Interview with James Riley, Commercial Disco, InnovationAus podcast

James Riley
National Reconstruction Fund; Economic Complexity Index; R&D expenditure; Australia-Sweden collaboration; US approach to industry policy.

James Riley, Host: Hello, I'm James Riley, the editorial director at Welcome to the Commercial Disco. Today, I'm talking to Senator Tim Ayres, the Assistant Minister for Manufacturing and Assistant Minister for Trade. Welcome, Senator.

Tim Ayres, Assistant Minister for Trade and Assistant Minister for Manufacturing: G'day James, it's really good to be on the show.

Riley: Well, thank you for joining us. I know you've just stepped out of Estimates for lunch, so thanks for speaking to us during this incredibly busy week.

Assistant Minister: It is a busy week, but I'm really happy to make time for you guys. I mean, InnovationAus is, yeah, you really do a terrific job in a space where Australia needs more commentary and more analysis. 

Riley: Love it.

Assistant Minister: So, very happy to make time for you guys.

Riley: Okay, well, thank you very much. All right, so we're going to be talking a whole bunch of things, but - National Reconstruction Fund, we're going to talk a little bit about the Economic Complexity Index that we all keep an eye on so closely. We're going to talk about a speech you made to the sustainable mining summit with the Swedes that you made this week. But let's start, obviously, with the NRF – The National Reconstruction Fund. The legislation is before the Parliament. The debate seems to have, in the last 24 hours, got somewhat more complex through the drawing of red lines, apparently by the Greens. Just update us, where are we up to in this and how intertwined with climate emissions targets is now this push for a better manufacturing sector here?

Assistant Minister: Well, there's a set of drivers for us, for the policy, as you indicated, and we'll talk about a bit later on, the perilous position that Australia finds itself in, where we have continued to ratchet down that global index in terms of economic complexity. That has consequences for good jobs, particularly in the outer suburbs and regions. It has consequences in terms of our capacity to solve big national problems, and it has consequences for our position in the region, our economic weight, and our capacity to cooperate with friends and partners in the region that we live in. 
So, the National Reconstruction Fund, they’re a broad set of drivers. It is the biggest industry policy offering in Australian peacetime history. It is, I have to say, a mystery to me why the Liberals and Nationals have indicated that they will oppose the legislation. You can't pretend to be for Australian manufacturing and oppose the biggest industry policy effort in our history, particularly at this critical juncture.

Riley: All right, well, let's talk about that. Let's address that potential red line that might make the passage of that legislation more difficult. It's one thing for the opposition to make things complicated here, but the Greens are a different matter. So how much wriggle room is there to get this through?

Assistant Minister: Well, as a starting principle, we've said – I mean the Prime Minister’s said at the beginning of government that we will consult right across the Parliament, that we'll listen respectfully to different points of view and that we'll work our way through those issues. So that's a starting position in terms of our political methodology in the Parliament. But having said that, the delivery of this fund, particularly in some of the sectors that it's focused on, $3 billion for renewables and low emissions technology, a billion dollars for value adding in resources, a billion dollars for advanced manufacturing, half a billion dollars in agriculture and food. 
Achieving our industry policy objectives is critical to us achieving our objectives in terms of emissions reduction and making energy cheaper and making industry more efficient and more competitive. We'll listen to sensible proposals from the Greens political party and the other crossbenchers and we'll consider those as we move through. But as a starting proposition, this is reindustrialising the Australian economy, building an effective renewables and low emissions technology sector alongside the $20 billion Rewiring the Nation Fund. I mean, these are critical to achieving our emissions and energy ambitions.

Riley: I hardly need to make the point, and you've made it yourself, this is the largest kind of peacetime investment in industry development or industrial policy. $15 billion, it's not a small sum, it's a big chunk of change. So, there is a government interventionist philosophy, I guess, behind that. I suppose government is stepping in because the market has failed. Is that the way you see it? That because of market failure you would think that it would be something of a no-brainer, particularly in the resources sector, that it might be appealing to invest in downstream value-added processing, but it hasn't happened in the private sector in the way we might like. So, is it a market failure? What role has government played? And why now?

