Digital Disruption: What do governments need to do?

Australia's Productivity Commission has just released it's report on "Digital Disruption: What do governments need to do?".

It's not too long a read. The key findings fit into a few pages, and provides enough of a helicopter view to get a clear view of the direction the Productivity Commission believes agencies should take.

There's implications for every area of government, with many underlying potential impacts on how government operates, how our society functions and how government, businesses and citizens interact into the future.

Some of the recommendations include more assertively addressing risk aversion in government, properly considering the emerging skills needed for public servants and how to train or acquire them, taking a more flexible, iterative and adaptable approach to policy development to address the issue that technology is outpacing decision-making and improved collaboration and sharing throughout government and with external players to ensure the right mix of ideas and skills is in the room for complex decision making.

To make it quickly review, I've included the key findings below:

Impacts of disruption on markets and competition

Finding 2.1

The distinction between services and manufacturing is declining, with design and pre and post sales service parts of the production cycle becoming increasingly important sources of value added. This has implications for:

• the importance of scale in production
• the types of capital firms need
• how much work happens within the firm and how much is outsourced
• the types of jobs that will be created and replaced
• the dynamics of the business cycle.

It also has implications for the National Accounts, including adjusting for changes in quality, and the long term comparability of industry classifications.

Finding 2.2

Clarity in how and when infrastructure investment decisions will be made assists firms that are developing and adapting new technologies. Uncertainty around future technology and infrastructure needs is not a reason for inaction by governments — the costs of inaction, in terms of slower diffusion in technology, can be widespread and significant.

Finding 2.3

Digital technologies are allowing firms to outsource more of their production. This outsourcing is based on access to skills as much as low cost labour, offering greater opportunities to firms in high labour cost economies. Trade policy has been slow to adapt. Substantial increases in outsourcing across international borders may necessitate government attention to:

• secure movement of data across borders
• regulatory requirements for delivery of service exports in other countries
• barriers to outsourcing imposed by differential treatment across industries and products in bilateral and regional trade agreements and in behind the border policies
• workability of rules of origin with many disparate sources of inputs to production.

Finding 2.4

Digital platforms allow households and non market organisations, such as research facilities, to engage more in the market economy by 'sharing' access to their under utilised assets. This poses structural adjustment issues for industries that have traditionally faced little competition due to regulations, such as taxis and short term accommodation. More effective utilisation of under employed assets, whether market or non market, is a positive economic outcome.

Finding 2.5

Digital technologies are changing the sources of market power, with control over data and networks providing new means for firms to hinder entry and extract rent from customers.

• The length of time and extent to which firms can exercise market power is highly uncertain, requiring active monitoring rather than pre emptive action.
• New regulatory tools may be needed to address these very different sources of market power arising with the digital economy. Aspects of third party access regimes could be explored as a relevant approach.

Finding 2.6

Digital platforms can help overcome information asymmetries, which have been a common justification for regulation. This can allow governments to reduce the restrictiveness of regulations seeking to provide consumer protection, subject to confidence in the information provided.

Finding 2.7

Like previous waves of technology, digital technologies should translate to productivity improvements. Indeed, the low marginal cost of replication means that intangible inputs should fall in price, boosting firm profits. However:

• consumers may capture a larger share of growth in productivity where this is delivered in terms of higher quality products, and where enhanced competition drives down prices
• some digital products can be difficult to monetise
• the value of data and networks can result in a winner take all model in some digital services.

Impacts of disruption on workers and society

Finding 3.1

Developments in digital technologies, such as sensors and machine learning, are expected to widen the boundary of the types of tasks that can be automated. But there remain tasks that have proven difficult to automate, including those requiring perception, or creative and social intelligence. Just because a job can be automated does not mean that it will be.

Finding 3.2

The 'gig' economy is in its infancy, making its future effect on the nature of employment uncertain. But if the gig economy develops quickly and its spread is wide, there will be risks that need to be managed. While governments need to address real concerns, blocking these technologies is not an appropriate response.

In the longer term, depending on the scale of change, governments may need to consider whether:

• changes to workplace relations regulations are required to accommodate a growing category of employment
• the income support system needs to be changed to ensure it is not a barrier to workforce engagement and helps reduce income volatility for low income workers.

