Address to CEDA “State of the Nation"

31 MAY 2017

Well thanks very much Rebecca and it’s great to see you here in this new, if temporary, capacity because I think this sort of interchange between public and private sectors is important and I think we’ve got to do more of it. I never tire of telling people that, funnily enough, not all wisdom resides in Canberra. And that particularly today, in today’s world, it’s important for us to have that cross-collaboration, that capacity across sectors, across countries, to work together for the common good. We must never lose sight of that. There are always all sorts of pressures that can be pushing against that, but that sort of collaboration is very important – and it’s even more important now.

            And I begin by thanking CEDA for the opportunity to talk today. CEDA has got a great reputation for thought leadership and you do it in a very quiet but rigorous and effective way. The fact that you’ve got such a roll up from the Government today is a tribute to the influence that you do have in Canberra, and I want to talk a bit more about that in due course. I want to thank Paul – Paul McClintock – my former colleague, Cabinet Secretary in the Howard Government for a while. He survived all that and went back to the private sector and did okay. And it’s fantastic, Paul, that you were able to come in for a while, do what you did, inform the policy process and then go out again and be such a great friend of good public policy in Australia. And we must not be afraid of good public policy and we mustn’t fall for the idea that there’s a cleavage between policy and politics and sometimes you’ve got to throw good policy away just for the sake of good politics. We’ve got to keep fighting for good policy because in the long run, good policy leads to higher incomes, higher living standards and that is good politics. That’s what we’ve got to remember.

            Part of what I want to say to you today is as a nation we’ve been incredibly blessed – we’re coming up to 26-years of continuous economic growth. And there are probably a lot of younger Australians who have grown up taking for granted the growth that we’ve got. But the growth has actually come because of whole series of policy actions that occurred over a very long period of time. Now, it’s true to say that when tariffs were reduced and certain other measures were taken – deregulation of the currency or whatever – there wasn’t a referendum, there wasn’t an election around that, that is true. But there was a consensus, particularly among what you might broadly describe as the policy establishment and certainly industry, and importantly the labour movement, that Australia had to go in a new direction.

            Now, what’s different I think to that period to today is, for example, in the 1980s the ACTU – which is still so influential because of its role in the labour movement and its role with the Labor Party - the ACTU was actually in the forefront of managing change. Remember the Button car plan and all the other things that happened in that era? They happened because there was cooperation to restructure workplaces and to take on new things. We need today to get back to developing those sorts of coalitions of the willing in the community, who can help us get on with getting things done.

            There’s been I think a lot of focus on the fact that today everybody has an interest and everybody essentially says well, my interest comes first and essentially it’s got to be accommodated and I’m not putting up with anything that affects my interest. We’ve got to change that mindset, but the way to change that mindset, if you’re in business or if you’re in the unions or whatever is to actually develop coalitions of the willing who accept things have got to change and then come up with a formula which allows you to take people with you so that people are not afraid of change. A lot of what I’m trying to do in the industry portfolio is- it’s no longer a portfolio about propping industries up. It’s not a portfolio about saying we’ve got an industry structure, it’s set, it can never change – if you take that attitude, you’re gone. In today’s world you are gone.

            So what I say to industry is not I’ve got to ring the bell and you’ve got to go. What we are saying to industry is where you have been used to having certain protection and all the rest of it, that is all changing but we will help you to change – we will facilitate change. And importantly, what we will do is make sure that the workers affected by that change are looked after and have the capacity to do new things, they’re given new opportunities. Not all workers will take those up but it’s very important for us to have that focus in the portfolio. The portfolio is about managing, adjusting, adapting to change; it’s not about holding up the tide of change. And this is, I think, very important for people to understand when they come to Canberra. The portfolio now is very much about how do we grasp the opportunities of the future and work with them. And we have to be optimistic about this.

            I look around the Australian economy – we really punch above our weight when it comes to knowledge creation, we really do a great job. But the important thing is how we collaborate to realise really good outcomes for the Australian economy. That doesn’t mean we have to commercialise every idea here in Australia, that’s not what I’m saying. But we don’t do as well in collaboration as we should and we need to do much better to keep up with the competitors. And today the competitors are not the US, the UK, the OECD; the competition is very much in our region – whether it’s in industry, in education, in training, no-one in the region or more broadly is sitting around waiting for Australia to succeed. They’re getting on with it. They’re doing things a lot better in many areas than we are. So our job is to match that best practice and where possible, exceed it.

            So part of what I’m doing in the portfolio is saying when it comes to industry sectors, what are our areas of competitive advantage, competitive strength? And how do we build those? So that we become not just as good as other countries in those sectors, but the best in the world in those sectors. Now, we as a country, because of our size, can’t be the best at everything, we have to prioritise – that’s why we have industry growth centres which have identified sectors where we think we can really build a comparative advantage, whether it’s advanced manufacturing, whether it’s food production, whether it’s cyber security.

