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A strong connection with Germany and investment in emerging technologies have seen Lucy Turnbull drive the innovation debate. By Sophie Morris.

Lucy Turnbull’s innovation push

Lucy Turnbull, a member of the Australia–Germany Advisory Group.
Credit: AAP

At the highest levels of international politics, Lucy Turnbull is known as the “bridge-builder”.

Even before Malcolm Turnbull became prime minister, her influence extended well beyond Sydney’s elite power structures and into international affairs.

Now, her views on the importance of innovation and science have also fed into the government’s first major policy shift since her husband won the leadership three months ago.

Lucy Turnbull wants to foster connections between science and industry.

That’s not to suggest that the wide-ranging innovation statement, unveiled by the prime minister this week, was devised around the Turnbulls’ breakfast table.

Rather, Lucy’s views have fed into it via her involvement with a high-level Australia–Germany Advisory Group, which predated her husband’s promotion.

Until recently, the bridges she has been trying to build between these two countries have never really progressed beyond diplomatic niceties.

But both sides are now making a concerted effort to deepen their relationship and forge new trade ties, as German company ThyssenKrupp bids for a multibillion dollar contract to build submarines for Australia and Australian gas exporters eye off new markets in Europe.

This advisory group made recommendations covering a range of topics, including greater collaboration on science, with a focus on the commercialisation of research.

These recommendations fed into the prime minister’s innovation statement, unveiled on Monday.

“I think the Germans have a very good track record in commercialisation of innovation,” says Lucy Turnbull, who joined the advisory group in her role as president of the German–Australian Chamber of Industry and Commerce.

“The relationship between Germany and Australia could potentially be, in certain respects, a marriage made in heaven, where you combine a strength in basic scientific research [in Australia] with a strength in commercialisation and applied research [in Germany].”

German connections

In devising the innovation statement, the government has drawn on approaches that have worked around the world, from Silicon Valley to Tel Aviv’s vibrant start-up scene.

But the German input has been significant, thanks to the work done by Lucy Turnbull and the advisory group.

“She is a bridge-builder,” says Germany’s Minister of State Maria Böhmer, a close confidante of Chancellor Angela Merkel. “Even before her husband became prime minister, she was involved.”

Böhmer, who co-chairs the Australia–Germany Advisory Group with Belgian-born, German-speaking Australian Finance Minister Mathias Cormann, says a highlight of her recent trip to Australia was a breakfast for women in leadership roles, hosted by Lucy Turnbull.

She is enthusiastic about the Australian government’s new policy focus.

“The new prime minister has made innovation a priority,” says Böhmer, during a discussion this week at the foreign ministry in Berlin. “I think this is a great recipe for success.”

When Malcolm Turnbull said that he wanted to create a “culture of risk-taking” in Australia this week, he may well have been thinking of Berlin. Germany has long been famous for its success in applied research, linking publicly funded scientists and universities with industry.

In the 1990s, after the fall of the Wall, every architect and struggling artist made his or her way to Berlin. Now, it has become a magnet for aspiring start-ups. This year, for the first time, it overtook London as the top destination for venture capital in Europe, attracting €1.4 billion in the first half of 2015, according to Ernst and Young.

Lucy Turnbull, who has been captivated by Berlin since her first visit in 2006, has watched this transformation with interest.

“In Berlin, there’s a very interesting start-up economy developing, like Rocket Internet, and even Axel Springer publishing house has an innovation hub as a subsidiary,” she tells The Saturday Paper.

She was offered the honorary role with the German–Australia Chamber of Industry and Commerce, she says, because of her interest in cities, as a former lord mayor of Sydney, and in innovation.

As chairman of Prima BioMed, an ASX-listed biotech company that has operational bases in France and Germany and is developing cancer treatments, she knows about commercialising research and bringing a new product to market.

She is impressed with Berlin’s start-up scene, but also with the industry-driven approach to research of the Fraunhofer Institute, which sources less than 30 per cent of its annual €2 billion budget via recurrent funding from government. The rest comes from research contracts with industry and the bureaucracy.

PM's innovation statement

Both of these elements – the enthusiasm for start-ups and for making publicly funded research more responsive to industry – are reflected in the innovation statement launched this week by the prime minister.

Calling for an “ideas boom” to replace the receding mining boom, Malcolm Turnbull restored $1.1 billion over four years to universities and the CSIRO – about a third of the funding the Coalition had recently cut – and outlined new incentives for risky business start-ups and the investors who back them.

It’s an about-face for the Coalition, coming less than a year after the Abbott government held research funding to ransom in a failed bid to force senate support for its controversial university fee changes.

With Labor unveiling its own innovation policies just days before Turnbull’s, it presages a possible election-year battle that breaks from the scare campaigns that have dominated recent contests.

The prime minister’s innovation pitch has also been informed by his own experience as an entrepreneur and investor, backing some remarkably successful ventures as well as some dismal failures.

