Media & Speeches

The More Things Change

Chief Executive Jennifer Westacott gave this speech to the Australia Israel Chamber of Commerce WA.

Check against delivery.

Acknowledgements

  • Distinguished guests. Ladies and gentlemen.
  • I would like to acknowledge the traditional owners of the land on which we meet, the Noongar people, and pay my respect to their Elders—past and present.
  • I would also like to thank the Australia Israel Chamber of Commerce for inviting me to speak today, and EY for hosting.

Introduction

  • To say we are now living in volatile times would be an understatement.
  • This week has seen a seismic shift in global politics, on top of a year of unexpected decisions across the world and a surprising set of election results here in Australia.
  • There will be much commentary and analysis about this over the coming months and years.
  • My view, and I’ve been saying this for some time, is that people feel a sense of uncertainty and great unease, particularly in Western democracies.
  • We have to start the conversation about this new sentiment with empathy and understanding. Not blame and denigration.
  • Europe and North America have experienced low growth and greater levels of inequality.
  • People feel that, despite how hard they work, things are not getting easier for them.
  • They do not feel better off – this is the case here in Australia as well.
  • While the technical measures of inequality haven’t moved much in Australia, we still have below average real wage growth, and the great Australian dream of owning your own home seems unattainable to many people.
  • And people across the developed world have begun to distrust the very institutions that have long been the vehicles for delivering prosperity and cohesion.
  • They are confronted with an unprecedented pace of change – globalisation, technology and digitisation, mass migration.
  • This is challenging their sense of control over their lives.
  • The temptation for political leaders will be to pursue a set of policies that seem to give people control…
    • … and so we are facing potential protectionist, anti-business and populist policy directions around the world.
  • But, the path to prosperity is not going to be achieved through isolationism, protectionism or through an agenda that is anti-innovation, anti-technology and anti-business.
  • If we try to pursue these policies in the face of the unstoppable changes I will discuss, we will condemn our society and Western democracies to decades of lower living standards.
  • The challenge for leaders is to give people vision and direction, and to pursue the policies that we know will deliver long-term prosperity.
  • When I say prosperity, I mean policies that underpin:
    • good jobs
    • decent wages
    • opportunities for people to get ahead
    • safety and security
    • peace and cohesion, and
    • the chance to live in a good community.
  • My starting proposition today is this: you cannot achieve any of this without a strong business community.

Module 1 – What has changed?

  • So I would like to start with this question: what is it that makes the global environment so uncertain, so volatile and so disruptive?
  • Is it any different to other big cycles of change that have gone before, or is it the pace and scale that’s different?
  • The McKinsey Global Institute identifies four big trends currently shaping the global economy.
  • The first is the rise of emerging markets.
  • Here in Western Australia, you are no stranger to the unprecedented scale and pace of China’s economic rise.
  • Consider this − China used more cement between 2011 and 2013 than the United States did during the entire 20th
  • Other emerging markets like India and Indonesia will also assume an increasing share of the global economy in years to come.
  • Companies and governments who are not taking a very purposeful approach to Asia are making a terrible misjudgement.
  • The challenge for Australia, for both business and for policymakers, is to deal with a new competitive landscape.
  • Instead of constantly comparing ourselves to the OECD, our reference point should be these emerging economies, particularly in Asia – and indeed, how we can learn from them to improve our competitiveness.
  • The second big trend is the accelerating impact of technology and digitisation.
  • Once again, it is the pace of change that is unprecedented.
  • It took television thirteen years to reach fifty million users.
    • Facebook did it in just one year.
    • Pokemon Go took just nineteen days.
  • The impact of this change is that jobs are displaced and companies are scrambling to reorganise their business models.
  • Companies now need to respond in real time, and any regulatory or cost obstacle that erodes that capacity, will further undermine our competitiveness.
  • This is the flexibility and agility point that the Prime Minister has been making – and he is right.
  • Perhaps the least understood implication of technological and digital change is the rise of the empowered consumer.
  • They have more choice than ever.
  • They will be the innovator, the regulator.
  • They will overwhelm business models – and, of course, the highly connected new social movements can overwhelm companies, communities and countries.
  • The traditional and common business models of intermediaries – or the ‘clip the ticket’ method of value creation – are being destroyed by the consumer’s capacity to do it themselves.
  • Companies who do not relentlessly pursue a deeper understanding of the consumer, will fail.
  • Some quickly, some slowly.
  • The implication for governments and regulators is that traditional models of regulation are being turned on their heads.
  • Instead of rushing to regulate new technologies and business models, we should focus on breaking down existing regulatory barriers.
  • Because, if we don’t, the consumer will.
  • The third trend is an ageing population in developed countries and China.
  • Globally, the number of people over eighty will triple by 2050.
  • That’s going to have a massive impact on our workforces, our budgets and how we provide services.
  • The final trend is accelerating flows of trade, capital, people and data.
  • Over a third of goods cross borders.
  • Over seventy per cent of trade is in intermediate goods and services.
  • This presents new opportunities for Australian companies to move from whole or final products, to competing to provide high-value, differentiated, niche intermediate goods in global supply chains.
  • This is something, by the way, where we can take real lessons from Israel.
  • They drive their comparative advantages in differentiated goods and services in a very purposeful way.
  • Both of our countries are increasingly interconnected and this brings tremendous economic opportunities − particularly for a small, open economy.
  • But the threats of contagion from negative major global shocks and change are ever present.
  • As we saw this week, when you combined these four forces with a great sense of unease in the community – like we saw with Brexit and the US election…
    • it reverberates around the world – weighing on consumer and business confidence.
  • But if we take care of the long term, by building a robust competitive economy, the short-term market fluctuations will come and go.
  • The way to build that long term strength in the economy is to:
    • get the right incentives for continued investment
    • make the economy as flexible as it can be, and
    • allow for a process of constant adaptation and value creation.

