Australia In A More Competitive World

Senator Arthur Sinodinos AO is an expert on national politics, public policy issues and government and business leadership and was Chief of Staff to Prime Minister John Howard from 1997-2006. On 2 November 2011, Arthur Sinodinos replaced Senator Helen Coonan on her resignation from the Senate. At the time of his address, he was Shadow Parliamentary Secretary to the Leader of the Opposition. Arthur Sinodinos is seen as one of the Liberal Party’s rising new members and in an address to The Sydney Institute on 27 March 2013 he gave an overview of the Liberal Party’s approach to economic reform in the coming decade.

AUSTRALIA IN A MORE COMPETITIVE WORLD

ARTHUR SINODINOS

Before I begin my address, may I take a moment to thank Gerard and Anne Henderson and the members of The Sydney Institute for the opportunity to address you tonight. Together, you have built something special over a quarter of a century, and our democracy is richer for it.

Now, it’s true that Australia’s political class – and the wider intelligentsia – has had a fascination with progressive politics, with a specific focus on the Labor Party. Gerard and Anne are among honourable exceptions with their important contributions to the history of Liberal or centre-right politics in Australia – Gerard through numerous books and articles (including Menzies’ Child) and Anne primarily through the vehicle of biography, including her wonderful book on Joe Lyons.

My topic for tonight is “Australia in a more competitive world”. This topic is a broad canvas and I will focus my remarks on a number of themes: the competitive challenge and what it means to be a Liberal today – particularly how modern Australian Liberalism is relevant to dealing with contemporary issues. There are also the productivity imperative, boosting labour force participation and industrial
relations reform, the challenge of regulation and the opportunity for investment and national 
development along with the need for innovation.

The competitive challenge

Let me begin by describing the competitive challenge we face. Globalisation is here to stay. There is no turning back. On Australia’s doorstep, to its north and north-west, currently exists more than one third of the world’s population or 2 billion people, mainly dominated by China, India and Indonesia.

As noted in the government’s Australia in the Asian Century White Paper, the transformation of Asia has lifted millions out of poverty through the embrace of markets, taxation and regulatory policies that provided incentives to attract foreign financial and physical capital, intellectual know-how as well as enabling policies such as education and healthcare that provided local citizens with skills to participate in modern industries.

Our proximity to Asia provides Australia with both opportunities and challenges. Opportunities in the sense that Asia has a large and affluent growing customer base for Australian goods and services, whether they be agricultural based, oil and gas, minerals, higher education and research, manufacturing or tourism.

Challenges in the sense that the rise of Asia and other emerging economies such as those in Africa or Latin America able to produce similar goods and services to Australian industry at more competitive prices on the world market.

As the world continues to be transformed by the forces of globalisation, a greater proportion of the Australian economy, more than ever before, is being exposed to international economic forces. This provides greatly expanded consumer choice but also exposes many more Australian jobs to global competition. Make no mistake, the world in which we now live is a more competitive world, a world in which if we do not adjust current public policy settings and consider the international dimensions of those settings, existing problems of cost of living and job insecurity will actually worsen rather than improve.

In the long term, if Australia is unable to come to terms with this continually increasing level of competition, Australians will directly experience lower relative living standards – which none of us want to see.

Consider for a second Australia’s manufacturing sector. In the December quarter, Australia lost one manufacturing job every 19 minutes or a total of 30,800 according to the Australian Bureau of Statistics. Over the past five years under Labor, total manufacturing jobs lost are now at 140,300.

The reason for such a loss is essentially our inability to produce high quality manufactured products at globally competitive prices. We must respond with a greater sense of urgency to the competitive challenges that confront us. We must respond positively, with an attitude that accepts change and seeks to manage it in a way that maximises our prospects in the years ahead.

We must embed a global mindset and a sense of urgency at all levels of government in Australia. Now is the time to raise our national productivity, embed an enterprise and risk bearing culture as well as making innovation the preferred way of doing business.

Australian Liberalism

So what role should Australian Liberalism play in steering Australia through this more competitive global landscape? John Howard regularly invoked the metaphor of the “broad church” in describing the presence within the Liberal Party of both “classical liberal” and “conservative” strands of thought.