“There will be new incentives, new drivers to ensure that Australians with new business ideas, with new enterprises, will be better able to find the capital that gets them started,” said Turnbull, announcing tax incentives for angel investors and a relaxation of bankruptcy laws to reduce penalties for start-ups that flop.

“And, you know something? Even if their businesses don’t succeed, we all benefit. We learned so much from the failure of new businesses.” As he tries to change Australia’s culture and its approach to risky ventures, Turnbull is also offering a special visa to lure entrepreneurs who have financial backing and a viable business plan.

For many of these young hopefuls, Berlin is currently the destination of choice.

Rocket Internet

At the headquarters of start-up factory Rocket Internet, Max Legardez is a young man in a hurry, as he tries to colonise another corner of the internet by rapidly establishing an online booking business for beauty salons on four continents, including Australia.

“We launched in Australia in August and we have already signed 750 salons,” says the 29-year-old founder of Vaniday, one of more than 100 start-ups launched by Rocket Internet since 2010. “We are super-satisfied.”

Like many ambitious young risk-takers, Legardez was attracted to the German capital: “The best place to be to build companies was in Berlin, so I moved here.”

As federal German officials bemoan a national culture of risk-aversion, the state government of Berlin has taken a different approach. The city-state boasts technology parks with free or cheap office space for start-ups, there are grants aplenty and events to exchange ideas. But, as one young entrepreneur says, the most important ingredient is how “open-minded” the city is.

At Rocket Internet, which listed on the German stock exchange in 2014, you can almost feel the urgency among the twenty- and thirtysomethings who are trying to rapidly roll out the company’s online delivery model to emerging markets.

Anywhere that smartphones are used, there’s a new internet-based business to be founded, from selling used cars in Myanmar to online platforms for booking cleaning services, grocery deliveries and salon appointments in Australia.

The company’s spokeswoman, Marie-Luise Klose, is vague about how many of the start-ups fail but proud that scores of Rocket ventures have been launched in the tight time frame of less than 200 days.

“Get shit done,” reads one poster in Rocket’s offices. “Passion never fails,” says another. A third explains the company’s philosophy: “The longer it takes to develop, the less likely it is to launch.”

Berlin’s start-up buzz has also spread to the more staid and traditional environment of its universities.

At Humboldt-Innovation, an incubator company founded by Humboldt University to prepare technologies and start-ups for market, managing director Volker Hofmann is frank about the prospects of failure, echoing Malcolm Turnbull’s warning that it’s part of the process.

But he adds that studies show start-ups nurtured by university-linked incubators have a 70 per cent survival rate after five years, compared with a sobering 10 to 15 per cent for those going it alone.

And he warns that some good ideas need a longer gestation than Rocket Internet’s rapid-fire approach. “If we used the same system as Rocket, Germany would lose a lot of innovation potential,” Hofmann says. “The approaches are different, but you need both.”

Projects that are incubated for a year by Humboldt-Innovation receive up to €130,000 under the EXIST grants program from the German government, plus subsidised facilities and advice worth a further €70,000.

“To give your graduates, students and researchers this sort of funding for a year is a bit risky,” says Hofmann. “But innovation, unavoidably, involves some level of risk.”

German model of investment

The generosity of these grants is one sign of the German government’s willingness to invest in science and research and support it all the way through to market. Australian National University astrophysicist and Nobel prize-winner Brian Schmidt, who also served on the Australia–Germany Advisory Group, says it is a very different approach to that of Australia.

“The German government has had a very strong industry policy which is much more interfering with the markets than what we have in Australia,” he says.

“They pick winners, they really do. When they go, it’s not on the margins. It’s big, multibillion-dollar, multi-year, even multi-decade interventions. We have tendencies to chop and change.”

Schmidt adds that there is an exception to this rule, in that one long-term program that has survived for years in Australia is the R&D tax incentive scheme for businesses, worth $3 billion.

From Schmidt’s perspective, this program could be cut with little loss. Critics argue it merely subsidises activities, such as product development, that businesses would do anyway.

“My concern is there’s a program that I don’t think is very effective that we’ve kept for a long period of time, and it’s not clear we ever really stumbled on the programs that have added lots of value,” Schmidt says.

The scheme is under review but the government – which is yet to reveal how the new measures will be funded – has promised there are no plans to immediately change the R&D concessions. Germany has periodically considered introducing tax concessions for research but has baulked at the expense.

Prima BioMed, chaired by Lucy Turnbull, claimed $420,000 in the R&D tax rebates in Australia last year and $770,000 the previous year for expenses involved with clinical trials.

The concessions are popular with business and a lucrative source of work for accounting firms, which would vocally oppose any change.

Perhaps the Turnbull government calculates that tampering with these payments to businesses might prove, in the end, a bridge too far.

 

Sophie Morris travelled to Berlin as a guest of the German Foreign Office.

This article was first published in the print edition of The Saturday Paper on Dec 12, 2015 as "Lucy Turnbull’s innovation push". Subscribe here.

Sophie Morris
is The Saturday Paper’s chief political correspondent.