Finding 3.3

Simply increasing the share of STEM graduates is unlikely to resolve the low rates of adoption of digital technologies by firms. Given the relatively high underemployment of STEM graduates and apparent underutilisation of STEM skills, the current approaches are not delivering the problem solving skills needed for technology rich work environments. Beyond delivering a high competency in literacy and numeracy at the school level, initiatives could include reviewing teaching methods, increasing flexibility of university degrees and improving information on employment outcomes for students to help inform student choice.

Finding 3.4

The automation of many tasks in the workplace, with large labour saving technological advances, has not led to unemployment rates trending upwards over long periods of time. However, there is concern in parts of the community that the pace of change will accelerate, leading to substantial unemployment in the future. But dire employment scenarios remain speculative given the considerable uncertainty about the impact of automation on employment.

Past experience with structural change suggests some workers will find it difficult to secure new jobs. Government should focus their efforts on assisting displaced workers and resist pressure for industry protection or assistance.

Finding 3.5

Wages in Australia have increased at all income levels in recent decades, however they have increased more in higher deciles. Technological change that increases demand for high skilled workers has played a role in the widening of the wage distribution.

Ensuring the benefits from future technological change are shared will be an ongoing policy challenge for government. Raising the supply of skilled workers will be part of the solution, along with the continued role of Australia's tax and transfer system in reducing income inequality.

Implications of disruption for how governments operate

Finding 4.1

The pace of change has implications for how governments undertake regulatory functions. Some regulations and regulatory approaches are explicitly preventing the development and efficient adoption of technologies. In principle, governments should:

• adopt a 'wait and see' approach to new business models and products rather than reacting quickly to regulate what may be unrealised risks
• where relevant regulations already exist
  • adopt fixed term regulatory exemptions for innovative entrants that maintain overarching regulatory objectives (as recommended by the Business Set up, Transfer and Closure inquiry)
  • use the opportunity of disruption to reform markets where there have been undue regulatory restrictions by removing restrictions that impose a competitive disadvantage on incumbents rather than extend existing restrictions to new business models
• where regulation is needed to manage negative externalities, take a proportionate approach (that is, balance the benefits and costs) and regulate outcomes not technologies.
• take an evidence based approach drawing on Australia's scientific agencies in making assessments of the risks to the community from new technologies
• regularly review regulations affected by digital technologies, especially where an increasing share of activity is mediated through digital platforms
• assign the responsibility for reporting to the parties best able to comply at least cost, and design transparent mechanisms for dealing with complaints.

Finding 4.2

Governments do not necessarily need to be involved in the development of standards, but where standards are mandated (as a form of technical regulation), following good regulatory principles would mean that standards:

• are the minimum necessary to achieve regulatory objectives
• maximise interoperability
• follow international standards where practicable and relevant, unless use of standards based on Australian technology would deliver higher net community benefits
• are developed in consultation with the private sector.

In negotiating international standards, the interests of the Australian economy rather than individual businesses should be of primary consideration.

Finding 4.3

Governments contribute to promoting innovation across the economy by delivering a low cost operating environment for innovative activities. This could include:

• removing disincentives for universities to work collaboratively with business and encouraging the sharing of knowledge
• ensuring transparent policy objectives and predictability in those areas most affected by developments in technologies
• improving the functioning of cities to attract and retain highly skilled workers and innovative firms.

Finding 4.4

To improve the reliability and usefulness of information provided by digital intermediaries governments could:

• reduce regulations aimed at the provision of information on a product or service, where consumers are more effectively able to get this information through another avenue (such as an online rating system)
• encourage digital platforms to develop industry standards to improve the reliability of feedback and right of reply and prevent the use of gag clauses on consumers
• encourage industries to develop a common or standardised language around product offerings to assist consumers in making comparisons
• ensure existing broader governance structures for consumer complaints are sufficient to give consumers and businesses confidence in the use of digital intermediaries.

Finding 4.5

Digital technologies allow for more pervasive collection of data on individuals and firms and can be a medium for harassment and security breaches. This may change what is needed in order to:

• protect individuals privacy
• prevent the unlawful use of information
• maintain the integrity of digital networks.

The case for government action in these areas relies on ensuring that the likely benefits of any restrictions outweigh the costs of restrictions to the community.

