An Australian Silcon Valley

Is Australia’s focus on building a tech industry a waste of time?

Around the world, governments are racing to attract the smartest, brightest tech entrepreneurs with offerings of cheap tax rates and other incentives to entice them to move operations into their country.

On the back of this scramble, in Australia we have seen a push to ignite the tech industry, but is this the right step forward? More importantly, is it even worth pursuing?

To begin with, I think it’s important to consider Moore’s Law. Essentially, this law looks at the exponential growth of computing power over time, and what it might look like into the future. Currently, projections are indicating that by 2023, the average computing power of a $1,000 computer from your local tech store will have the same processing power as a human.

As the pace continues to quicken over the decades, by 2050 it is expected that on current projections, your average $1,000 computer will have the same computing power of the entire global population. Now, you have to remember we are not talking about a fancy computer like the ones at Google or IBM; this is your standard, off the rack, everyday computer.

If industries know about the innovation curve, has anybody stopped to ask whether large rooms packed full of software engineers will still be needed? Or will the tech industry, like manufacturing, replace workers with robotics and at some point, will software engineers be replaced with artificial intelligence?

From a government’s perspective, it is important to consider this point when considering chasing down the mightiest and brightest tech unicorns. In economics, before a government spends money, they consider the multiple effects. Normally, they spend the public’s money to build roads, buildings or inject money into industries, they look at the positive or stimulatory impact it will have on the economy. The higher the multiplier number, the more widespread the benefits that will flow and the greater positive impact this will have on the economy.

However when it comes to the tech sector, the impact of this industry on an economy is often the opposite. In fact, it can have a deflationary impact on the economy.

What this means is that through disruption by new technology, workers are displaced, and other businesses and traditional industries suffer. Although a new market or service offering is created that is generally more superior, this result is achieved by “doing more with less resources”, thus changing the fabric of society forever.

Please don’t confuse my argument with protectionism. It would be absurd to say that we will simply put a stop to evolution. A free market and capitalism will ensure we keep marching on. However, it is important to pause for a moment, think about the issues raised, and the impact of this multiple effect.

While globally, people might race after the golden unicorn tech companies of tomorrow, governments will have a harder time picking which industries to back to ensure the fabric of life continues to have a positive future, both economically and socially.

When it comes to investing, the power of the moat, or the durable competitive advantage of a company, will also be critical to the long-term success of any existing business to handle these changes into the future.

Please also remember that before embarking on any investment decision, you should always seek professional guidance from a licensed financial planner. Of course, I recommend AJ Financial Planning.