Australian Liberals have a proud history of conserving the best of the past and make the reforms necessary to create a better tomorrow. We prefer managed change without surprises. We want our reforms to stick. We understand that the essence of successful political leadership is to strike the balance between keeping what works and fixing what is broken. That means taking the Australian people into our confidence regarding our plans for change, consulting stakeholders and setting out a clear program and direction for arriving at the desired outcome.

As I will mention shortly, the Australian economy is in need of further reform in order to deal with these global forces that are imposing structural change. In setting out the case for reform, Australian Liberals must communicate clearly the benefits, face up to the costs and explain why on balance we can be better off as a result.

Tony Abbott has been emphatic that he will keep his election promises. Having campaigned on Prime Minister Julia Gillard’s broken promise on the carbon tax, the public can be assured that Tony Abbott knows that he must put all his plans for government on the table before the election and seek a mandate.

Australian Liberalism is a demanding philosophy – one that emphasises opportunity and aspiration as well as personal responsibility. I do not see an inherent conflict between any of these goals. In today’s Australia, most of us are firmly aspirational. We want to do better and be recognised and rewarded for it. The language of class warfare has no place in modern Australia. It harks back to an era that is now long gone, an era more associated with the Cold War, the White Australia policy and an inward looking, protected economy. Economic activity is not a zero sum game and it is possible for labour and capital to work together to create a bigger pie.

In recent years, the economics and politics of redistribution have dominated Labor’s policy framework. Labor has taken the resources boom for granted, treating it as a contemporary equivalent of the cargo cult mentality. Under political pressure Labor has been obsessed with how to distribute the ever-diminishing gains into more and more consumption spending.

In sharp contrast, the Coalition’s commitment to the market system, to personal freedom as well as personal responsibility is the appropriate framework for Australia to grapple with the modern competitive world. We are on the right side of history.

The productivity imperative

For Australia to thrive in this more competitive world, we must come to grips with the productivity challenge facing our economy. I call it productivity imperative. Productivity is not about working harder or working for lower wages and benefits. An increase in productivity can be achieved by producing an increased amount of outputs using the same level of inputs or by producing the same level of output using fewer inputs. In either case, incomes grow creating new demand and jobs.

In many cases, improvements in productivity can be achieved at the firm level by changing work practices, business processes and systems that deliver the same operational outcomes with less effort. At a macro level, improvements in productivity can be achieved by streamlining compliance requirements or eliminating unnecessary regulatory hurdles and providing high quality and efficient infrastructure that allows the efficient movement of people, goods and information.

The importance of productivity is highlighted by more than 25 years of extensive research that has been conducted by the McKinsey Global Institute. William Lewis, former partner and co-founder of the Institute, demonstrates the case in his 2004 book The Power of Productivity[1] “that differences in productivity between nations virtually explains the differences in Gross Domestic Product per capita.” Without the stimulus of further growth in the nation’s terms of trade, Australia needs to increase productivity to  sustainably increase GDP per capita. Since 2007, GDP per capita growth has only been 1/3 of the growth in GDP per capita of the Howard era.

Moreover, as indicated by Tony Abbott at his National Press Club address in January 2013, Australia’s multi-factor productivity performance according to the Australia Bureau of Statistics has actually declined by 3 per cent since July 2007.[2]

This is compounded by an Economist Intelligence Unit study released in August last year (Economist Intelligence Unit (2011), Workplace Relations Index) which ranked Australia as the second worst of 51 countries for productivity growth, ahead only of Botswana. Unfortunately, there are other studies and international benchmarks which indicate that Australia’s productivity performance has declined, particularly in the past 5 years.

Take for example a 2012 McKinsey study[3] which indicated that Australia’s experience in income growth between 2005-2011 was driven by rising terms of trade and an upsurge in capital investment, whereas labour productivity growth was weak and capital productivity actual fell. This study found that among Australia’s major capital projects, which are prone to inefficiencies and cost overruns, there is scope to improve project performance by 30 per cent.

Addressing the productivity imperative ultimately means boosting Australia’s level of gross domestic product per capita and hence improving existing living standards. So, boosting productivity means more profits, more jobs and ultimately increased real wages without unjustified or inappropriate roadblocks getting in the way.

