‘MANUFACTURING MATTERS – AN OPTIMISTIC FUTURE’ – ADDRESS TO NATIONAL PRESS CLUB
14-September-2011
It’s a great pleasure and privilege to be here today to talk about the future of Australian manufacturing.
From the outset, let me say that I believe Australia can have a vibrant, competitive manufacturing future. And it is a visionary government that fosters a diversified and competitive free market economy.
But, as I join you, there is a deep, widespread and prolonged pessimism about the state of Australian manufacturing. And there is mounting awareness in the community that, if recent trends continue, then it will not be long before we lose our strategic, indigenous capacity to ‘make things’ in this country.
To set those views in context, let me share with you a few figures that indicate where Australian manufacturing now finds itself.
During the course of the last 39 months, Australia’s monthly manufacturing PMI survey suggests manufacturing activity has contracted on 26 separate occasions. As a comparison, the equivalent indexes show that manufacturing at a global level has expanded for 26 consecutive months. At a country level, there have been 25 successive months of expansion in the USA, 23 in Austria and 21 in the Netherlands just as some examples.
Here in Australia, more than 100,000 jobs have been lost in the sector over the last three years.
Our rate of manufacturing production has not only begun to stall, but gone backwards. In a listing of industrial production for 42 countries in the most recent issue of The Economist, we were ranked 41st. In front only of Greece.
Notwithstanding that food processing is our largest manufacturing sector, Australia last year became a net importer of food and groceries for the first time in living memory.
In Australia, employment in manufacturing has fallen in five of the past eight quarters. But globally, it has risen for 21 successive months, or 7 straight quarters.
It is a rarity now for a week to pass without stories of further manufacturing closures and job losses, and warnings that Australia is at increasing risk of becoming simply a mining, services and welfare economy – and opening itself up to the considerable dangers that this would invite. And, as if all of that isn’t already enough, our manufacturers are now being asked to look down the barrel of the introduction of a carbon tax.
Perversely, there is actually one good thing that has emerged from the carbon tax proposal. Because, if nothing else, it has helped to restart in the public arena a vital national discussion.
Albeit inadvertently, it has focused long overdue attention on the critical question about what sort of economy we want. And, more specifically, why we would ever seek to actively destroy Australian manufacturing beyond repair. What might the accompanying loss of huge swathes of Australia’s manufacturing capability mean for us in 10, 20 or 30 years from now?
It has also indicated – very graphically – that people are passionate about retaining an industrial base in Australia. In turn, it has reaffirmed to me that people across the country know full well that imposing further costs and pressures on the manufacturing sector (as well as devaluing our great natural advantage of access to cheap and abundant energy) are unacceptable self-imposed economic handicaps.
Like those Australians, I believe that we have now arrived at a critical crossroad for Australian industry.
And I am deeply worried when I see regrettable public statements from people such as Paul Keating – who as recently as two months ago dismissively said manufacturing was an "old industry", has "moved to the East" and makes for "an economy with a brown, fat underbelly". In other words: in his view, there’s absolutely no need for anyone in Australia to be employed in manufacturing, we should effectively turn our backs on the million Australians who work in the sector, and just let it all be shipped off to Asia.
The next two to four years of policymaking are absolutely vital to the very future of Australian manufacturing.
Instead of being a time for platitudes, this is a time for governments to be honest and to squarely face up to the challenges that Australian manufacturing now confronts. It’s also time for a fresh vision for a sustainable manufacturing base in this country.
Winston Churchill once said that “the pessimist sees difficulty in every opportunity (and that) the optimist sees opportunity in every difficulty”.
And I genuinely believe there is a positive and viable future for Australian manufacturing.
I say this because, fundamentally, Australian manufacturers are efficient, innovative and, all things being equal, competitive. Manufacturing is an integral part of a modern, industrialised economy and is too important to lose.
When people tell you that Australian manufacturers are big polluters, they are part of old and outdated industries, and they put lead weights in the saddlebags of our economy, it’s clear they have no real understanding of the importance manufacturing has to the wider economy. It’s not just that one million Australians are employed in manufacturing; it’s also the innovation and the value-add that is ignored.
Such people have also clearly not worn out their shoe leather visiting manufacturers to truly comprehend the innovation in the sector – like in the third generation family business that has evolved into a successful export competitor. Such people clearly have no appreciation of the multiplier effects manufacturing enterprises create for many local communities. Nor the extraordinary advances that Australian manufacturers have generated during recent decades – including in relation to improving their sustainability and reducing their emissions.
