December 01, 2011

Article at Cosmos Magazine

OPINION | Engines of Ingenuity

Australia has unparalleled opportunity to leapfrog the painful boom-bust cycles by investing in our intellectual capital to ensure prosperity. But will we?

By Wilson da Silva 

GOLD RUSHES can make a city: the feverish migration of fortune seekers brings a sharp economic stimulus, massive government spending on infrastructure and general prosperity.

Cities such as Melbourne, San Francisco and Dunedin were made rich and cultured by their respective gold rushes. San Francisco – a tiny settlement of 200 in 1846 in a California then under U.S. military occupation after the Mexican-American War – grew to a boomtown of 36,000 by 1852. Roads, schools, churches, and new towns rapidly sprang up across the state. 

In Dunedin – which I visited for the first time in November 2011 for the inaugural ScienceTeller Festival – gold brought New Zealand’s first daily newspaper, art school, medical school and public art gallery, as well as a remarkable architectural flowering that is still resplendent today.

Melbourne also did well from the discovery of gold in Victoria in 1851. Serving as the major port and providing most services for the region, it too experienced rapid growth: within months, its population grew 160% to 40,000, and 300,000 by 1865, making it Australia’s most populous city at the time.

This helped stimulate the planning of grand civic and private dwellings across the city and the inner suburbs, all linked by boulevards and gardens. Melbourne housed Australia’s first stock exchange, became the richest city in the world and the birthplace of Australian film (as well as the world’s first feature film). It was home of the impressionist art movement known as the Heidelberg School, and still is home to the world’s largest tram network.

The common element with all gold rushes is that the days of plenty are reliant on what comes from the ground, but the boom does not last forever. Those cities which have prospered beyond the cooling of gold fever have similarities: they invested in infrastructure, civic planning and education in the form of schools and universities – the gold rush largely funded the University of Melbourne, an architectural master plan of gothic revival buildings.

Australia is now undergoing another mining boom, notably in iron ore, coal and gas. Global consumption of coal has grown 50% in the past decade, while iron ore demand has risen 80% since 2003. Australia now ships over a million tonnes of iron ore per day, and around 852,000 tonnes of coal.

It’s true that mining only represents 9.2% of Australia’s gross domestic product – roughly the same as manufacturing – and employs 1.9% of the workforce. But the tsunami of global demand for Australia’s resources brings enormous distortions to the local economy – and also opportunities.

“There have been a number of big booms. They all ended,” Glenn Stevens, governor of Australia’s Reserve Bank, told a conference in February 2011. “The really high peaks were quite temporary ... The main thing we know about the current episode is that it looks very large.”

Is it so wrong to tax mining companies extra for the vaulting profits they are making from this boom? Opinion polls show most Australians don’t think so. After all, once the ore is gone and the profits are taken overseas (83% of mines in Australia are foreign-owned), we may have little to show for it.

Mining in Australia is expected to generate an estimated A$600 billion (US$599.5 billion) in profit over the next decade. The Labor government of Julia Gillard hopes to pass legislation that will see $38.5 billion of this return to the public purse.

I’m not going to get into the detail of what is essentially a political issue. Our remit at Cosmos is science. And here, I believe we have an unparalleled opportunity to use at least part of this boom to leapfrog the painful boom-bust cycles.

Let’s invest in our knowledge infrastructure: our research centres, universities, major facilities such as the Australian Synchrotron, and in our brightest minds and most promising companies. Let’s supercharge Australia’s engines of ingenuity – our scientists, researchers, entrepreneurs and students – and make Australia a hub of the manufacture of knowledge, innovation and research.

Study after study, in Australia and overseas, show that for every $1 spent on basic research, return on investment ranges from $10 to $80, depending on the field of research. Sure, most research projects do not create a company like Apple; but occasionally they do.

And we need to create companies like Apple, where every $1 spent on research and development generates $11.84 in gross profit.

At the University of Otago, where I am writing this, the motto is Sapere aude, Latin for “Dare to be wise”. I think we could take a leaf from the success of this gold-boom town and others like it, and invest in our future.