Finding 4.6

There remains further scope for regulators to adopt new technologies that reduce the burdens incurred in obtaining regulatory outcomes, undertake more effective risk based assessment, and substantially improve engagement and the targeting of monitoring and enforcement activity.

Finding 4.7

Better information systems and scope to monitor services delivered and their outcomes could improve the efficiency and timeliness of human service delivery by:

• allowing consumer choice to play a greater role in the delivery of human services
• using linked information on services and customers to better target service delivery and introduce more integrated services
• reducing the cost and improving the safety of people involved in areas such as environmental management and emergency services.

Finding 4.8

Technologies embedded in infrastructure and greater use of digital platforms to link infrastructure with users and suppliers offer governments considerable scope to:

• assess infrastructure usage and the responsiveness of demand to pricing and to introduce efficient pricing technology
• augment and maintain public infrastructure in ways that minimise disruption to its use
• optimise investment in public infrastructure, better matching the build requirements to evolving needs.

Finding 4.9

Governments (particularly at a subnational level) have already made increasing use of digital technologies in on the ground service delivery. Some adoption of technology in regulatory processes is also evident. There remain, however, issues that governments need to confront before the benefits of digital technologies can be more widely realised.

• A risk averse culture in the development of policies that are wide reaching within the relevant jurisdiction could be assuaged by measures such as: greater use of policy trials, relying on precedents from other jurisdictions; and drawing on recommendations and advice of independent agencies.
• Skill sets within the public service need to evolve in tandem with technological change. The capacity of agencies to recruit staff with relevant skills and shed those with inadequate skills could be enhanced by more flexible performance management and termination conditions in agency enterprise agreements.
• A sharing of data and cooperation between agencies would improve capacities to solve complex problems that do not fit neatly into the competencies of a single agency.
• Governments need to find ways to:
  • exploit, in their program delivery and policy making processes, the increased transparency that comes with digital technologies
  • avoid locking in details of policy responses at early stages without scope for genuine re evaluation 'en route' to the end objective.

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The increasing importance of role models in the public sector

Role models are incredibly important for humans across both their personal and professional lives.

Role models can help show us and make us believe we can exceed our own boundaries. They can open doors and windows to new ideas, fostering innovation and positive change.

The more restricted and limiting the environment, the more important role models become. They show us where the gaps and opportunities exist and help shine a light on dark paths where many would otherwise fear to tread.

If you doubt humans need role models at every stage in their lives, watch this video showing how even a doll can become a powerful role model for a child - and the movement behind it is helping shift views across society.

The importance of role models is understood by governments, who seek to lift up those that support their agendas. Awards like Australian of the year and Young Australian of the year are examples of how exemplary citizens can be held up as national role models, presenting values and attitudes that we can aspire to share.

Similarly the importance and practical use of role models is understood by business, by the arts and by not-for-profits, which all hold up those exceptional individuals who model the behaviour that others seek to exemplify, to encourage productivity, ethical conduct, creativity and selflessness.

The concept of role models is even understood within the public service, where exceptional service and good behaviour can be recognised through awards and speaking opportunities. From the Public Service Medal to the new Public Sector Innovation Awards, role models are recognised to help illuminate the conduct and behaviours that the public sector seeks to encourage.

This is why role models are increasingly important in the public sector. With increasing digital transformation across society, new tools and new problems emerging as sunset industries fade and new ones rise, the public sector's role is changing increasingly quickly.

What does it mean to be a public servant in an era when the customer is kind and every citizen holds a supercomputer in their hand? How does government continue to reinvent itself - its policies, structures, performance criteria and behaviours - to remain relevant and effective in an age when people expect instant customized service?

While I worked in government I was alway conscious of being a role model for digital innovation. My blog made me more visible, but my conduct and work made me an example that others could learn from and follow.

I was also very conscious of the other role models within my sphere who similarly blazed trails, did great work and were held up as exemplars of what public servants could and should do. I continue to admire and be inspired by many of them to this day.

While many of these faces have now changed, in the public service, due to life changes and new opportunities, there's just as many, if not more digital and innovation role models in government today. Whether publicly recognised and held up, like Paul and the team at the Digital Transformation Office, or working within agencies, like the members of the PS Innovation Network, these individuals are modeling the behaviours and conduct the public service needs to adopt to move forward with Australian society.

But what happens if agencies or powerful public sector senior managers see these role models for innovation and change as threats - to their egos, job security or just don't fit their view of how the world they believe they control should operate?

