The Role of National Character in Australia’s Prosperity

Few histories of economic transformation are more dramatic than that which occurred in the British settlement in Australia during its first hundred years. In 1790, two years after the British founded the colony of New South Wales, a young captain in the British marines penned a bleak prognosis for the new settlement. In a poignant letter home, he wrote:

The dread of perishing by famine stares us in the face … our soldiers have not a shoe, and mount guard barefoot … the country … is past all repute a wretched one, a very wretched, and totally incapable of yielding to great Britain a return for colonising it.

This unfavourable account reflected the precarious and inauspicious beginning of the British venture in Australia. In the eighteenth century, creating an outpost of civilisation on the other side of the world was no trivial feat. Yet a century later, in defiance of this prediction, Australians would become the wealthiest people in the world. By the late nineteenth century, per capita income in Australia was 10 per cent higher than in the USA or the UK.

In our self-deprecating Australian way, we tend to attribute the success of our predecessors to good fortune rather than to talent or hard work. We like to diminish the achievement of those early Australians by perpetuating the myth that they simply filled an empty continent with sheep, and then discovered gold.

But there is an alternative point of view. There was much more to the early history of our country than luck alone, and there are lessons in this for our present. Our national story has been one of good fortune, yes—but in the nineteenth century, technology transfer and innovation were also fundamental, and these in turn were underpinned by several important (though now largely under­appreciated) elements of the colonial character.

Consider the transformation of Australian agriculture over the course of that century. James Ruse, the first British settler to run a self-supporting farm, had to make his fertiliser out of burnt wood and, in the absence of ploughs, he hoed his land by hand. Even by the 1820s and 1830s, British impressions of Australian farming were consistently derogatory. In 1826, James Atkinson, the son of a Kentish farmer, published a book with the gloriously somniferous title, An Account of the State of Agriculture and Grazing in New South Wales. In it, he deplored the colony’s “most lamentable deficiency of agricultural knowledge”, writing: “I do not believe it is possible at the present moment to name ten individuals in the whole colony who can properly be called farmers.”

By British standards, early Australian farming techniques were not well advanced. Yet by the end of the century, appraisals like James Atkinson’s would have seemed quaint indeed. Australian farmers evolved rapidly over the decades, and became pre-eminent exporters of agricultural products, due in no small part to the discovery and application of agricultural knowledge.

To appreciate the transformative nature of what happened, one only has to consider the flagship industries of wheat and wool. Between 1850 and 1900, the number of sheep in Australia grew four-fold—driven, at least in part, by the availability of land. But this was only part of the story, for the volume of wool produced grew at twice the rate of the number of sheep. Innovations relating to mechanisation, improved pasture management, vaccination for disease, and above all breeding led to substantial productivity gains. In 1900, the fleece of the Australian merino was seven times larger and its wool much finer and more valuable than that of the original stock John Macarthur brought with him in 1797.

In similar vein, the area of land used to cultivate wheat expanded twenty-fold in Australia between 1850 and 1900. Obviously, the impact of population growth and the opening up of new territory were again factors here. But so too were the innovations: the mechanical stripper, the stripper-harvester, the scrub roller, the stump-jump plough, the application of superphosphate, and of course the new science of wheat breeding—in which Australian varieties eventually came to be valued and taken up in other parts of the world.

There is an important theme here, of relevance to us all today. Australian success over this early phase of our history did not lie solely in the existence of opportunities, but rather in having the wherewithal to exploit them. And critical in this respect were three attributes, qualities that are timeless and important for the members of any society who wish to innovate. These were: first, a spirit of openness and a willingness to experiment with novel ideas; second, the ambitious nature of the settlers who came to Australia; and third, a belief in the value of knowledge.

Each of these attributes warrants some elaboration. We begin, though, by considering the early Australian spirit of openness. Australians in the nineteenth century were technology scavengers. They were attuned to technical developments in other parts of the world, and quick to profit from them.