            Cyber is a great example. Cyber is partly about the resilience of Australian companies to the cyber threats that we increasingly face. But what we’re doing as part of our cyber security policy, through the Cyber Security Growth Network, is actually building on the strength we’ve got as a place to do research and come up with new cyber security solutions. And we have some great advantages: we’re part of the Five Eyes international intelligence community – that gives us great insights, that gives us great leverage, for example. But we have some of the really best people in the world to do cyber security research. We’ve set up the Cyber Security Growth Network – that’s out growth centre in that space run by Craig Davies, who was the former head of security at Atlassian. Adrian Turner is here today, the head of Data61, the data analytics group within CSIRO. He’s the co-chair of the cyber security growth network.

            I want us to be the best in the world at cyber security. Yes, the Americans are good, the Israelis are good, the Russians are good, the Chinese are good; but we want to be the best in the world and build on strengths we’ve already got. And that’s the aspiration we have to have across the board. To achieve that is a mixture of things. It’s partly, of course, we have government policies which help to fund particular initiatives relevant to all of this, but it’s broader than that.

            It’s about, increasingly as I say in this portfolio, education and training is really germane to what we’ve got to do. We’ve got to have the right foundation skills – 70 per cent of jobs in the future are going to come through some combination of science, technology, engineering, maths and the like, increasingly design and other things also, but the point is good foundation skills. And then for people in the workforce to understand they may change jobs several times in their working lives. How do we equip them for learning and re-learning? The other thing for me is, my policies sit in a macro context, so we’ve got to have good competition policy. Domestic rivalry is actually really good to drive good performance. We’ve got to have good tax policies where possible we are incentivising people. That’s why things like the company tax cuts, even though some people don’t see them directly relevant to them, they are relevant because they can drive enterprise growth and they can drive higher wages which come from higher productivity and growth – and everybody wins. So it’s important for us to have a suite of policies that are consistent across the board. We need those enablers.

            For me at the moment, energy is a big issue preoccupying the portfolio. I’m not the Energy Minister, that hapless individual will be here later today or tomorrow, and you’ll be able to give that person – my good friend, Josh – a bit of a roasting about what’s happening on energy and what he’s got in store. The only thing I’ll say about that is I’m acutely aware of the impact of high energy prices, particularly gas prices, on Australian manufacturing. We’ve worked on a series of short, medium and longer-term initiatives to address the situation. Some of them are radical. Now, who would have “thunk” that a Liberal government would contemplate a gas security mechanism, otherwise known as export controls, in relation to our gas exports? Well, we’ve done that to show that we are serious about getting short-term changes in the supply-demand balance as we work on longer-term solutions on the problem, including having more gas exploration and development in Australia, more pipelines, and all the other things that take time to develop; competition and access policies which promote greater connectivity; and all the rest of it. He’ll talk to you more about that.

            The most important piece that’s coming is the Finkel Review, which the Government has been briefed on, but which will be the subject of consideration at the Council of Australian Government’s meeting. That is about having a national electricity plan. There have been too many different pieces of the puzzle working different directions over the last few years when it comes to the operation of the national electricity market, and the other pieces that go to make up our energy system. We need a national plan, and one which is consistent with system reliability, greater affordability of energy, because in Australia it’s flipped. We used to boast about energy being one of our comparative advantages, cheap energy. That’s flipped. Affordability is important for customers, whether they’re residential or industrial.

            What’s also important is to keep reducing greenhouse gas emissions. There are a number of targets that we’ve got to meet. We’re serious about the targets that we got out of Paris. We’re serious about staying in Paris. It’s important for us as a country to meet our international obligations, because don’t forget we have great benefit from entering into international treaties, particularly all those free-trade agreements. And if we show our preparedness to back away from agreements we’ve entered into, other countries will say well we can treat agreements with Australia the same way. So it’s important for us internationally to keep our word when it comes to agreements.

            I think earlier this morning you had a presentation about regional development in rust-belts and issues like that, at least according to the program. What I want to say about that is I came across a book the other day written by a couple of Americans about the way in which innovation is starting to thrive in rust-belt areas. And we see this in Australia. My home town, Newcastle, is a great example of that. When they finally got through the grieving process about the steel mill closing down, they realised that they had to get on with life. And what were they going to be when they grow up? And they started to look at their attributes: their infrastructure, the great university they’ve got, and all the other advantages of proximity to Sydney and all the rest of it. And they decided we are really going to develop as more of an innovation hub, and so the University of Newcastle - along with other universities like Wollongong and whatever - have become great drivers of regional growth and development. And part of my mantra - as I’ve mentioned before - in the portfolio is how do I promote that collaboration between academia, between industry, research institutions?