I've seen few acts more cowardly or despicable than cutting down a positive role model for selfish personal reasons, or to preserve and protect a poisonous culture.

Indeed this too becomes a role model, of the worst kind - a negative influence that spreads fear and uncertainty. "If my role model can be cut down, then what could I do" can run the thinking, leading to the growth and spread of a negative 'prisoner' culture where no-one dares to raise their head, challenge poor decisions or demonstrate innovation or leadership.

Yes role models are powerful in the public service - both for the good and the bad.

For the public service to prosper in the digital age, to become agile, adaptable, citizen-centric and innovative, from the heights of the Department of Prime Minister and Cabinet to outlying agencies like CSIRO, from top agency executives to graduates, positive role models must be elevated and negative role models cut without remorse.

To everyone who is a positive role model in the public service (whether you know it or not), everyone who models leadership, innovation, digital expertise and amazing stakeholder and citizen engagement, those who are collaborative, giving and supportive and love helping their colleagues and Australia succeed and grow - I salute you.

Once you grow tired of the good fight and retire the field, do so with honour, knowing that no matter whether you leave by choice or necessity, your impact has been profound, recognised and valued.

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Turnbull announces Australia's first live Facebook debate

Last year Justin Trudeau, now Prime Minister of Canada, broadcast the launch of his campaign using Facebook Live, and livestreamed his party's launch event. Also last year UK political parties made extensive use of Facebook for live online Q&A sessions, speeches and debates.

Now it is Australia's turn, with Malcolm Turnbull announcing today (and Bill Shorten accepting), that the third political leaders' debate of the current Australian federal election would be held on Facebook in partnership with News Corporation.

I'm sure preparations for this announcement have been underway for a little while, however this still marks a momentous step for Australian politics and media, to use a social network for a live, unscripted, public debate.

At this stage it appears the debate will be held using Facebook Live, a relatively new livestream video platform that has already been extremely successful in building usage and viewership.

The platform, which Facebook launched after live video rivals such as Google Hangouts on Air, YouTube Live, Meercat, Periscope or Blab had all entered the market, has proven to be more stable and well developed than many of its rivals and with its strong API support has allowed third party companies to begin developing additional functionality and specialised hardware to a much greater extent than even Google's Hangouts on Air.

Facebook Live also received an enormous marketing boost last month due to the efforts of an otherwise unknown US lady, Candace Payne, who created a five minute Live video of herself laughing in her car wearing a wookie mask.

Now popularly known as the 'Wookie Woman', Candace has received over 155 million views of her video, making it the most popular on Facebook Live, with extensive coverage and all-expenses paid trips to Facebook and Disney HQs - even meeting the actor who plays Chewbacca.

Science fiction aside, the step to hold the first live Facebook public debate is as momentus for Australian politics as the first televised US Presidential debate was in the US.

While many further debates are likely to be held using 20th century technology - in RSL clubs and television studios, we are likely to see a further shift to digital debating at all levels of politics now that the door to the 21st century is open.

On this point it is important to consider that one of the major changes when television became the primary means for political speechifying and debates was that a different style of politician became successful. Television worked for Kennedy, who was otherwise a relatively unknown Senator, and put the nails into Nixon's re-election coffin because Kennedy presented much better and was clearly comfortable and effective using the medium while Nixon was ill-at-ease. In fact this first televised debate was widely seen as a gamechanger for US politics.

Similarly the current US President, Barack Obama, was notable in his first Presidential campaign for his effective use of online tools to build his profile, his grassroots organisation and his campaign treasury while the then leading Democratic candidate (Hilary Clinton) was wedded to traditional media and approaches. He used this momentum to far outstrip the Republican nominee, and repeated the trick during his re-election.

I don't know if Turnbull and Shorten yet realize how significant this online debate may be for either of their party's campaigns for election. If either leader clearly shines in their use of the medium, they may be able to build an unassailable lead in the campaign. If either appears outdated or inarticulate while answering live questions from the public, they could lose the election for their side in a few moments.

Regardless of the outcome of this live online debate, the likelihood is that politicians of all stripes and all Australian jurisdictions should now begin ups killing themselves on the qualities that will make them stand out and be effective in live online debates - qualities different to those needed even on the other highly visible mediums of television and live town halls.

