Chapter OverviewSkills and Capability

Some of the data presented in this chapter was collected prior to the COVID-19 pandemic. Pending further updates, the COVID-19 page summarises some of the impacts of COVID-19 on Australian businesses during the first year of the pandemic.

Innovation is about the creation, application and diffusion of knowledge — and skills and capability are at the very core of these processes. It is from the interplay of people working, collaborating and competing across the system that innovation and technological progress emerge. Human capital, intellectual property, and a range of other intangibles jointly represent the accumulated stock of knowledge. In the business enterprise sector, knowledge-based (or intangible) capital represents a substantial and growing investment. For example, experimental estimates suggest that Australian businesses invested approximately $21.2 billion on organisational capital in 2012–13 alone.[133]

Computer software is one intangible asset that has seen dramatic investment growth over the last three decades. The transformative potential of Big Data, the Internet of Things and Artificial Intelligence, is starting to be recognised. At the same time, these disruptive technologies have prompted debates around digital privacy and the future of work. Some estimates suggest intelligent technology could be capable of automating the tasks of 44 per cent of Australian jobs in the coming decades.[134] However, historically, technological disruptions have not led to mass unemployment — instead they left the most difficult, dangerous and back-breaking work to machines, and created new and better jobs for people.

Another important intangible asset is the accumulated knowledge generated from research activity. The higher education sector has historically been the largest employer of research personnel in Australia, and in recent years, the higher education research workforce increased substantially. By contrast, Australia's business and government sectors have both cut back dramatically on the number of researchers employed in recent times. Finally, management capability is equally as important. Recent Australian evidence suggests that management capability is positively associated with labour productivity, higher levels of innovation and more engagement in collaboration.[135]