Let me provide you with an example of such a road block from Australia’s health and medical research sector. Earlier this week, the Shadow Minister for Health and Ageing, Peter Dutton, and I issued a media release[4] highlighting the fact that Australian scientists spent in 2012 an astounding 500 years of cumulative time or $66 million of annual salary costs on preparing grant applications to the National Health Medical Research Council of which only 20 per cent were successful in obtaining approval. Surely, in 2013, Australia can find a more efficient method of allocating funds for public research?

The troubling aspect of the productivity imperative is that while this one example of excessive red tape seems extreme, there are countless more examples across Australia in a variety of industries. The Coalition regards the productivity imperative as one of the most significant policy challenges that it must address if elected to government.

As noted by the Coalition’s “Real Solutions for all Australians” policy framework, the Coalition has a multi-faceted approach to improving Australia’s productivity performance and making us able to compete more successfully. Our approach includes getting the budget back into the black to create more room for the private sector and boosting workforce participation and getting more people who can work, back to work, driving efficiencies in government service delivery and finding ways to deliver services faster, better and cheaper as well as cutting red and green tape and removing any unnecessary roadblocks. We shall enhance competition and deliver infrastructure with greater efficiency. And we believe in the reform of industrial relations law to provide greater workplace flexibility.

Boosting labour force participation

On workforce participation, the Coalition believes that there are opportunities to encourage a greater number of young people, seniors and women to participate in the workforce. This is supported by the Grattan Institute, whose recent report “Game Changers: economic reform priorities for Australia” indicated that boosting workforce participation among young people, seniors and women would boost Australia’s GDP by tens of billions of dollars. The Coalition is committed to creating a million new jobs in 5 years and 2 million new jobs in 10 years.

Ultimately, boosting workforce participation means that we need to provide everyone with the opportunity of a good education that allows them to play to their strengths and get a good job, build a career or start a great business. As Liberals, we believe this is the best way we can help people to stand on their own two feet, exercise personal responsibility and be truly free.

We believe that a social safety net is necessary to help those who for whatever reason are unable to help themselves. It is there to act as a springboard for getting others back into work that best suits their talents. The worst outcome is to perpetuate welfare dependence which saps initiative and self-esteem and establishes a cycle of inter-generational poverty that sees children grow up in households where no-one has worked for up to two or three generations.

According to the Australian Bureau of Statistics in June 2011, there were 1.2 million jobless families in Australia, some 19 per cent of all families. Of these, 910,000 were jobless couples families or about one in every 6 couple families and 290 thousand jobless lone parent families or almost one in every 3 lone parent families. These statistics are quite disheartening and there is no evidence to the best of my knowledge which demonstrates that this situation has materially improved in the past 2 years.

The Coalition’s commitment to promoting the economic and social benefits of work and providing pathways from welfare to work underpins a range of initiatives that we pursued under the Howard government such as the job network, work for the dole and welfare to work reforms.

Tony Abbott has announced further initiatives building on this approach; they will be a hallmark of his leadership should we be elected to government. This includes helping parents, particularly women, better manage modern pressures of work and family. This is why the Coalition is committed to introducing a genuine paid parental leave scheme and ensuring that childcare is more accessible, affordable and flexible.

Women continue to be treated with either a conscious or unconscious bias in many Australian workplaces. In many cases they are locked out of the centres of decision-making and leadership. Women continue to be paid less than men for the same work and work remains too inflexible to allow them to do everything that a 21st Century life demands of
them. Women also remain woefully underprepared financially for retirement, with the Association of Superannuation Funds of Australia reporting that nine out of 10 women have insufficient super to support a comfortable retirement. They continue to care for their younger children while now caring for older family members. Return to work strategies that better cater to the needs of women to make up for lost time and opportunities for advancement remain elusive.

Industrial Relations Reform

On industrial relations policy and the need for reform, Australian Liberals do not regard trade unionists or working Australians as the enemy.

When we contemplate change in the structure of industry and the labour market, we recognise that it is in the best interests of workers and the economy as a whole to equip them to respond to change rather than hold out the false hope that change can be avoided and that governments can mandate job security.

Creating a well trained, flexible work force is the best form of job protection for Australians. Unfortunately, this Labor Government has turned back the clock on industrial relations to a time before Paul Keating’s changes in 1993 that ushered in enterprise bargaining. Labor believes in a one size fits all and seeks to insert third parties into processes that can be best to left to those directly affected.

