There are three things politicians should beware of -- wine, women and technolologists.
-- Georges Pompidou, French president
Victorian Premier Steve Bracks and his Treasurer and Innovation Minister John Brumby should heed Pompidou's warning for they, and through them Victorian taxpayers, are being sold a $320 million chimera.
While their $320 million Biotechnology Strategy will keep many technologists, management consultants, bureaucrats and conference organisers busy and happy, it does not have a hope in hell of turning Victoria into a world hub of biotechnology. Indeed, it is likely squash any chance of this happening.
Of course, biotechnology is a key transforming technology, changing old industries, creating new ones, and providing the means of solving many of society's most intractable problems.
But this is hardly new or profound. My daughter knows this from watching the Simpsons.
The key policy questions, as far as the state is concerned, are: what opportunities does the technology present to Victorian businesses, researchers and entrepreneurs? Is the regulatory regime right for them to take advantage of these opportunities?
The Bracks Government has got both answers fundamentally wrong.
It announced the existence of huge buckets of easy government money. Naturally this brings out "biotech entrepreneurs" in droves, all promising to transform Victoria into a world-class biotechnology hub and all hugely supportive of the Government's plan. The problem is, Gresham's Law applies. Easy government money always drives out hard money from the marketplace. It distorts the incentive for real technological entrepreneurs and provides scope for many interlopers and rent seekers.
Early on, the Government correctly identified large potential for biotechnology in the state's agricultural sector and food manufacturing -- the largest manufacturing sector. This again was not a profound insight, as this potential was already being realised around the world. Moreover, these are two of the few sectors in which Victoria already has a sufficiently large local industrial base and market to justify the heavy investment needed.
Accordingly, the strategy included a major focus on agricultural biotechnology, including a new research centre and funding for numerous research projects.
Then, just over two years ago, the Government decided to ban the very first locally developed agricultural biotechnology product to reach the commercial stage -- Bayer Agroscience's GM canola. The ban was put in place despite the product being approved by the gene technology regulator and despite the Government's independent panel recommending approval.
The signal was clear and the reaction by researchers and entrepreneurs swift. Victoria is not a place to invest in commercialisation of agricultural or food-based biotechnology. Research programs that were approaching commercialisation phase were halted. Pre-commercial research continues as long as Government funding remains available. Once the Government drip stops or a product approaches commercial phase, the research, the researchers and Victoria's investment will be off to Queensland or other more welcoming jurisdictions.
The charade continues. One of the main reasons for the Government's 130-person entourage at the BIO 2005 Conference in Philadelphia was to "launch the Agricultural Biotechnology International Conference, the largest of its kind, to be held in Melbourne in August 2006". In short, despite Victoria placing an indefinite moratorium on the commercial use of agricultural biotechnology, the Government is continuing to use taxpayers' money to bring the world's leading agricultural biotechnologists to the state. This is like North Korea paying to host an international human rights conference.
The Government is trying to "refocus" the conference from agricultural biotechnology to biosecurity, but this will fool few real investors.
The Bracks Government, like virtually every government around the world, has also focused on pharmaceutical biotechnology.
Sure, pharmaceutical biotechnology can be profitable and has led to the creation of large new companies through rapid, organic growth, but only in America. Moreover, as any serious investor knows, the biotech sector has proven to be a disappointment and very high risk.
Sure, by Australian standards Victoria does have a sizeable cluster of medical research centres and is home to a sizeable number of biotech start-ups.
However, these clusters are neither large nor unique by world or US standards. There are more biotech start-ups south of Los Angeles than in all of Australia.
While local research centres and biotech start-ups may well discover products with commercial potential, it is unlikely they will be developed locally.
On average it takes 10 years and costs over $US900 million to get a new drug on the market. The Australian market is too small and domestic prices, thanks to the Pharmaceutical Benefits Scheme, too low to warrant local development. There also are no Australian firms capable of making the necessary investment.
The probability therefore of the Government's Biotechnology Strategy giving birth to a new Biotech BHP is virtually zero.
Given the poor returns and high risk in the sectors and Victoria's remoteness, it is little wonder that local investors are not breaking down the doors of biotech start-ups.
Again not deterred, the Government and its advisers blame the investors, particularly the superannuation funds, for being too conservative, uninformed and myopic.
Their claim is that while returns may be low now, the future is pure blue sky and what is needed is government leadership, investor education programs and government subsidies.
For those of us not born yesterday, this sounds like the business plan for the Victorian Economic Development Corporation, a 1980s debacle that cost Victorian taxpayers millions of dollars when the ALP Government tried to pick winners.
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