 

  • This will drive innovation, this will drive productivity and we know this drives higher wages and better living standards.

 Module 2 – What has stayed the same?

  • Given this confronting new world, it is important to remember that some things haven’t changed.
  • Growing economies, cohesive societies and stable democracies are still the best foundation for a more prosperous society.
  • And, the evidence remains that the fundamental driver of economic activity is still, private enterprise.
  • It is private enterprise that generates the wealth necessary to grow and prosper.
  • It is over eighty per cent of our economic activity.
  • It directly employs ten million people.
  • It has been private enterprise, free trade and the liberation of markets …
    • that has allowed real income per capita in Australia to double over the last forty years.
  • But given current anti-business sentiment in some quarters, let’s imagine for just one moment, the alternative.
  • What if we took these anti-growth proposals to their logical conclusion?
  • Imagine that we actively sought to shackle business rather than liberating it.
  • If we increased the burden with even higher taxes and uncompetitive costs, on the assumption companies wouldn’t leave.
  • Well, we’d have an environment of very low growth.
  • Governments would have to step in to fill the void, potentially leaving a legacy of debt and crippling taxation for future generations.
  • There would be an increasing call on income support, just when government revenues are suffering from low growth.
  • My concern is that if anti-business sentiment grows and converts into more and more actual decisions, there are serious consequences for our living standards.
  • And let’s make no mistake. The people who would be the hardest hit are not the richest, but the poorest.
  • Just as dangerous, is the idea that we can have a business community made up of only small and medium-sized businesses.
  • In a global economy, which is about scale, risk-taking and substantial investment, that is a very high risk proposition.
  • It is misleading and neglects the reality of how our jobs and incomes are sustained by an interconnected economy and by an interdependent business community.
  • Large, medium and small.
  • Banks, miners, manufacturers, technology companies, service industries.
  • Domestic and global.
  • They all work together and rely on each other.
  • The interactions between large and small businesses generate over half a trillion dollars of income in one year.
  • That’s what drives higher living standards.
  • So I would ask: is there really a serious alternative to private enterprise in all its forms?
  • Those who are pursuing anti-business agendas should be duty bound to explain the consequences of their positions.
  • They are duty bound to explain how we would pay for much‑needed public services without the tax revenue generated by business and the people who work in them.
  • They are duty bound to explain how manufacturing and small business can thrive in a country with uncompetitive energy costs, inflated by unnecessary restrictions on supply.
  • They are duty bound to explain how companies – big and small – can succeed in a global environment, if our costs are higher, our taxes are higher and it’s easier to do business somewhere else.
  • They are duty bound to explain how regional communities in various parts of Australia can prosper without mining, and without agri-business.
  • In other words, they are duty bound to put forward their alternative to private enterprise to generate wealth and prosperity.
  • If they can’t accept that, they are duty bound to explain to every Australian the consequences of decades and decades of low growth.
  • We simply cannot let the anti-business sentiment take hold.
  • Without private enterprise, without entrepreneurship, without investment, we will be a moribund and bereft society.
  • My starting point is this: you cannot have prosperity, you cannot have social progress and you cannot have cohesion with economic failure.

Module 3 – What has business got to do?

  • So let’s talk about what business will have to do to be successful in the face of the forces of change.
  • Firstly, business will need a stronger sense of purpose.
  • Purpose is not a set of KPIs or an often ambiguous mission statement.
  • It is fundamentally this: what are we here for?
  • Without purpose, we have only complacency, inaction, or muddling through.
  • We have to remember that being profitable is the only way businesses can achieve their purpose, employ more people, expand, invest in innovation and pay dividends to people who have put their own money at risk.
  • You can’t achieve your purpose if you’re broke.
  • That aside, business must seek to understand their consumers, their employees and their markets better than ever.
  • We must imagine the services that consumers will need, not the products we want to sell them.
  • Companies must also understand and engage better with their employees.
  • This means valuing and investing in their skills and capabilities.
  • We need to give people those generic skills of problem solving, of design thinking, of team work, of effective communication.
  • These skills will give them more resilience and durability than most specific occupational skills.
  • We need to think about our suppliers as partners, rather than contracts and resources.
  • Finally, we have to deepen our sense of the shared value proposition.
  • Every action we take should be seen from the prism: does this contribute to a better society?
  • What all this suggests is that the moral imperative is so much bigger than corporate social responsibility.
  • It is the morality of how we do business – and by that I mean core business.
  • We need to address community concerns, otherwise our social licences to operate will be under threat.