Gary Banks, the retired Chairman of the Productivity Commission, was reported as saying recently that Australia’s current industrial relations arrangements are the most pervasive source of red tape, which inhibits the ability of businesses to innovate and adapt over the long run.

The Coalition has already announced that we will bring back the Australian Building and Construction Commission (ABCC) to restore law and order to building sites as well as ensuring unions and their officials have the same standards of accountability as companies and their directors. The restoration of the ABCC could create up to $6 billion in productivity gains.

We understand that the community, as well as Labor’s own review of the system, acknowledges that the Fair Work laws have created militancy, productivity and flexibility problems – and we will say more about how we will address these problems in the run up to the election – but let me re-affirm that our approach on industrial relations will be cautious, prudent and practical.

Tony Abbott has made it clear that there will be no return to Work Choices. We will not say one thing before the election and do another thing after.

The Challenge of Regulation

Unfortunately, industrial relations laws are not the only regulations hindering productivity. Let me now turn to the issue of red and green tape. The issue of red and green tape has been a key focus for me and my colleagues Senator David Bushby and the Member for Higgins, Kelly O’Dwyer since late 2011 when the Coalition Deregulation Taskforce was established by Tony Abbott.

The Coalition Deregulation Taskforce has had the ability to consult and interact with businesses and not-for-profit organisations across the length and breadth of Australia. From diverse industries, business models and management teams, the message has been clear and consistent.Australia has a significant problem with red and green tape, not just at the Commonwealth government level, but also at state and local government levels as well.

Our consultations with industry revealed that the cost of doing business in Australia is anywhere between 30 per cent to 50 per cent higher than our competitors in the Asia-Pacific region. Unfortunately, the red and green tape burden has become worse under this government. Despite a commitment to having a one regulation in, one regulation out policy, Labor has introduced over 21,000 regulations and only removed just over 100 since 2007.

The Australian Chamber of Commerce and Industry National Red Tape survey in October last year found that just over 73 per cent of survey respondents believed that the overall regulatory compliance burden has increased in the past two years. Moreover, Australia’s international ranking on the burden of government regulation according to the World Economic Forum’s Global Competitiveness Index has slumped from 68th in the world in 2007-08 to 96th in 2012-13.

The work of the Coalition Deregulation Taskforce resulted in a discussion paper that was released by Tony Abbott in November last year. This discussion paper canvasses a range of policy options that would seek to address the red and green tape challenges and by implication boost Australia’s productivity performance.

The Coalition will formally announce its deregulation policy ahead of next election. At the core of that policy will be a commitment to reduce the red and green tape burden by $1 billion per annum and to repeal the carbon and mining taxes and their associated compliance burdens.

This commitment, in addition to the establishment of a red tape reduction unit within the Department of the Prime Minister and Cabinet, will provide the Coalition with a whole-of-government policy platform to resolving existing regulatory impediments.

I should make a special mention of green tape. Australia prides itself in maintaining high environmental standards and preserving our natural flora and fauna. The Coalition remains committed to maintaining the integrity of existing standards. The impact of green tape is felt when companies and projects are required to comply with overlapping and often duplicated environmental project approvals.

The Australian newspaper on Monday this week reported that costs imposed from green tape place at risk more than $200 billion of export projects, particularly in the oil, gas and mining sectors. In seeking to reduce the costs imposed by green tape, the Coalition has already committed to the establishment of a one stop shop for environmental approvals.

Such an approach will simplify existing Commonwealth bureaucratic arrangements to create a single approvals process for all environmental approvals via the State system, as part of long term agreements with each State and Territory government.

The opportunity for investment and national development

Coming to terms with the productivity imperative and resolving existing challenges around red and green tape will facilitate investment across a whole range of industries. With increased global mobility of resources, the competition to attract foreign capital, both in terms of financial, physical, human and intellectual know-how will be critical.

While debate on the role of foreign investment and the size and composition of our immigration program should not be suppressed, we should eschew xenophobia and the temptation to stoke to the fears and insecurities of Australian workers. This is what Labor attempted to do with its demonization of section 457 skilled immigration visas. We need foreign capital and the best and brightest migrants we can attract; the global competition on both these fronts is more intense than ever.

