Address to The Sydney Institute
9 September 2014
Australia’s competitive edge in the industries of the future
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It is a pleasure to join you here this evening at The Sydney Institute.
Your regular events are widely recognised as the forum for the free debate of ideas, which is always welcome and highly sought after in our vibrant political environment.
As the Minister for Industry with a super portfolio, this type of discussion is particularly relevant given this portfolio is home to the most dynamic drivers of the Australian economy.
The many parts that comprise the Industry Portfolio create jobs and prosperity and enhance productivity.
The Industry Portfolio is at the centre of the Australian economy.
In short, we have a lot to talk about!
As the President of the Business Council of Australia Catherine Livingstone said in a recent speech, the Government has a role in developing sectors of the economy by understanding their dynamics and their role in the global context.
She said: This should be a core function of a highly empowered Industry Department that the Federal Government has rightly created.
Indeed that is exactly what the Government has done, because it is the components of the Industry Portfolio that will build the framework for the industries and jobs of the future by focussing on our strengths and capitalising on the areas where we have a competitive edge.
Over the last twelve months I have been consulting with the full range of businesses that make up the Australian industry sector, employer groups, the skills and training sector and the science and research community to develop a framework that will move Australian industry through to its next phase, where we can reach into new global markets, invent, perfect and commercialise new products and create new jobs.
We are creating the superstructure that sets up Australian industry to take full advantage of our areas of competitive strength.
The evolving economy
Australia is an economy in transition.
The clearest and most prominent example of this transition is the Australian car manufacturing sector.
Within the next three years, the three remaining automotive manufacturers – Ford, Holden and Toyota will end their domestic car making production.
This is a significant change for Australian industry and the Government is continuing to work with the affected workers, local businesses, communities and regions to help with this transition and create the best opportunities for new industries and new jobs.
The end of the domestic car manufacturing industry is a symptom of a wider change that is occurring in the Australian economy.
The trend that shows up in reports, including from the Australian Bureau of Statistics, shows a clear and consistent message.
In the ten years from 2003 to 2013, sectors including agriculture and manufacturing have been declining in terms of their share of GVA, or the gross value added measure, and their share of employment.
During the same period business services and professional services have shown the greatest increase in their share of these same measures.
The pattern is replicated in other developed countries where the share of output from services has increased while manufacturing has gone down over a twenty year period spanning 1990-2010.
While the change in manufacturing has thrown up challenges for Australian policy makers and the broader industry sector, Australia is not alone in grappling with this development.
It is impossible to ignore the evidence from our own experience backed up by data from so many countries.
From an economy that was historically built around farming and agriculture, through to heavy manufacturing and commodity based industries that have been the mainstay of our economy in recent decades, we are now on the cusp of a third wave – the transition into higher value-added industries that are based on innovation, research and the sophisticated skills base of our workforce.
As the experience from other developed countries shows us, it is a well-travelled progression, but it does throw up new challenges and new questions that we must answer.
Australia has two choices.
In option one we can continue to meander along with a business as usual approach, condemning ourselves to mediocrity and a decreasing share of global markets as we become less competitive in traditional manufacturing sectors where we are outpriced by our competitors with lower wages and in some cases lower standards of living.
Or we can take a hard and analytical look in the mirror and focus on what it is we do well, very well in fact, to the point where we have an international advantage over our competitors.
This is not to suggest that Australia must walk away from its manufacturing base.
But we must find smarter and more efficient methods of production in our domestic industries.
To ensure we fully capitalise on the opportunities that arise from our evolving economy, Australia must change the way we view industry policy.
The Abbott Government has taken significant strides down this road, ending the mentality of Government knows best and heavy Government intervention in industry through endless cash programmes and handouts.
Certainly, Government programmes have a role to play in assisting Australian industry through its next phase.
But the focus of those programmes should be to set the right context for investment and industry-led growth – not to interfere or mandate the course for businesses through subsidies or handouts.
The Government’s goal is to facilitate this industry-driven development through a superstructure that encourages collaboration.
Australia performs strongly on research excellence but is last in the OECD when it comes to the rate of collaboration between businesses and universities or research institutes.