As examples of what I mean by that, consider for a moment that the aluminium industry has cut its emissions by as much as 26% since 1990. And that the Australian automotive industry has reduced carbon dioxide emissions from Australian cars by 15% since 2002, delivered a 30% improvement in the efficiency of new cars since the 1970s, and worked toward ensuring that 75% of vehicle components are now reused or recycled.
At an individual company level, think about a business like Kimberly Clark – which has cut its use of fresh water in half since 1996.
Or BlueScope Steel, which has invested $2.5 billion in new machinery over the last decade – as one part of the broader doubling of investment in manufacturing equipment in Australia since the 1980s.
This might serve as something of a rude awakening, of course, to Ministers like Mr Combet who gratuitously implied last week that manufacturers commonly haven’t committed serious expenditure to purchasing capital equipment since the 1950s!
Or Visy, which has not only now built its third clean energy plant in Australia to convert garbage into power and reduce emissions by 70,000 tonnes per year - but which also recycles more than 1.4 million tonnes of waste paper and cardboard annually. And which, I might add, will be punished under the carbon tax!
Or indeed Victorian industries as a whole, which the Victorian Employers’ Chamber of Commerce and Industry calculates have cut their emissions by around 33% since 1990.
In each of these cases (and many more besides), such results have been achieved entirely voluntarily and through innovative processes that are part of the ethos of these and many other Australian manufacturing businesses.
Our manufacturers have been innovative, they have cut their profit margins, they have diversified, and they have found all manner of ways of keeping their heads above a rising floodtide.
Regrettably, people who think that Australian manufacturers are economic dinosaurs mired in a bygone era labour under the misapprehension that none of these things has occurred.
Nor do they realise that manufacturing still contributes an extraordinary 15% of our exports from a base of 8.7% of GDP.
They also misunderstand the international environment in which our firms are competing. And the ways in which a series of recent changes in global markets are posing ever-more intense and complex challenges to them. Including through the impact of recent reversals of thinking in the United States where it was once imagined that the financial services sector could and should displace manufacturing – an approach that has spectacularly failed.
And, worse still, they are also captive to the view that industry policy in Australia is all about a simplistic argument between the merits of 'free trade' and 'protection' and little else. When, in reality, it never has been and never will be.
Australia’s manufacturers are not asking for handouts, for the reinstatement of tariff walls and fortresses, or the creation of some kind of siege mentality in Australia. Far from it.
In fact, what needs to be appreciated (but is little understood) is they are actually among the strongest advocates in Australia of free trade. They recognise as well as anybody that their future, in most cases, relies on staying one step ahead of the pack and driving their activities higher up the value chain relative to their international rivals – as well as improving their business capabilities and their international competitiveness by carving niches for themselves in export markets.
But they are hardly shirking those challenges.
Where they have concerns, these are generally predicated on the belief that they’re not always competing on a genuinely level playing field.
Amid such circumstances (and particularly when the view is near universally expressed by the sector), politicians have an obligation to listen.
It’s also a basic duty of government to appreciate commercial realities that are
rapidly-changing and unpredictable.
If both sides of politics have accepted that it’s a responsibility of governments to ameliorate the impacts of market imperfections (as is done in areas like infrastructure, education and health), then we should at least pause to consider how we should react to the tragic consequences of the loss of an average of over 600 jobs every week in one of our economic sectors. And the chain reaction that that, in itself, causes for other dependent Australian businesses.
Indeed, it is ironic that, at the same time as Labor is:
- building a telecommunications monopoly;
- pursuing the already-failed dream of directly subsidising ‘green jobs’ to the tune of many billions of dollars;
- providing guarantees and insurance to shore up our financial system; and
- aggressively intruding and intervening into people’s lives and commanding them to cease apparently undesirable social behaviour,
the Government seems perfectly happy to ignore the pleas of Australian businesses to do something about apparent anti-competitive conduct they say is occurring right under its nose.
We also need to recognise that what is happening in the real world can often be far removed from assumptions instinctively made by public servants in Canberra.
Governments of both persuasions in Australia have traditionally taken the view that there is a central role for them in helping create the conditions for businesses to build lasting competitive advantages. This approach has been adopted in recognition of the obvious reality that Australian industry is a cornerstone of national growth and prosperity, a diversified economy and a critical driver of national innovation and technological progress.