We will entrench a lower tax economy that provides incentives to work, save and invest. Tax cuts require equivalent reductions in government spending which can be facilitated by the elimination of waste, unnecessary duplication between tiers of government and more efficient service delivery via greater contestability with the private sector and not-for-profit providers.

The Coalition’s commitment to devolve responsibility to hospital boards and school councils and principals is underpinned by our belief that local control supports more effective decision making and greater responsiveness to community needs.

Australians understand that we have an inadequate provision of infrastructure in certain areas of the economy. Urban congestion and the under utilisation of rail freight services means that Australians, particularly those who live in capital cities, are spending larger amounts of time stuck in traffic rather than using their time productively either at work or with their family and friends.

The Coalition is committed, if elected, to partnering with the private sector to build the modern infrastructure that Australia needs. This should be supplemented by greater access to private capital on the proviso that we are making the most efficient use of existing infrastructure assets.

The Coalition has already committed to using Infrastructure Australia to develop 15 year rolling plans with project priorities and delivery timetables as well as to empower Infrastructure Australia to deliver better value from infrastructure spending through better governance and transparency mechanisms. No more commitments to spend 40 to 50 billion dollars on the National Broadband Network without proper cost-benefit analysis.

With the rise of Asia, the Coalition is particularly interested in exploring ways in which to facilitate investment and development in the north of Australia, especially in areas where we are able to produce goods and services that we can sell to a rapidly growing Asian middle class.

The Coalition will have more to say on our strategy to develop Australia’s north in the months to come. Taking advantage of such opportunities will require a cohesive approach between regional development, investment facilitation and infrastructure provision, particularly around the capture and usage of water. There is no inconsistency between relying on market forces and the Commonwealth government identifying priorities for national development.

The need for innovation

Let me now turn to the final piece of the jigsaw puzzle, that being innovation. In a more competitive world, more goods and services produced by Australian businesses will be replicated by our competitors. Once goods, in effect, lose their uniqueness and become commodities, competition will come down to a question of price.

The high Australian dollar is here to stay for some time. Australia must be able to produce unique goods and services to the world so that customers globally are willing to pay a premium and more importantly, so that the nation’s economic future is not tied to sudden shifts in exchange rate, the terms of trade and other price factors.

The modern world thrives on innovation and the creation of sustainable competitive advantage. When Warren Buffet looks to invest in an enterprise he looks at a number of attributes including quality of management, and whether the enterprise occupies a niche that gives it a sustainable competitive advantage over the economic cycle.

At the recent round of Senate Estimates in February 2013, I remarked that Australia is not really an innovation country. Perhaps that was a little tough? It is true to say that we are successful in certain areas of research and commercialisation as exemplified by Cochlear and ResMed, but in comparison to our international competitors, Australia still has gaps when you look at the links between academia, public sector research, venture capitalists and entrepreneurs who can finance and commercialise research and bring new products to market. We aim to foster more of that collaboration.

The Coalition will release its innovation policy in the coming months. In the long run, for Australia to become the innovation nation, there must be embedded a culture of innovative thinking across all areas of society, from the classroom to the workplace to the family home. We will require a sustained long term whole of government approach that drives cultural change. In the public sector, that means government being more open to risk taking and experimentation by public servants too.

Conclusion

In my maiden speech, I remarked how the Coalition had made the right calls on the big issues of the last few years – the extent of fiscal stimulus, border protection, the carbon tax and so on. Importantly the Coalition did not turn its back on the Howard-Costello legacy of rigorous and consistent economic management, working to a plan and being pragmatic on the road to achieving the desired policy outcome. I think that is a function of having so many frontbenchers who worked in that government, as I did.

We are all committed to strong economic management as the basis for providing a secure and prosperous Australia. We understand due process and the importance of collective decision making through the proper workings of cabinet government and the value of genuine engagement with those affected by policy proposals.

Unlike Labor, the Coalition has a realistic understanding of the more competitive world that Australia now operates in as well as the challenges and risks to Australia if we don’t manage our affairs effectively. We have a comprehensive economic plan that while drawing on previous experience is also attuned to dealing with recent developments. Above all we have the discipline to stick to a plan and not indulge in navel gazing or internal party games.

Tony Abbott has led by example. He has put us in a potentially winning position; we must now stay the course and deliver a government worthy of the great Australian people.

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