The simple truth is that when faced with a problem to solve, virtually none of our Australian businesses think to go to a scientist or a researcher to address it.
Just three per cent of Australian businesses involved in innovation turn to universities or higher education sources for ideas.
For some businesses, the reason for this might be purely practical – they just don’t have the time to do it.
For others, it’s cultural in that Australia is increasingly risk averse. This is a trend that is at odds with our history as a nation that built itself from the ground up.
Whatever the cause, the consequences are clear – Australia is facing the prospect of declining international competitiveness in industries where we are being outpaced and outmanoeuvred by other countries.
Our links into global supply chains are weak, and as I’ve already mentioned, Australia is a laggard on measures of industry and research collaboration.
This undermines our ability to innovate and lead in the area of technological advances.
The Global Innovation Index ranks Australia second last out of 17 OECD countries on new-to-the world innovation.
In other advanced nations specially designed programmes and infrastructure are in place to act as a catalyst for industry growth.
Ranging from the catapult centres in the UK to the research hub of Silicon Valley in the United States, these strategies are designed specifically for the requirements in their own country but share the common objective of facilitating technological development and industry growth in key sectors.
The Business Council of Australia reached a similar conclusion in its recent report, Building Australia’s Comparative Advantages, which examined the future of industry in Australia, in particular, Australia’s competitiveness.
The central premise of the research, so well-articulated by Catherine Livingstone in a speech to release the report, was a recognition that it is imperative that we address questions relating to Australia’s place in international supply chains and to ensure our ability to compete in an increasingly globalised market.
Faced with an economy in transition, business confidence that is only just starting to show signs of green shoots and cautious forecasts for employment growth, Australia must move decisively to focus on the industries of the future.
We must be on the front foot to build business confidence.
There’s no magic wand, but after twelve months of work including careful assessment, meeting with a wide range of industry stakeholders, employers, researchers and the science community, the Government has developed a comprehensive strategy to lift collaboration rates, boost commercial outcomes and enhance our competitiveness in key areas.
As a nation, we can’t do everything, but we can do some things very well.
Our best opportunities will come by identifying and focussing on those strengths.
And let me scotch any suggestion this is akin to the Government picking winners.
With or without Government involvement, Australia already has several key areas in which we have a competitive edge.
These include agribusiness, mining technology, energy, oil and gas, advanced manufacturing and medical technologies.
The challenge for Australia is to nurture those strengths and run with them.
Our goal must be to connect businesses and researchers to make Australian businesses globally competitive with new ideas and new products.
It will be essential that advances are industry-focused and industry-led and closely reviewed to ensure they are delivering real benefits.
The ambition of Australian businesses must be to link into global supply chains through collaboration with major companies and major projects.
And crucially, this ambition must translate into outcomes.
Science and research will be essential to laying the foundation of this new industry policy as the nation’s businesses evolve to keep pace with changes in global markets and consumer attitudes.
It’s no accident that science is in the Industry Portfolio.
The work of Australian scientists is one of our national competitive advantages.
They have an increasingly important role in giving Australia an innovative edge in the global economy – if we can draw science and business closer.
National Industry Investment and Competitiveness Agenda
In the coming weeks the Government will release details of the National Industry Investment and Competitiveness Agenda.
We have been working methodically and strategically on this Agenda, which will provide the blueprint for industry and economic growth.
It is a cross portfolio project involving the Prime Minister, myself as Industry Minister, the Treasurer Joe Hockey and Andrew Robb as Trade and Investment Minister.
Some of the key areas that we have been assessing include the central issue I have outlined here this evening – enhancing Australia’s international competitiveness and ensuring that as our economy evolves we are primed and ready to capitalise new markets and new jobs, backed up by a sophisticated and highly trained workforce.
But the Competitiveness Agenda also covers other issues including measures to lower the cost of doing business, building better economic infrastructure and skilling our workforce.
Some of the proposals before the Taskforce have included employee share schemes, IP, competition policy and barriers to trade and investment.
The scope of the Agenda is comprehensive and detailed and I look forward to share more details of this blueprint with you in the near future.