Politicians who cannot adapt, like Nixon and many of his peers at the beginning of the TV era, will find themselves increasingly on the backfoot and struggling to compete against the upcoming crop of social media native politicians, who willingly and effectively engage with the public through services like Facebook Live, Blab, Periscope and other emerging livestream video , audio and text platforms.

By the way -  anyone who was listening to 2UE in Sydney or online this afternoon may have heard me talking about this online debate with Tim Webster on his show at about 2:30pm - you may be able to catch it later online at 2ue.com.au

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Energy needs a digital transformation

I've had a long involvement in the energy industry, having cofounded two startups in the sector, one that is now listed on the ASX.

Why energy, when my background is digital? Because the industries are extremely similar - far more similar than archaic regulations environments allow them to do.

Like the media, for most of the twentieth century the energy industry was dominated by a relatively small number of producers, who generated the 'content' (energy) that societies consumed.

Where humans had news agencies, cars had petrol stations, where humans had phone networks and broadcast TV and radio connecting them to their neighbors and the world, their household appliances had gas and electricity networks connecting them to the power they needed to operate.

With the arrival of the Internet, still facilitated by those human communication networks, suddenly anyone could become a producer - a content creator, editor, publisher and distributor building a global audience.

The most successful content services became peer-based networks where a central organisation provided the technical infrastructure while individuals - not large corporations - provided the content that flowed through the system, powering the minds of the world. Services such as YouTube, Facebook, Wikipedia and others became the facilitators for billions of minds to create, share, learn from and debate content - while the former dominant content producers increasingly had to open their work to community co-creation and adapt hoe they created and distributed content to remain relevant.

The energy industry has been slower to reach this state, with network and power suppliers remaining constrained to a few monopolistic operators, albeit with some loosening of user choice and more market-based competition for wholesale and retail power supply.

Increasingly as household adopt solar and large scale renewables become cost-effective the balance is shifting. We have seen situations where wholesale energy prices have fallen to zero, where renewables have supplied 'baseload power' (a concept long used to justify why nations had to continue to rely on burnable fuels - now being requestioned).

There's numerous case studies of households that with an investment in solar have seen their electricity bills fall to nothing (in fact I live in such a household), and with the household batteries already in production it becomes almost feasible to disconnect from the electricity grid.

However the real evolution, similar to digital, has been towards having a ubiquitous network that facilitation millions of small energy generators. Where any household, business or connected device could be generating electricity and having the grid distribute it to where it is needed.

This peer-to-peer style network reflects the impact of the Internet on content, on banking, on buying and selling goods, services and skilled labour, where a more pure capitalistic market with low entry barriers and low arbitrage opportunities exist.

This is the future that is possible for the energy market - just like the media market. Not a few large producers distributing to a large number of small consumers, but a market of big and small producers distributing on-demand when and where consumers need it.

In this world there are no artificial tariffs on supply which support artificial profits for large companies, there are no restrictions (beyond those required for safety) on generating or consuming power from the grid. Everyone is a generator to the extent desired, everyone is a consumer to the extent required, just like content on the Internet.

This type of thinking is hard for those immersed in the energy market - particularly for the incumbent players - government and privately owned power stations, distribution networks, energy markets and regulators.

However it should be slightly simpler for the industry given the example of the media industry that has gone before it, the transport industry which is rapidly heading that way and the manufacturing industry which isn't far behind.

How fast and how painful the transition will depend on governments being effective change managers - embracing, endorsing and supporting the process rather than resisting it actively (with steps to restrict involvement) or passively (by lagging on legislative change and policy).

in Australia we still have an opportunity for governments to defy history and get ahead of the curve, rather than painfully lag it. However I anticipate there's only a few years left for them to act to be leaders rather than laggards - and in transformations this profound there's no middle ground to be a follower without lagging.

The digitalisation of the energy market has already started. My household, like thousands of others, has an annual electricity bill of zero.

Once we have batteries in place (the first generation are on the market this year) we move to being a profitable generator of electricity that is also more network blackout resistant. The grid will no longer exist to provide us with all our 'content' (power), it will be our distribution network instead.

We're not early adopters - there's millions of solar installations on top of Australian households.

And it would be better for all Australia if governments are prepared and ready for the shift that is arriving before, rather than after it arrives.

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