When the Commonwealth Government reorganised its innovation responsibilities for the fourth time in a decade, public servants made jokes about updating their email signatures again.

A repost from 7 November 2025

The humour masked a deeper problem: innovation remains everybody’s concern and nobody’s clear responsibility. This institutional restlessness reflects something fundamental: policy machinery lacks the analytical tools to handle what innovation actually is – a deeply political process that determines who prospers, who loses and how societies reorganise themselves around new technologies.

As artificial intelligence reshapes labour markets, Australian policymakers find themselves being reactive rather than strategic. Recent IMF analysis warns that up to 40% of global employment faces exposure to AI. Geographic isolation intensifies the risk: by the time policy responses crystallise, the terms of technological change may already be set elsewhere.

Political economy thinking was designed to address precisely these situations, yet it has been marginalised in Australian policy circles for decades, effectively eliminated during the neoclassical consolidation of the 1980s and 1990s. Understanding innovation and its importance to growth and productivity cannot be derived from neoclassical static equilibrium models where technological change is a residual. This requires Schumpeterian models capable of analysing the dynamic process of capital accumulation, particularly within national innovation systems.

Why standard economic tools fail

Contemporary innovation policy typically relies on frameworks borrowed from neoclassical economics. These treat technological change as an unexplained residual in growth equations, somehow accounting for 90% of economic expansion, yet remaining analytically opaque. When pressed on deployment questions, the standard response defaults to market mechanisms and corrective interventions after problems have emerged.

This market-solution approach produces short-term reactive decision-making rather than strategic shaping of technological transitions. The loss of Australian manufacturing capability after the removal of protectionism illustrates this problem. The same mistake is not being made with the transition to renewable........

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