            I’ve got a group underway at the moment looking at our strategy around university precincts, and how we encourage that collaboration. You go to Macquarie University in Sydney, you’ve got cochlear next to Australian Hearing Services next to the various departments at Macquarie Uni that have to do with the ear in a medical sense, so you’ve got this great cross-collaboration going on. It’s happening organically in lots of parts of the country. But my job is how do we harness that, and make that a really systematic change because it’s a mindset thing. It’s a cultural change. Don’t underestimate what we’re trying to do here and what, I think, the Prime Minister was talking about this morning. It really is a cultural change, that we don’t look at ourselves being specialists in agriculture or mining or this or that or the other, we’re innovators whatever sector of the economy we’re in, and we have a global outlook. We know we don’t have enough scale in Australia, but the world is our market, and it’s doing all those things in a consistent whole of Government way to bring that about.

            I keep talking about innovation in specific terms now. We don’t talk about just as a concept, we make it concrete by talking about what does innovation mean to a business on the ground in this area or in that area. You go to somewhere like Geelong, where they’ve had innovation around carbon fibres. You’ve got a group there, Carbon Revolution, that create these new wheel rings which are taking the car industry by storm – the global car industry. That was in part done by assistance through the Clean Energy Finance Corporation, the Commonwealth body, $10 million from them. But what we’re doing there is we’re catalysing change in areas like Geelong. Used to be the home of Ford, one of the homes of Ford, but they also like Newcastle are getting on with the future. And they’re embracing it, and there actually Carbon Revolution is located near some of the elements of Deakin University. And I went down there recently with the local member, and visited what they’re doing - great collaboration going on. So there’s a lot of reasons to be optimistic.

            But with innovation, the bit in the second half of this term we want to look at increasingly is what does this all mean for the future of work? Which has several dimensions: artificial intelligence, augmented intelligence, robotics, smart manufacturing, Industry 4.0. Well, how do all of these things come together and what does that mean about what jobs will look like? What are the implications for the workforce? Because a lot of people are thinking hey when the blue-collar jobs were being taken over by robotics, that was dangerous, but now it’s white-collar jobs this is getting really serious. And I think people are starting to think well hang on what does this mean and you’ll have the technology haves and have nots. And the technology haves will have control of the robotics and everything else, and there’ll be all these technology have-nots out there who will have to subsist on the universal basic income because they won’t have access to good jobs and good incomes. Well, no society can be sustained like that. And I’m not saying that that is the scenario what is likely to happen, but it’s a scenario some people posit.

            But what we’re saying as a government – and interestingly, Labor have picked up on it as well in recent times – is the future of work is something government has to be concerned about, just as business has to be concerned about it. We all have to be concerned about it. What does it mean for our workforces, and what responsibility do we take as a government, as business, for our workforces? When we were restructuring the auto industry in recent times, the three big car-makers – Holden, Toyota and Ford – were exemplary in the way they treated their workforces. They came up with really good adjustment programs. We have a number of programs in place, but they topped those up and did a really good job of it. And what struck me is that we all have to recognise, whether it’s a legal requirement or not, how we handle our workforces going forward is going to be an important part of the social license of Australian business. And it’s a win-win, because ultimately that social license is not some vague concept, it’s your capacity whether it’s through [indistinct] or individually as businesses to have a place to speak in the marketplace. To have permission to speak in the marketplace. You’ve always got to have that capacity, clean up your own back yard. The banks are finding this out the hard way now, because it took years for them to clean up some of the issues they face. You have to clean up your own space, and then you’ve got the moral authority to speak in the public space. But going forward, what that means for business is not only innovating in its own right to stay in business and change and adapt, it’s also recognising what does this mean for our workforces, and what does government in partnership with industry do in that regard? That’s a big piece of work the Government is going to embark on in the next few months. It’s going to be an important part of the work I do with Michaelia Cash going forward.

            Just a couple of other subjects to quickly pick over before we go to the Q&A. We’re also working on a more full-throated digital industry strategy because we want to fully understand – this links up with the future of work, really – the digitisation of the economy, and what does that mean in terms of public policy, and how do we facilitate that process as much as possible, and maximise the benefits we get out of it? It has particular ramifications, for example, what we do about autonomous vehicles and the impact autonomous vehicles will have on our road system and on our way of life. There are all sorts of specific industry ramifications, but digitisation is something where we want to look at with more of an industry policy lens. And that links up with the- what I mentioned before, the industry 4.0 and other stuff that I know Jeff Connolly and others have been involved in through various international groupings. But that’s important to us as well.

            My final point, and then happy obviously to answer questions, is that I think we have to give people confidence about dealing with change. Because if you give people confidence that they can deal with change, they’re more likely to accept change. And we’ve got to be optimistic about what change can mean. But if we take the view that we can shield ourselves or each other from change, we’re in for a rude awakening, so this is very much a joint enterprise. And again thank you very much for having me, and happy to answer questions.