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20 March 2012

Why invest in manufacturing?



CEO Institute Speech: Dick Warburton, Executive Chairman, Manufacturing Australia

Opening Remarks

Ladies and Gentlemen, I’m delighted to be here this evening.    

I firmly believe that bringing together senior executives representing some of Australian’s leading companies is an important means of giving voice to the myriad of issues we collectively face.

As some of you may be aware, I recently took on the role of Executive Chairman of Manufacturing Australia which is a collaboration of the country’s largest manufacturers and formed to highlight, debate and propose solutions to address the issues affecting Australia’s manufacturing industry.

Therefore it should come as no surprise that tonight I would like to talk to you about this particular industry, which is right now fighting multiple fires on multiple fronts, and what urgent action is required to address these issues which are often overlooked because of the good fortune afforded to the Australian economy courtesy of the resources boom.

So why Invest in Manufacturing?

Resources booms can’t last forever – the last one lasted 15 years – and without manufacturing, which until 2011 employed 10% of the population, we will ultimately be left with an economy relying on tourism and financial services – both of which are highly cyclical.

Australians take pride in our rich manufacturing heritage. We celebrate iconic inventions that our countrymen and women have developed and taken to the world.
 
Many Australians, however, are unaware of the extent to which Australian manufacturing - the silent workhorse of the economy – is under threat. Looking overseas again and one only has to look at some of the fragile economies of Western Europe to see what happens when you no longer have a healthy manufacturing base.     

However there are also overseas success stories which we should try and learn from.

For example it’s no surprise that Germany has escaped the worst of the euro crisis because of its strong manufacturing base. Contrast that with Spain and Italy, who relied almost solely on tourism and construction to maintain economic growth and employment, and the lesson for Australia is clear.  

We cannot put all our eggs into a resources led basket. Doing so will be exposing our economy to severe risk.

Quite simply, Australian manufacturing, as it always has been, is a key component for the long term productivity and wellbeing of the nation.    

So what does Manufacturing Australia intend to do?

These are challenging times.

The CEOs of each Manufacturing Australia member company have pledged to join forces in order to secure a brighter future for manufacturing. We regularly meet with Government policy makers and other influencers to highlight, debate and propose solutions to address the issues affecting Australia’s manufacturing industry.

I’d like to now offer you an outline of four priority areas of policy reform that require urgent attention in order to help Australia revitalise its manufacturing sector and remain internationally competitive. Having identified these reform priorities, Manufacturing Australia as you would expect is advocating a solutions oriented reform approach for Government to consider and, we hope, act upon in partnership with industry.

By the way, I think that even for those of you who do not operate in the manufacturing sector you will find these issues nonetheless resonate regardless of which sector you are in.

Policy Priorities:

So to Industrial Relations

Manufacturing Australia’s guiding principle for workplace relations is that high levels of performance are gained through extensive direct engagement with employees.  This is supported preferably through individual arrangements, and where necessary, collective agreements with employees. This is the most effective way to build understanding of customer, employee and business needs at the local business unit level.

Presently, the reverse is the case in Australia.

Direct relationships between employees and employers are undermined by third parties having the legislated right to become default bargaining representatives for employees, even when not appointed by employees.

Further, current legislation extends collective bargaining rights beyond matters directly related to the employment relationship and the specific needs of the local enterprise unit. The result is protracted and inefficient bargaining that is often not relevant to employees’ circumstances or those of the business.

The disproportionate and unjustifiable amount of cost, time and resources being spent on administration and compliance with the Fair Work Act could be greatly reduced by removing the legislated default of third party employee representation and instead adopting an emphasis on direct engagement between employees and employers.

Anti-dumping and Trade

Anti-dumping is another issue causing heated Federal debate right now.

And so it should.

Australia is a trade oriented economy and has benefitted over the last 30 years by pursuing an open trade agenda. Manufacturing Australia favours open trade, where that occurs fairly, recognising that Australia is a signatory to the WTO.

Unfair trade can result in the loss of jobs, loss of Australian capability and vulnerability to price increases in the absence of Australian manufacturing. Over 90 countries, including Australia, have anti-dumping mechanisms in place to promote fair trade. The Australian Government has accepted the need to reform Australia’s anti-dumping regime and has enacted the first of three tranches of legislation to improve the effectiveness of the process.