Assistant Minister: I'm not sure that market failure’s a big enough word, really, to describe the perversity of what's happened in the Australian economy over the last 20 or 30 years. Offshoring, under the last government of the automotive industry, 40,000 jobs, but industrial capability offshored as well. That is enormously damaging for our economy, our welfare and our future capability. So, yes, there's a requirement for government to step in here, but it's a different character of government engagement. This is not the old model that was driven by grants with very few strings attached. 
There will, of course, be grant programs, still, as we're working our way as a government through some of these issues, there is an important role across the CRCs [Cooperative Research Centres] and across the whole ecosystem relationship between universities and the research sector, where direct government support in terms of grants or funding of public research is critical for commercialisation. But here in the National Reconstruction Fund, it's a different kind of partnership model. Genuine partnership, co-investments, loans, guarantees. That requires a different kind of government-private sector investment, community partnership. And that is new. It's a more modern approach to industry policy that has been taken in the Australian context in our modern history.

Riley: So, let me ask you this; the Shadow Industry spokesperson Sussan Ley’s talked about this. What are we looking at in terms of time frames? Should the legislation get through in a reasonable time? Setting up this reconstruction fund is not a straightforward proposition, so how long is that going to take? Is it a fair criticism, as Sussan Ley would say, that manufacturers will suffer during that interim period between all the programs coming to an end and the NRA kicking off?

Assistant Minister: Well, Sussan Ley hasn't been able to explain the Liberal Party's opposition to this piece of policy. It's a political choice that they've made. They're trying to shift gears to say no to everything in the Parliament. All you could hear from the last government was a sort of rushing sound, a sort of whoosh sound as jobs whooshed overseas. We are taking a substantial step here in the opposite direction. Now, you're right – this is not the old grants model, where money gets thrown out the door. And the last government took the approach that the grants for the MMI program, for example, were announced in the weeks leading up to the election. What industry needs is certainty, a new partnership, government playing a role where, yes, we're investing, but we're de-risking and facilitating private sector investment as well. 
That will take some time to ensure that once the board has been appointed, once the legislation is through the Parliament, once that work happens, it will take the amount of time that it needs to proceed as quickly as possible, but also to ensure that we've got completely robust and effective governance here and that investments are being made in the national interest. So, we will strike that balance right, but I want to see projects in regional Australia and outer suburbs starting as soon as possible. I want to see visible signs of the re-industrialisation of the Australian economy, and I expect to see some real excitement and engagement from people from the research community all the way through to tradespeople and young apprentices who are going to secure the jobs of the future out of these investments.

Riley: Well, I guess we're going to find out what you can buy for $15 billion should this legislation get through. Let me ask you this, the Harvard-Kennedy School of Government’s Economic Complexity Index, where are we? We’re at 91st I think sitting in between snugly between Kenya and Namibia. 91st is not a great result, I'm sure you would agree. But worse than that, it has been a downward trend and it's been trending down and fairly, fairly radically for some time. So, tell me this, that $15 billion over the forwards, is that going to shift the needle? Would you expect that quantum of expenditure to reverse that trend? Because the trend line is pretty grim.

Assistant Minister: Yeah, it's been in free fall now for some decades. And if you look at the other indicators, you know, the proportion of GDP that's in manufacturing and [indistinct] transform manufacturing, you know, is less than 7 per cent. So, this is not a sustainable position for Australia. And as I indicated earlier, yes, it's got economic consequences in terms of the disappearance of good jobs. It's got broader economic consequences as well. But I just say, in regional terms, Australia cannot be a diminished economy without industrial capability. 
The $15 billion, it is on one hand, it is the biggest ever peacetime commitment in industry policy terms and it's a different model here, it's about co-investments, not grants. So that is very significant. But secondly, it is designed to be an investment vehicle that works with the private investment sector, so to lever up from the government contribution to co-investments with partners in industrial capability. So, it's big of itself, but it's got the potential to galvanise private sector investment in domestic manufacturing capability. That's going to be a good thing for the Australian economy. It's going to be a good thing for the investment community. And it does mean a shift in thinking from our investment community, who have traditionally been encouraged to invest in manufacturing capability and infrastructure overseas, to looking at the opportunities right here in Australia.

Riley: We'll see how that goes. This is not directly related, but it's certainly an influence. Okay, the R&D expenditure as a proportion of GDP, Australia sits at about 1.9 per cent of GDP. So that's business investment and government investment in R&D. Now, you gave a speech yesterday, I think, at Sweden-Australia’s Sustainable Mining Conference, or summit. Now, Sweden spends about double, 3.53 per cent of GDP on research and development. So just talk me a little bit through that. Firstly, why are we hosting a summit like that? I would have thought that Australia would have some pretty good game in the resources sector and as a miner. So, we're talking to the Swedes and they're investing twice a bunch of R&D, in part in these kinds of industrial areas. What does that R&D expenditure tell you?

