Australia has immense natural, financial and scientific wealth, but has failed to turn enough of it into productive industries, skills and long-term national capability.
Australia is one of the world’s richest nations in natural resources. We have strong democratic institutions, an educated population, world-class researchers and one of the largest pools of retirement savings on earth. Yet we continue to rely heavily on exporting raw materials, importing advanced technologies, borrowing against land and using population growth to sustain demand. We are asset rich but capability poor.
For four decades, governments have largely assumed that open markets and private investment would naturally produce a more sophisticated economy. In some areas they have. But overall, Australia has become increasingly dependent on property, mining rents and consumption while manufacturing has declined, research translation has remained weak, productivity has stagnated and too much capital has flowed into existing assets rather than new productive industries.
The choice, however, is not between returning to 20th-century protectionism and continuing with market liberalism. Australia needs something different: a capability state.
Instead of asking only how markets can become more efficient, a capability state asks a deeper question: what must Australia become capable of doing?
This changes the focus of economic policy. Instead of celebrating GDP growth, population growth or rising asset values, success is measured by whether the nation becomes better able to design, manufacture, innovate, educate, care, restore ecosystems and respond to future shocks.
An economy can become larger simply by adding more people, building more houses and extracting more resources. That does not necessarily make it stronger. True capability growth occurs when a country develops greater technological competence, stronger institutions, more skilled people and higher-value industries that improve living standards over the long term.
Australia has pursued developmental policies before. The post-war settlement built railways, electricity systems, technical education and a diversified manufacturing base. But broad, permanent protection often insulated firms from competition and innovation. The lesson is not that governments should retreat from economic development. It is that public support must come with clear expectations.
A modern capability state would support industries, but only in return for investment, research, training, technological upgrading, emissions reduction and domestic value creation. The objective would not be to preserve inefficient firms but to build productive ecosystems capable of competing internationally.
Australia’s strategy must also reflect its own circumstances. We cannot manufacture everything, nor should we try. But we can identify areas where our natural resources, scientific strengths and institutions provide enduring advantages.
Six national capability missions stand out.
The first is transforming Australia from a quarry into a producer of low-carbon industrial products through green iron, refined critical minerals, renewable energy technologies and advanced manufacturing.
The second is building sovereign capability in health, pharmaceuticals, biotechnology and medical devices by connecting universities, hospitals, manufacturers and patient long-term capital.
The third is becoming a global leader in climate adaptation through sustainable agriculture, water management, ecosystem restoration and environmental technologies.
The fourth is strengthening digital sovereignty through cyber security, public digital infrastructure, advanced software and selected strategic technologies rather than relying almost entirely on imported systems.
The fifth is recognising care as productive capability. An ageing society requires innovation in health, disability and aged care, supported by technology, skilled workers and professional development rather than permanently low wages.
The sixth is rebuilding Australia’s capacity to deliver affordable, low-carbon housing through modern construction methods, public development institutions and a permanent non-market housing sector.
These missions reinforce one another. Renewable energy supports advanced manufacturing. Universities underpin health and digital capability. Public housing improves labour mobility. Ecological restoration strengthens regional economies. Public procurement creates markets for domestic innovation.
Delivering this agenda requires a different role for government. The Australian state has never disappeared. It still spends, regulates, subsidises and shapes markets. But too often public resources have been used to support private returns without creating lasting public capability.
A capability state would act as investor, coordinator and builder. It would establish development finance institutions capable of supporting projects that private markets regard as too slow or too risky. It would rebuild expertise inside government after decades of outsourcing, so the public sector once again possesses engineering, scientific, technological and project management capability instead of purchasing it from consultants.
It would also change the relationship between government and business. Public assistance would become conditional. Companies receiving grants, tax concessions, public land or procurement contracts would be expected to create Australian jobs, train apprentices, invest in research, strengthen domestic supply chains and contribute to national capability.
Perhaps the greatest obstacle is Australia’s increasingly rentier economy. Wealth has flowed disproportionately to owners of land, monopoly infrastructure and financial assets rather than to productive investment. Housing has become the clearest example, with enormous volumes of credit directed into bidding up existing land values instead of creating new industries.
A capability state would begin reversing these incentives. Greater taxation of economic rents, better capture of land value uplift and a stronger return from Australia’s mineral wealth could finance a sovereign capability fund investing in research, infrastructure, housing and industrial transformation for future generations.
Universities must also be repositioned as national capability institutions rather than primarily export businesses. Basic research, teaching and knowledge creation are public infrastructure. Australia excels at discovery but too often loses commercialisation overseas because finance, procurement, manufacturing and scale-up occur elsewhere. The missing links lie between invention and production.
Skills are equally central. TAFE should once again become a flagship public institution, closely connected to strategic industries. Apprenticeships, workforce development and lifelong learning should become standard conditions of major public investments. Workers themselves should have a greater voice in technological change because innovation succeeds when people participate in it rather than simply experience it.
Above all, Australia’s capability state must differ from the old developmental state in one crucial respect. Capability and sustainability must be inseparable. The objective is not industrial expansion at any ecological cost but productive transformation within environmental limits. Some industries should grow, some should be transformed and others should gradually decline. A capable state would be able to make those choices.
This also requires moving beyond Australia’s dependence on population growth as an economic strategy. Migration has enriched Australia enormously and should remain central to our future. But migration must complement, not substitute for, domestic skills, housing capacity, infrastructure and productivity growth.
Ultimately, Australia needs a new measure of national success. GDP will always matter, but it should no longer dominate public debate. A stronger nation is one that can meet more of its own essential needs, generate and retain knowledge, absorb shocks, restore its environment and provide rising living standards through greater capability rather than simply greater scale.
Australia has prospered through remarkable good fortune. The next stage of national development cannot rely on luck alone. It must consciously convert natural wealth into productive capability, financial wealth into long-term investment and scientific excellence into industries that remain anchored here.
The question facing Australia is no longer simply how much bigger the economy can become. It is what kind of country we want to become capable of being.
Stewart Sweeney
Stewart Sweeney is a writer and public policy advocate with a longstanding interest in the evolution and future of capitalism. He migrated from Scotland to Adelaide in 1975 to work with Premier Don Dunstan on industrial democracy. A former academic and trade unionist, he continues to contribute to public debate on economic justice, democratic reform, and sustainable development. His work reflects a deep commitment to the common good and the role of public purpose in shaping Australia’s future.