Yesterday I joined the Prime Minister in announcing the biggest change to the skills and training system in decades.
We are overhauling the Vocational Education and Training system, with a package of reforms that elevate trades to the centre of Australia’s economy and put the focus squarely on ensuring Australian workers are highly skilled and job-ready.
The reason for doing so is simple – if Australia is to fully capitalise on our opportunities and strengths, we must have the skills base to deliver on our potential.
This sophisticated, flexible and productive workforce will be an essential component for delivering on our potential in new high value added, advanced industries.
The Government’s reforms will create a new streamlined and effective system to replace the unwieldy and overly bureaucratic system that has become bogged down in red tape.
The era of training for training’s sake is over.
The most important goal of the skills and training sector is to provide industry with the skilled and productive workers it needs to capitalise on the opportunities of the future and to give young Australians the best opportunity to get a job.
The current system has lost sight of its fundamental purpose of connecting skilled workers with a job.
Just one in two apprentices complete their training and go on to work in their chosen industry.
There is too much red tape, with apprenticeship centres spending more than half their time filling out paperwork and the focus has turned to churning out people for the sake of training, without ensuring they have the skills needed for a real job.
One of Australia’s greatest strengths is the adaptability and creativity of our workers. We must use that strength to its full advantage, by restoring pride in the value of a trade or an apprenticeship.
The Australian Government believes trades are on par with a university degree and both sets of skilled workers will be essential to our future productivity.
The Government will introduce a new Australian Apprenticeship Support Network to replace the existing apprenticeship centre model.
It will be a smarter and outcome-driven way of apprenticeship training with a focus on providing the skills industry needs.
Industry will decide the direction of training to ensure Australia’s apprentices and trainees are job ready.
The Government will trial two pilot programmes, a scholarship and a pathways programme, that will extend the opportunities for acquiring a skill to more young Australians, in particular those in rural and remote Australia and those who have become disengaged from education and training.
The Training for Employment Scholarship programme will assist employers in regional areas where youth unemployment is high to provide job specific training for new employees.
Small businesses will be able to access wholly funded government training that is tailored the training needs of their business.
The Government will also establish a new Youth Employment Pathways programme to assist young Australians in regional areas to identify and successfully start on the path to their chosen career by returning to school, starting vocational education training or moving into the workforce.
These substantial reforms are just the first round of significant changes in the skills and training sector.
The reforms will continue the Australian Government’s focus on building the industries of the future and training the highly skilled and innovative workforce needed to compete in global markets.
One year after the election of the Abbott Government a phrase you will have heard often is that Australia is open for business.
That is clear through both the Government’s economic focus and the progress that has been made in getting rid of the carbon tax and the mining tax, cutting through the reams of red tape that has been a billion dollar burden on business, and securing significant new free trade deals with some of our of most important trading partners.
But we won’t rest on our laurels.
The next phase in our economic blueprint for Australia is to create a superstructure for industry development in Australia.
It is a cohesive plan that draws together industry, research and skills and training.
We are resetting Australian industry policy to take a new direction.
We must not be apprehensive and we cannot afford to be timid.
Like almost every other advanced nation, Australia is experiencing a transition from a traditional base of heavy manufacturing towards the development of professional services, advanced manufacturing and high valued added production that reaches a global market.
As we cooperate with workers, regions and industry to make this transition as smooth as possible, our sights must be firmly fixed on the opportunities that are ahead of us.
This Government has a clear vision and a practical plan. We’ve identified our strengths and we’re prepared to back them.
Boosting our rate of collaboration will be essential for business growth and competitiveness and to create the next wave of jobs in Australian industry that are based on sophisticated skills in sustainable sectors where Australia has a competitive edge.
While Australians should be proud of what we have achieved in business and industry to date, we have some truly extraordinary opportunities ahead of us.
As Industry Minister in a Government firmly focussed on maximising opportunities for all Australians, I intend to work with you to seize those opportunities and ensure Australia has a well-established and well respected role in the global economy.
Media contacts: Mr Macfarlane's office 02 6277 7070