Competing from a high cost economy: what is the challenge to Australian public policy?

The starting point for this chapter is that Australia is a high-cost economy with a fading resources boom and a diminished domestic manufacturing sector. The chapter explores the fresh challenge that these structural developments present to public policy. It argues that this requires a shift from the dominant neo-classical policy paradigm, which has to date provided the intellectual muscle for a transformation of Australia's political economy. The chapter makes the case for policies framed to foster innovation and knowledge as the approach needed for Australia to succeed in an environment characterised by the new international distribution of manufacturing, the impact of new technologies, and the prevalence of global supply chains. To realise innovation-based economic renewal requires capacities for much more targeted interventions that engage business at cluster, sectoral, and/or regional levels. The chapter concludes by considering the obstacles to, and the possibilities for, policy change.