It is perfectly appropriate for there to be a debate about whether the Government should intervene in the market – and if it should, what necessitates government action. The Coalition also remains committed to the principle of free trade and to all of Australia’s existing multilateral trade obligations and bilateral trade agreements.
But the view that government should abandon any specific focus on industry policy out of the fear of being labelled protectionist is shallow.
Indeed, there is nothing protectionist about making sure that capable local industries have the same opportunities as foreign companies to compete and grow. And any good government should strive to foster clear and fair market incentives through robust competition, as well as a stable economic environment which encourages industry to invest and to employ Australians.
While governments can’t necessarily do a great deal to directly combat the substantial and ongoing problems caused by our high dollar, they do have the power to recognise the distortion of our own domestic market through the unlawful dumping of foreign goods. As indeed the WTO makes clear through its Anti-Dumping Agreement. We can champion the cause of local industry where it is unfairly targeted, a goal the Coalition is currently pursuing through the work of our dedicated anti-dumping taskforce.
It is also a fact that governments routinely interfere in the market, often dramatically and without consulting industry, by imposing all sorts of regulations that add to the cost of making things in Australia. And also including through the continued existence across all three levels of government of overlapping, inefficient and inconsistent costs and regulatory burdens.
Cutting government regulations is now even more important than ever, yet Labor has created 220 new regulations for each old one it removes. This is why the Coalition has committed to reducing the costs of Commonwealth red tape to business by at least
$1 billion per annum.
It is a bit rich for legislators to chop industry off at the knees, then still ask them to run faster.
I certainly don’t accept that the solution to the current crisis in manufacturing is to throw our hands in the air, and simply let Australian industry wither and die.
Instead, we must look closely at domestic and international experience, learn lessons from past successes and failures, and seek serious input from the boardrooms and factory floors of our country. From real people, with real experience, real views and a real passion about creating jobs, generating wealth, and improving Australia’s economic prosperity.
That’s why Coalition MPs have collectively made thousands of visits to manufacturing businesses during our years in Opposition.
It’s also why our Leader, Tony Abbott, recently announced that my colleague, the Shadow Resources Minister Ian Macfarlane, and I will co-chair an ‘Industries for Australia’s Future’ Review on behalf of the Coalition to further advance and accelerate that work.
It’s because we want the facts and we want to make our policy decisions on the soundest base of evidence possible.
As is outlined in the Terms of Reference of our review (which I’m happy to release today), we want serious answers to serious problems – and we want to be ready, if we’re privileged enough to be elected to government, to implement policies that will make a practical and lasting difference to Australian industry.
We want to sharpen our focus on issues such as:
• removing and streamlining costly red tape;
• minimising sovereign risk for investors in Australian manufacturing and mining;
• identifying policies that will best help sustain comparative advantages for Australian firms;
• stimulating new private sector funding for industry activity, including through enhanced venture capital and angel investment;
• improving government procurement processes;
• the abolition and weakening of R&D and commercialisation programs over the past four years and their impacts on emerging industries; and
• opportunities for productivity and skills improvements.
And to do so with regard to our wider economic principles, which recognise that our national prosperity depends on the freedom of businesses to decide what to produce and where to invest.
The review will report by the end of the year.
In the meantime, we also constructively suggest to the Government that it could already adopt a number of key principles for changes to the current industry policy framework.
These policy principles are changes that would and should immediately be made by any government that is seriously committed to improving the lot of Australian manufacturers.
And we’re happy, in the name of making a bipartisan effort, to commit ourselves to assisting the Government to deliver these changes.
These policy principles should be welcomed – because they will help to mark an important change of direction, reverse a failed vision and genuinely promote innovation instead of stifling it. To recycle an old phrase of Julia Gillard’s, ‘delay in implementing them would be denial’.
The industry policy measures that the Government could implement immediately are as follows:
• Abolishing the introduction of the carbon tax;
• Redrafting the current legislation to widen access to (and improve support for) R&D tax incentives for Australian manufacturers;
• Better targeting funding of commercialisation;
• Ensuring adequate funding for Australia’s Cooperative Research Centres;
• Providing sufficient resources to Customs so that it can implement an effective anti-dumping regime;
• Ensuring that plans to change shipping regulations in Australia don’t decimate our cement industry;
• Abolishing the Government’s flawed Industry Innovation Councils, and restoring Action Agendas to deliver better future plans for individual industries; and
• Considering a national inquiry into manufacturing, with wide stakeholder involvement.
