“Stop bleeding from research and development”: Daniel Petre
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Daniel Petre is a Founding Partner at AirTree Ventures, one of the largest venture capital funds in Australia. Prior to AirTree, he was the Founding Chairman of netus (a tech investment company), founded ecorp (Australia’s largest internet investment company) and managed both Australian and US development at Microsoft. We discussed his views on the mental health and jobs crisis facing Australians today and how the Government should be preparing for the economic recovery post-COVID19.
What should the Government be doing to help businesses restructure and restart?
The first thing is helping businesses reopen. Now that infection rates are low, opening up the economy is the most important thing.
The second thing is working with major providers, expense lines and businesses to buy more time. The banks need to provide an extended deferral on business loans, and even mortgage payments for a while. We also need to have rental landlords providing a freeze or deferral for another period. I don’t think we’re out of the woods yet. They are the two biggest cost lines for business. I also think the Government needs to be very careful winding back JobKeeper, because that’s clearly still important.
What are the key statistics we should be watching during our economic recovery?
The first thing that jumps to mind is the unemployment rate. It hides a lot of what’s actually going on. If someone leaves a high paid job because they get sacked and now they’re an Uber driver trying to make ends meet – they’re employed. I don’t think unemployment is in itself useful.
I’d be tracking business revenue. Seeing our businesses rebuilding is the best way you can see that. A BAS statement will show if the revenue line, which is the line you’re watching for, is increasing.
They should also definitely be watching rates of domestic violence and clinically diagnosed depression and be looking to resolve those areas.
Overall, are we seeing an increase in business activity and also a decrease in the mental health impact of the pandemic?
How do you think mental health issues have been impacting the Australian business ecosystem?
The startup landscape has actually been relatively well off because most of these businesses are in areas where demand for their product has increased, like in ecommerce or collaboration software. But we’ve seen a tremendous increase in founders reporting mental health issues. I can’t imagine how bad it is in sectors that are being truly decimated because of revenue or job losses.
We’re going to have to live with the mental health lag for a long time. It’s not just what we’ve gone through now but graduates about to leave University who can’t find jobs or people who’ve got jobs that have been sacked early. This will leave lifelong scars that will take decades to recover from.
What do you think are the biggest challenges for the economy in the next years?
Getting demand back across all industries is the issue. During the pandemic a lot of businesses have worked out how to become a lot more productive with less people.
Even when things return to normal, I think we might find employment participation to be slightly lower. People have become super focused on the productivity of their business, on where the costs are and on where they can save money. That’s going to play out to a few things. One is increased use of technology that helps businesses become more productive, but also there will be fewer people. So even when demand returns to normal, you’ll see lower employment participation.
Is there enough job creation to make up for the lower participation rates?
Industries that will take a long time to come back include tourism and hospitality. But even businesses that haven’t had that obvious impact will have worked out how to be more productive with less. And they will then return to economic prosperity on the revenue side of the business, but there will be less employment.
I expect unemployment to be higher than we expect. The problem is that there will be a masking of that by people counting part-time employees as employed when they really want to only count people who are full-time employees. So the statistics are a bit distorted.
What do you think the Government should be doing to solve this issue?
There’s two sides of this issue. One is employment, and the Government’s trying a bunch of things. This Government has failed to realise that there’s more job creation coming out of startups than there is at the big end of town. They hate startups and technology companies, but technology companies are the real growth engines of jobs. So there could be a lot more to help stimulate the growth of tech jobs. All they care about is advanced manufacturing, which is odd because it is based on technology.
On the other side, if you assume that we are going to have high unemployment, you need to ensure the tax base is large enough to help those who are struggling and who may always struggle to find full time employment. The Government needs to actually readdress taxation. People who earn lots of money should be paying more tax. It is not clear that the drop in corporate tax rates leads to greater employment. It does lead to greater share prices and dividends. But there’s not a huge correlation with more investment. We also need to make sure that technology companies, particularly overseas ones, pay their fair tax. Microsoft, Google, Facebook and Salesforce all use legal loopholes to not pay Australian tax. That’s billions and billions of dollars that should be coming back to the Government.
What industries should the Government be focusing on?
In energy we should clearly be pivoting way faster to renewables, which is where the world is going. Arguably hydrogen as well, but definitely renewable.
Advanced manufacturing is an interesting area and helps your supply chain when things are not going well, but true advanced manufacturing has a lot of robotics and not a lot of people. Very high-end advanced manufacturing will probably have wealth return for a few highly-paid people and for the owners, but not necessarily higher employment. We need to be careful that we don’t extrapolate the growth of an industry to the growth of employment.
The industry that is most open for growth will be health. We can be doing a lot more in medtech and healthtech in Australia. We could be creating global solutions to diseases that have enormous wealth benefits for individuals, countries and companies. And we’re not doing enough there at all. Australia has a world class research environment and world class health system, but we do not have enough innovative solutions or devices or therapies that we can make money out of. Cochlear, CSL, Resmed – there could be twenty more companies like that if the Government really invested in where the world is going with medtech and healthtech.
Do you think job cuts at universities will undermine Australia’s research facilities?
The university sector has two problems.
Problem number one is that universities are hooked on international students and thought that this was a drug that they would always be supplied. That money then went to massive building programs – which has a massive depreciation schedule – and they didn’t really think through what would happen if this bubble burst. So they’ve slept-walked into this problem themselves.
The second problem is that the Government is anti-university. The fact that universities were not able to use JobKeeper is appalling. The fact that National Health and Medical Research Council (NHMRC) or Australian Research Council (ARC) research – a lot of which is university research – is getting cut means university research has been hit badly.
Yes, the universities are partly at fault at the way they over-relied on foreign students to fund their campuses without thinking about a rainy day. But on the other side, the Government is not helping the university sector through COVID-19 and well-before COVID-19 the Government was attacking the research sector.
What kind of policies should the Government put in place to bolster research?
If you talk to anyone at NHMRC, their grants are all down.
The Government could go back to the previous level of funding for the NHMRC and ARC. They could and should increase infrastructure funding for research. You don’t have to create anything just give them back the money you took away from them.
It’s not like they have got to spend a tonne more – just stop bleeding from research and development.
Go back to previous levels. Apply performance metrics and KPIs to make sure that what you funded works, but you can’t just can’t keep cutting research funding and expect Australia to continue to produce tonnes and tonnes of high quality research.
So what industries should we divert our focus from?
I don’t think there are many obvious examples of industries that we shouldn’t focus on. But there are definitely examples within industries. The classic, of course, is the ridiculous idea that the Government was going to fund a coal-fired power plant.
The whole approach to taxation of foreign multinationals is inefficient and ineffective. Any company that’s using tax structuring to not pay tax on revenues should be brought to account. The Government is missing in action there.