lower the transaction costs of establishing collaboration; however it also said that given the proliferation of private sector innovation hubs, it is unclear that there is a need for governments to be proactive in either the creation or operation of hubs and that governments need to take care not to create a plethora of networks that crowd each other out and undermine their benefits.

According to the commission, policy uncertainty can hold back innovation but also that policy certainty is not an end in itself.

"Governments should not, for the sake of preserving certainty, be trapped by regulations set in different environments or where the initial regulation was mistaken. If they were so trapped, Uber would remain illegal," the report said.

"There is therefore a tension between the desirability that regulation adapts to the digital economy and the value of certainty."

While outcomes-focused regulation is a major step, the commission said that policymakers should undertake more analysis prior to regulating, particularly where the regulatory outcomes are hard to reverse.

When it comes to the sharing economy, the report states that the priority for governments in dealing with new business models should be to manage the potential costs and benefits to the community rather than protecting incumbent businesses from competition.

Using accommodation booking service Airbnb as an example, the commission said the role of government regulation should be to more effectively enforce existing regulations for congestion, noise levels, and consumer protection.

The state government management of ride-booking services such as Uber also came under fire in the commission's report. It said that while the prohibition of ride-booking services and the maintenance of quotas on taxi plates is a clear regulatory failure, examples like this cannot be generalised uncritically.

The commission added that Australia and other advanced economies are yet to see digital technologies drive significant productivity growth, or result in substantial disruption at a sector or economy-wide level. However, it did say it anticipates digital technologies to continue and likely accelerate changes in Australia's economy.

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