This was evident right from the outset among key individuals. For example, in the early nineteenth century, John Macarthur improved his merino-breeding program by seeking advice from Joseph Banks, then president of the Royal Society of London. In the 1830s, James King, one of the Hunter Valley’s first viticulturists, enhanced his winemaking via correspondence with the eminent German food chemist Justus von Liebig. In 1847, just a year after William Morton demonstrated the anaesthetic effects of ether at the Massachusetts General Hospital in Boston, a doctor in Launceston applied the same technology to draw two teeth from a patient with jaw disease—surely one of the more colourful instances of that quintessential Australian quality, the willingness to “have a go”.

These are just three instances of individuals who sought and then applied external ideas and expertise in the early colonies. What was true of selected persons early in the century, however, eventually brought significant benefits to entire industries.

In the 1880s, when Emil Hansen at Carlsberg laboratories in Denmark discovered that yeast was composed of different strains of fungi and could be cultivated, Australian brewers imported and applied this knowledge even before the British did—leading to the first large-scale beer manufacturing in Australia, and to the creation of the Foster’s and Resch’s brands.

Also in the 1880s, it was the rapid adoption of a Swedish invention—Gustaf de Laval’s mechanical separator—that enabled Australian dairies to enter the global export market for butter. Until then, Australian butter shipped to England had been sold as axle grease.

Across a range of industries, it was the capacity to adopt ideas, often developed in other parts of the world, and to adapt them to Australian needs that led to the success of Australian commerce. The rapid adoption of canning and refrigeration technology enabled Australian graziers to begin exporting meat to Europe—developments that helped underpin the forty-fold increase of cattle in Australia between 1850 and 1900. Similarly, it was the awareness of the geology of other lands that helped Australians to discover gold, copper and tin. And ultimately (after the initial rushes) it was the application of new explosives technologies, new construction techniques, and eventually of new chemical processes that enabled our early miners to maximise their capacity to exploit these resources.

The point is clear: openness to new ideas was a key feature of nineteenth-century Australian society. So let us turn to our second point: ambition. Ambition is sometimes maligned in contemporary society, not openly but implicitly. Our culture certainly can be suspicious of technological ambition; there are elements in the mainstream of Australian life that appear ready at every turn to discern the danger of “vaulting ambition, which o’erleaps itself”. Yet ambition—and technological ambition specifically—was a second key attribute that helped to define the remarkable trajectory of the Australian colonies in the nineteenth century.

Ambition matters in economic development, and it is an essential quality for innovators. It is revealing therefore that in the nineteenth century, Australians learned not just to copy foreign ideas and to adapt them to local conditions; they proved also that they could do things on a continental scale.

Between 1860 and 1890, 16,000 kilometres of railway tracks were laid in Australia, and between 1854 and 1864, 11,000 kilometres of telegraph lines were installed. The telegraph lines especially must have had a remarkable psychological impact. The completion of the 3000-kilometre overland telegraph line to Darwin in 1872 enabled commodity prices and interest rates to be sent direct to Melbourne and Sydney from London—linking our financial services industry to the epicentre of world trade.

But it wasn’t just rail and telegraph. By the end of the nineteenth century Australian per capita use of steam power rivalled that of Europe. And some of our steam engines operated at unparalleled scale. In the 1890s, a steam-powered irrigation system in Mildura sported the largest pumping stations in the world.

Likewise, at its completion in 1890, the Beetaloo dam in South Australia was the highest concrete dam in the southern hemisphere; while the famous Coolgardie water pipeline in Western Australia was the longest in the world when it opened at the turn of the century. A triumph of engineering innovation, this structure continues to operate today. Indeed, our predecessors’ ambitious approach to water management stands in sharp contrast to current practices.

This brings us, then, to the third defining feature of that era. Just as openness to new ideas and ambition are often stepping-stones to innovation and economic development, so too was a growing domestic interest in education and knowledge. Today, it is not widely appreciated just how much the Australian colonies changed in this respect over the nineteenth century, but a few facts will illuminate the transition.

Reflecting a broad shift in Australian society, illiteracy rates plunged from one in four in 1860 to one in forty by 1890. The Australian colonies, during this time, experienced high lay membership of scientific societies, and the opportunities for local higher education expanded dramatically. Between 1850 and 1900, the Australian colonies opened four new universities and four schools of mines.

Unsurprisingly, between 1860 and 1890, the number of scientists in New South Wales grew at double the rate of the population as a whole. To give the example of a single firm: CSR employed just one chemist in 1879, but the number had grown to more than fifty by 1900.