Assistant Minister: Well, let's come to the R&D expenditure in a second. I just want to talk about the Australia-Sweden collaboration here. It was a really good opportunity. There is deep expertise in the Australian resources sector in mining technology, mine construction and maintenance and in mine technologies more broadly. But there is in Sweden too. And some of our key operators in the Australian context, I just think of companies like Sandvik who have a very strong profile across Australian mining, particularly Australian coal mining. But more broadly, those companies have been investing in Australia for many, many decades. And so, there's actually a shared opportunity here to collaborate around mining technology, emissions reduction in mining, more efficient mining, and in particular around critical minerals. 
Now, the Swedes just a few weeks ago had a very significant critical minerals discovery that is the largest deposit outside Russia in Europe. So just this year, so there are enormous opportunities for Australian firms and Swedish firms to collaborate and invest in each other's sectors. And this conference, led by Her Royal Highness, the Crown Princess Victoria and her husband and the Swedish Trade Minister, this was a significant opportunity for collaboration there. 
In terms of your observation about the funding gap, the historically lower level of research and development funding in Australia and the distinction between our Swedish partners. All I'd say is, firstly, it is not just about public investment, although that is very important. And public investment in deep science, publicly funded science, is just as important as in commercialisation technology, the sort of work that happens at the CRC end. Private sector investment is really important too. The second thing, though, is that what is remarkable about the Swedish example is not just the level their additional investment in research and development, but it's the way that they have engineered cooperation across their institutions to achieve industry policy objectives. 
This is one of the things that Anthony Albanese has been focused on as Prime Minister. Rather than picking arguments, rather than trying to pick a fight between our unions and business, between our investment community and the Labor movement, or wherever it was that the Prime Minister saw a gap, he always saw an opportunity for a wedge. We're determined to get institutions working together and that's why the Swedish example is pretty compelling and one of the reasons why I've taken a real interest in my career in that example.

Riley: Yeah, reading your speech, they have a very different system to our own and the politics are kind of starkly different, it would seem, but they've really achieved a lot just in terms of the public buy-in to the levels of investment that they make into their own R&D sector.
I'm talking to Senator Tim Ayres, Assistant Minister of Manufacturing and Assistant Minister for Trade. It's a great set of responsibilities, by the way, if you could just add sport, you'd have the perfect gig up there, I would think.

Assistant Minister: Yeah, I don't think I'd want to give that prospect any airtime, otherwise I'd have the Minister for Sport straight down here to the office. But look, I'm really absolutely delighted to be doing these two portfolios and putting them together in the Australian context does indicate what the government is thinking about our industrial and economic future, and it is a bit of a shift that reflects the challenge that's out there. 
Australia needs strong industry policy, we need to focus on industrial capability for all of the reasons that I've set out, for the economic reasons, for the strategic reasons, I'd argue, for the democratic, resilience and social cohesion reasons that you would adopt these policies. But Australia must also be an open market economy that is trading with the world. We are a medium-sized economy that sits on the edge of the fastest-growing region of the world in human history, and we can't afford to take a protectionist approach. Now, joining these two objectives together is where the new government is at. We're unapologetic and confident about the capacity to sort of reconcile those two policy objectives. And it's a real privilege and a real pleasure, really, to be engaged in all of this important work.

Riley: Well, as someone who writes about industry policy, I can tell you it's never been a more exciting time to be alive. And it's kind of equally so since Malcolm Turnbull did his its National Innovation and Science Agenda. So, wishing you all the best for the passage of the NRF. We will be watching very closely. Thank you very much, Senator Ayres.

Assistant Minister: No, I'm glad you're watching it closely. It is a really exciting time to be engaged in industry policy and you can see the developments overseas. President Biden has managed to unite in a pretty polarised Washington, US Democrats and US Republicans, around a series of industry policy initiatives that are absolutely in their national interest and are directed towards the same objectives as the National Reconstruction Fund. Now, if it can be achieved in Washington for Democrats and Republicans to work together on these objectives, surely, we can pull this off in the Australian Parliament. 
And I really do say to my colleagues in the Federal Coalition, it is time for a rethink on their position on these questions. Australia needs effective industry policy, the Government's determined to deliver it and we ought to get on with the job. But having given that quite probably longer sign off than you might have liked, James, I'm delighted to have had an opportunity to talk to you and to talk on the program.

Riley: We appreciate you being here, thanks very much.