Key elements for improvement need to deal with the issues associated with the recognition of China as a free market economy, an overhaul of the electronic public register, upgraded skills and access to subject matter experts for Customs and various other matters and obligations.

Furthermore Government has recognised the need to promote Australian Industry Participation in both private and public sector projects.

Policies such as the Tariff Concession Scheme, the Enhanced By-law Scheme and the Industry Capability Network are designed to help Australian manufacturing supply products for local projects.

A number of improvements can be made to these schemes to ensure early warning of project development, de-bundling of projects designed to exclude Australian participation and appeals processes for the Enhanced By-law Scheme.

Additionally the Industry Capability Network needs additional resources to ensure its databases are comprehensive and current. An inquiry into the effectiveness and anti-gaming provisions of these policies would identify improvements which would benefit Australian manufacturing.

Flawed Regulation

Having looked at the impact of regional pressure, I would like to turn attention to the matter of domestic productivity, and specifically, Australia’s legacy of red tape and flawed regulation which continues to strangle industry and restrict productivity.   

A relevant example, in my own industry, is the slow pace of COAG reform on energy efficiency and the development of a National Strategy for Energy efficiency.  

The onerous requirement on business contained in the Energy Efficiency Opportunities legislation is a further testament to the red tape and bureaucracy constraining business.

Under the carbon tax framework there is the risk that business will be mired in further regulation.  

We need to focus on the opportunities - not the compliance.  There are a huge number of measures available to reduce carbon.  Once implemented, the carbon tax should focus on those elements where there is market failure
This means focusing on policies like mandatory disclosure on the sale and lease of residential houses and a national white certificate scheme for energy efficiency.

Manufacturing Australia is very concerned about the lack of progress on productivity reform and we plan to drive this issue much like the once highly respected Manufacturing Council did in the 1980s.   

Resource Allocation and Pricing

Lastly to resource allocation and pricing, AKA sovereign rights.

Australian manufacturers are currently facing export-level prices for future gas contracts which are approximately double the production cost, with a further risk that gas is not even available for domestic use at any price.  

Short-to-medium term pressure on domestic pricing is threatening the competitiveness of domestic manufacturers and the high level of value-add provided by these manufacturers.  

New policies are required to safeguard their competitiveness and leverage Australia’s low-cost energy resources to deliver the significant level of value-add provided by these Australian manufacturers to the domestic economy.
 
Manufacturing Australia believes that the current gas market situation requires policies that safeguard the competitiveness of Australian manufacturers reliant on gas, in order to meet the national objectives outlined in the recent Draft Energy White Paper which had the core objective “to build a secure, resilient and efficient energy system”.

A positive policy response will maximise Australia’s competitive advantage in energy and underpin the development of a strong, vibrant and technologically advanced manufacturing sector.

Conclusion

Despite its rich heritage and tremendous socio-economic contribution to the nation, Australia’s manufacturing sector rarely attracts the attention and support of Government.

But as a sector which employs around 1 million Australians, a productive manufacturing sector is a critical component of a thriving economy.  

We are not looking for a bail-out.

We are looking for government engagement and sensible policy infrastructure which generates and meets demand for skilled employment, identifies and cultivates export markets, adds value to other domestic industries such as resources and agriculture, and showcases Australian innovation.

Manufacturing is not like other industries. It is a highly strategic industry whose importance to society is measured in more that just it’s economic value, which is itself formidable.

Its true that manufacturing underpins large parts of Australia’s economy and labour market, but moreover, manufacturing is fundamental to our social structure through the creation of clusters of specific expertise and global excellence, bringing with it stable, middle class employment in urban, suburban and regional communities alike.

Investing – and I use the term investing very deliberately - in the sustainability of strategic industries such as manufacturing is about making a considered and deliberate decision to invest in sectors that delivers economic, social and cultural returns to the nation.

Achieving that sustainability requires a strong nationwide cultural reform here and now to stop the erosion of a once great industry that remains the backbone of Australia’s future competitiveness and trade outlook.

It is about asking ourselves a simple question: do we want manufacturing to be an important part of Australia’s manufacturing future or not. If we take that question seriously, and answer it honestly, as other successful manufacturing nations have done, the challenges I’ve outlined this evening become nothing more than obstacles for us to overcome in the interests of the nation.

Thank you.