In a world that is increasingly globally integrated, why think in terms of homegrown?

One important line of reasoning relates to the community and social benefits that result from investing in homegrown companies, as illustrated in this slide.

Such a line is one that could be pursued as a subject in its own right but is not one that I shall follow today.

The fact that a predominant proportion of the world's investment is in the country of domicile of the investor is as much driven by parochialism as by sound investment decision making.

Such parochialism can lead to under investment in companies which enjoy competitive advantages. This can result in good investment opportunities.

Historically, Australia has enjoyed a strong competitive advantage in agriculture and mining. This was a most beneficial position to be in during the nineteenth century, when the world was still largely in the pre-industrial age.

The world has moved on and Australia has not kept up. With few exceptions we have not enjoyed a strong competitive position in the era post the industrial revolution and, although it is not too late to benefit from some latent advantage in the information technology era, we have to date not done too well.

The impact on Australia's wealth is marked.

In the latter part of last century, Australian's were the wealthiest people on earth. As we move into the 21st century, we are confronted with the likelihood of continued degradation of our position unless we can convert into national wealth competitive advantages of relevance to the coming era.

I would like to take some time to talk about the latest revolution shown on the previous slide, namely the biotechnology revolution. It is perhaps easiest to relate this to the information technology revolution, which has been in train for longer and whose impact is clear for all to see.

The IT revolution has had such a widespread effect as a result of its general purpose nature. The programming of the binary digits of a computer's memory has allowed information technology to be applied in nearly all fields of human endeavour. The development of such general purpose technology has been seen before in, for example, the invention of the printing press, the steam engine and electricity generation. In all cases, the introduction of new general purpose technology has resulted in the creation of tremendous new wealth.

The biotechnology revolution is springing from the relatively recently discovered (1973) technology of recombinant DNA. This technology allows us to manipulate the fundamental building block of life, DNA

and represents a new general purpose technology which is arguably more significant than any to date.

This slide shows how the structure of DNA leads to the production of the proteins that make up all living things and determine individual characteristics such as height, intelligence and susceptibility to disease. Biotechnology holds the promise of being able to change such characteristics in plants and humans.

Developments in biotechnology are reaching a very exciting stage. By 2003, the Human Genome Project is expected to have decoded the entire structure of human DNA. In effect, the computer program of human life will have been decoded. As the function of the individual genes in the human genome become understood, we should expect this new general purpose technology to have an enormous impact on our lives and on the economy. In particular, the technology is expected to produce massive wealth for those who own or control it.

The structural change that will result from the biotechnology revolution is one that cannot be overlooked in any medium to long term investment strategising. It is particularly relevant to superannuation funds when combined with the another major secular change namely the aging of the population.

Developments in biotechnology are expected to further lengthen the human life span increasing the resources to be funded from savings in the latter part of life. In particular, demand for the products of biotechnology will increase as a percentage of consumption. This then poses a very real threat to Australia's balance of payments if such products are sourced primarily from overseas producers as has been the case with the products of the IT revolution.

How then is Australia positioned for the era post the biotechnology revolution?

(story continues in next edition)

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