The new investment in education was matched, to a lesser degree, by emerging capabilities in discovery science. This was not a period during which universities were noted for their research. But in key areas the Australian colonies edged themselves towards the frontiers of knowledge. In 1868, with the installation of the “Great Melbourne Telescope”, Melbourne became, for a time, the site of the largest telescope in the world. And it’s not insignificant that, slightly later in the century, a branch of the Pasteur Institute—the first Pasteur Institute created outside France—was set up on Rodd Island in Sydney Harbour.

Many nations have been blessed, like ours, with bountiful natural resources, yet have failed to convert this good fortune into prosperous, peaceful and dynamic societies. Argentina, Angola, the Democratic Republic of Congo, Iran, Libya, Nigeria, Russia and Venezuela are a few examples. The modern histories of these nations show that there is more to our prosperity here in Australia than our land mass or what lies under it.

Of course our forebears had a range of additional advantages, among them: British institutions; the English language; and (although it may not be politically correct to say so) British migrants who believed in the value and the virtue of democracy, freedom and trade. But fundamental to Australia’s successful transition from famished penal outpost to innovative and export-oriented economy were also the three cultural traits we’ve outlined above: the Australian openness to ideas and connectedness to global networks; the Australian ambition and willingness to realise ambitious goals through technology; and an underlying appreciation of the value of knowledge.

Unfortunately, over the century that followed our federation, these three important characteristics steadily came to hold a reduced significance in Australian life. Probably most important in this respect was the scourge that is special-interest politics. A collusion of governments, unions and big business in twentieth-century Australia led to the development of protectionist industry policies. These policies reduced our openness, slowed our exposure to external technological trends, and undermined the capacity of our most competitive firms and industries to experiment with novel ideas.

At the same time, our ambitions were redirected. Many of our firms focused on domestic, rather than global markets; and the enormous growth of government expenditure in providing charity for the less well-off members of our society (itself a worthy aim) inevitably reduced governments’ financial capacity to implement ambitious technological infrastructure projects—the Snowy Mountains Scheme being a rare exception.

Perhaps inevitably, the Australian contribution to global knowledge production stagnated. As a share of GDP, by the 1980s, Australia’s investment in research and development was very low compared with that of other advanced economies. In fact, in the early 1980s, Australia’s total investment in research and development, measured as a share of GDP, was less than half the OECD average.

Happily, since the market-opening reforms of the 1980s and 1990s, we have begun to rediscover what once made our society so vibrant and strong. Over the past twenty years, GDP per capita in Australia has risen steadily from fourteenth among all the countries of the world to fifth, behind Luxembourg, Norway, the USA and Switzerland—with much of the growth here pre-dating the mining boom.

Furthermore, accompanying this shift has been a welcome rejuvenation in Australian culture. In the face of global competition, we have become again a leading nation in the adoption and adaptation of new ideas and new technologies—and especially of information and communications technologies, using them to transform businesses in many of our traditional industries.

To a certain extent, too, we have rediscovered our ambition. Our miners now are global enterprises exploiting leading-edge technology, often on an extraordinary scale. But in other sectors also our companies (especially our technology-based companies) are thinking globally rather than domestically about their markets and supply chains.

We have, in addition, dramatically expanded our investment in knowledge. Since the early 1990s, Australian business investment in research and development has grown nearly four-fold in real terms—one of the highest growth rates in the OECD. In 2001, for the first time, our private sector investment on research and development exceeded public sector investment. As a share of GDP, Australian businesses now invest at a higher intensity on research and development than European businesses do.

Our universities, moreover, have experienced their own period of expansion, with research investment in this sector nearly tripling in real terms over the same period. University research now accounts for 0.59 per cent of GDP, a record for Australia, and a higher rate of investment than currently prevails in any of the large OECD economies.

Australia is poised. Our society has rediscovered something important—a way of structuring itself that is more conducive to innovation and more likely to yield prosperity than the model we pursued for so long in the twentieth century. This model is much fairer too, insofar as it attempts to reward initiative, hard work and the delivery of desirable products or services rather than to redistribute wealth according to political prerogative.