In a global context, the scale of the challenges facing manufacturing is not unprecedented.
Effective industry policymaking is not easy, but it is a simple way out to use the excuse that any action is protectionism. This is factually inaccurate and a lazy, panicked response to the current challenges. It also ignores the fundamental truth that other national governments are actively pursuing policies to encourage their manufacturing industries.
Since the onset of the GFC, in particular, many overseas governments have belatedly acknowledged the errors of discounting the importance to a diversified economy of the presence of a manufacturing base.
I’m not saying we should mimic what other nations are doing, but let’s at least recognise what governments in the real world are doing – and what we are up against.
During recent years, the economies of Germany and France (even with their very high standards of living and wage rates) – for instance – have continued to be underpinned by their governments’ pronounced commitments to lean and advanced manufacturing.
More recently, the US has decided to re-invest enormous sums in R&D – including around $58 billion annually just in the car industry alone.
In the UK, a survey released last week revealed that more than 60% of manufacturers there intend to increase investment in their British production facilities over the next two years.
In Japan, there continues to be an extraordinary emphasis on innovative manufacturing process improvements – even in the wake of its own manufacturing crisis triggered by the catastrophe of the Tohoku earthquake earlier this year.
In Singapore, 2010 saw the start of government spending of $1.1 billion annually over five years in the form of tax benefits, grants and training subsidies to support the national effort to raise productivity – including remarkable new investments in R&D. This has given yet more flesh to the bones of its Government’s commitment that the proportion of manufacturing in its economy should not fall to below 20% of GDP.
In countries like Brazil and Argentina, there has been thorough reinvigoration of approaches to anti-dumping, and there have been active changes to procurement and purchasing regimes in nations such as India and Canada.
And almost all of these nations have been strident in identifying means of reducing the regulatory burdens and costs imposed on their local manufacturing businesses.
Unfortunately, of course, the same sorts of things haven’t been happening here at home.
Under Kevin Rudd and Julia Gillard, there has been talk of reducing red tape and a well-oiled mantra that ‘innovation policy is industry policy’. But this hardly represents a new revelation, because governments have long recognised the importance of increased innovation. And, under this Government, theory and practice have remained a world apart. Behind those sickly-sweet words, gigantic holes have been punched in the two principal mechanisms of public support for innovation – namely, commercialisation and R&D tax incentives.
It has also failed to make changes to encourage the flow of increased amounts of venture capital to Australian businesses.
Worse still, the Government hasn’t made the connection that the provision of incentives for the ‘D’ of R&D is absolutely critical in increasing government support for innovation in our domestic businesses. The overwhelming bulk of R&D activity in Australia involves refinements and incremental adjustments to existing business processes. But, instead of realising the point and fostering more of this activity, Labor has tried as hard as possible to strangle such support.
Under Labor, business has been hit with a double whammy: the effectiveness of our national spending on industry measures has been drastically reduced at a time when foreign competition has become even more intense.
What we need is a different approach, and a focus on genuine incentives for enterprise. As well as improvements in the collaboration between manufacturers and researchers, and the commercialisation of public sector research more generally. Australia continues to languish from the absence of effective linkages between academia and industry – a situation that simply must be reversed.
It’s true that Australia is a comparatively small player in manufacturing with a small domestic market – and that that will probably forever be the case. We will never achieve economies of scale against some of our bigger competitors, and we will always be hampered by our vast distance from the majority of export markets.
Our manufacturing sector will also need to continue to rely (perhaps more than at any other time in our history) on the extraordinary determination and hard work that has characterised the approach of its key players for many decades now. And investment and production strategies will likely need to be revised and reworked on a more regular basis than in the past.
But none of this should compel us to adopt a defeatist attitude.
There is no reason why we can’t continue to compete – and to compete effectively.
Under the Howard Government, Australia enjoyed the longest economic expansion of our modern history. And I am confident that, while the bar has been set at a very high level, an Abbott Government would be able to replicate those results.
There is certainly a lot more that can be done to get the economic fundamentals right and encourage greater competition, efficiency and innovation across Australian industry.
A comprehension of the challenges manufacturing faces needs to be met with the necessary political will and leadership.
Naturally, we will also need to win the support of the doomsayers who currently predict nothing but a bleak future for Australian manufacturers.
And, in many respects, that still remains the hardest battle of all.
Thank you.