The persistence of this model, however, is not guaranteed. The demonstrable advantages of an open society are not enough to ensure its preservation. Special-interest politics have resurfaced in recent years as a major theme for Australian policy-makers. Having rejected the notion in the 1980s, our governments have become receptive, once again, to the idea of manipulating markets, and of shifting wealth on political grounds from one industry to another. Some policy-makers in Australia have become willing to cultivate special relationships with those who are friendly to their agenda, whilst vindictively punishing those who are not. This is not the way to stimulate innovation; it is the route to corruption.

So how can we protect Australia against a reversal of those positive developments that have occurred in our society since the 1980s? I would like to conclude by returning to the nineteenth century. Back then perhaps the world was simpler. The role of industry, universities and government in making our country an innovative and lively society was certainly much less complicated than it is now.

The role of industry, for example, was to compete in order to make profits through trade. The advantage of this approach is clear. Businesses that make profits tend to be those that are best able to deliver goods or services that people value at a competitive price; and the best way to do this is by innovating. In a competitive economy, the profit motive is an essential driver of innovation.

The same, of course, still holds true today. Businesses still seek to make products that people want, at prices they can afford, and at a good margin. But there is a catch. Many of our businesses are now also having to balance this core motivation with new ideas relating to social or environmental responsibility. Increasingly, moreover, they are prompted to do so not by the needs of their customers, but by think-tanks, advocacy groups and government directives—in other words, by a new alliance of special interests.

This is not a recipe for innovation. It is a prescription for feeling good about ourselves in the short term, and for losing our competitive position in the long term.

And what about the role of universities? In the nineteenth century, our universities existed largely to deliver an elite education to a surprisingly international student body. In 1880, 40 per cent of Australia’s population had been born overseas—a much greater proportion than today. Many, perhaps most, university students at the time would have been either first-generation Australians or recent immigrants. By this reckoning, the contemporary internationalisation of our higher education system has been less a revolution than a return to nineteenth-century norms.

In other respects, though, today’s universities are strikingly different from their predecessors. In the nineteenth century, universities had not yet become factories for large-scale vocational training. Nor had they evolved into the research institutes they are today. Most important of all, they had not yet lost their ancient simplicity of mission. Today, the inspirations of modern policy-makers have forced a multitude of contortions upon our institutions. As a consequence, our universities’ innumerable contemporary roles now include the following.

They must develop world-leading, long-term discovery research, even as they endlessly sell the short-term relevance of their activities to governments. They must maintain their status as institutions of elite education, even as they are required to lower standards in order to admit more and more people. They must focus their research in order to foster international reputations, even as they are also required to diversify in pursuit of the latest political priorities. Above all, they must expend millions on accountability exercises and other bureaucratic hoops, even as they are constantly told to be more efficient and business-like.

The fundamental problem our universities face, and the key problem our businesses face in making Australia a more innovative society, is that both are victims of the intrusive and counter-productive political whims of governments. And this brings us finally to the role of government in innovation, and to the most fundamental difference between the nineteenth century and today.

In the colonies, the role of government in fostering innovation was largely restricted to just two activities. First, there was the necessity of ensuring that the fundamental machinery of society is functioning properly. The most important actions in this respect were: upholding the rule of law; protecting the freedoms and property rights of citizens; and minimising corruption and taxes, so that those who innovate successfully can expect to be rewarded and can conduct their business with every assurance that the profits of their work will not be arbitrarily taken from them. That is the first role; it’s a pretty basic one.

Second, though, there was also a grasp of the special role for government in providing infrastructure, where private financing was difficult to come by. Railways, dams, roads, ports, museums, botanic gardens, public libraries, universities and telescopes were among the public goods supported by colonial governments in the nineteenth century—and these served an enabling role both in opening up the country to commerce, and in challenging and opening the minds and imaginations of Australians.

Today, no politician of any party would entertain such a restricted view of their function. Our policy-makers now seem to have an unlimited appetite for meddling in other people’s affairs. Yet the lesson of the nineteenth century is that, for the most part, we don’t need their intervention. And the lesson of the twentieth century is that, for the most part, we eventually regret it when we get it. Australian innovators—and that includes people in universities as well as in business—will only continue to thrive if they are left with the freedom to do so.