Module 4 – the business environment our country needs

  • But business can only thrive in the right environment.
  • In framing an agenda for policies that will improve prosperity for Australians, the Business Council has been thinking about the four main objectives we want to reach.

Competitive businesses

  • The first policy proposition is that we need a competitive business environment.
  • A decade ago, Australia was ranked 10th on the World Economic Forum’s Global Competitiveness Index. Now, we’re 22nd – that’s lower than New Zealand.
  • We need to make sure the parameters government sets have the right incentives for businesses to invest and innovate on a global scale.
  • This drives competitiveness.
  • We can do this in a few ways:
    • through a national plan to deliver world standard infrastructure
    • through fit-for-purpose regulation to reduce costs and increase flexibility
    • through energy and climate change policies that reduce our emissions while maintaining our competitiveness
    • and through encouraging more trade and collaboration between large, small and medium businesses
  • But one of the key levers we have is tax, and I want to focus on that for a moment, because there are two pressing tax issues in the public debate right now.
  • We are in a global contest for investment.
    • Business investment is falling at levels not seen since the recession of the early 1990s.
    • Company tax is something we can control to attract investment and unlock job creation.
  • When companies invest,
    • they expand,
    • they buy new state-of-the-art equipment that makes them more productive,
    • and they can employ more people at higher wages.
  • Uncompetitive company tax rates prevent otherwise profitable investments from going ahead.
  • This means the community misses out on the tax revenue, the wages and the jobs.
  • If President-elect Trump delivers his commitment to lower the US company rate from 35 per cent to 15 per cent – we will be floundering in terms of our competitiveness.
  • Remember, the British are at 20%.
    • The average rate for Asian economies is 22%
    • The OECD average is 25%.
    • We are at 30%. We have to get real about this issue.
  • And this is why we’ve been such strong supporters of the government’s tax plan. It is the right thing to do.
  • Some economists say reducing company taxes is a leap of faith. I’ll tell you what the leap of faith is: it’s leaving them where they are.
  • That leap of faith assumes that people will continue to want to do business here, no matter how expensive or how hard it is.
  • So, there could be nothing more damaging to our competitiveness than the Western Australian Nationals’ proposal to introduce additional taxes on iron ore.
  • It is bewildering that this is back on the agenda, when the Federal Coalition rightly called out the mining tax as bad policy, and got rid of it.
  • It would make us the highest taxed iron ore industry in the world.
  • This state needs mining.
    • One in four Western Australian workers rely on mining – and two out of three regional communities benefit from mining.
  • Here in Western Australia and in Australia, mining has been and always will be a central part of the economy.
  • Emerging economies are going to need steel, energy and minerals. This will provide enormous growth opportunities for Australian mining in the future.
  • But mines need reinvestment and renewal – and placing another tax burden on them erodes competitiveness.
  • We have to constantly remind ourselves that our trading partners can buy products from other countries, and they will.
  • And, of course, you can’t fix spending problems through higher taxation.
  • As Winston Churchill said: “for a nation to try and tax its way to prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

Education and skills

  • The second goal we have is for world-class education and skills for the future.
  • Education is how we provide people opportunity and a chance to better their lives.
  • Against the big forces of change, you cannot protect jobs, and you cannot prop up failing companies. You just make things worse.
  • But you can protect the skills and capabilities.
  • What we need is an education system that helps people adapt.
  • We need to move to a system which is built around the learner, and recognise that people want to learn in a variety of ways.
  • They will need flexibility and a chance to dip in and out of education throughout their career as needed.
  • This will mean challenging the assumption that four years of university is the best type of education.
  • A good education system is how we give people the resilience and capacity to navigate changes in industries and workforces.

Jobs and wages

  • The third goal we have for the country is more jobs, better jobs and rising wages.
  • Along with innovation and investment, one of the best ways we can do that is through increasing productivity.
  • And that has got to happen at the workplace level, through converting people’s ideas and creativity into new ways of doing things.
  • This is what the discussion on workplace relations should be about.
  • Right now, our workplace relations system is not designed to allow that.
  • A clunky enterprise bargaining process is constraining the ability to adopt new ideas, and adjust to change.
  • Similarly, people cannot thrive in an unacceptably toxic culture – like parts of the construction industry.
  • And that’s why we have called on Senators to pass the Australian Building and Construction Commission.

Budgets

  • The final objective is for our country to have stronger budgets.
  • The purpose of stronger budgets is not for us to be proud of our balance sheet as a book-keeping exercise ….
    • but instead, for us to have the capacity to reinvest in people, to provide better services and to give us a buffer to withstand shocks.
  • That is why we have to bring government budgets under control and avoid a legacy of debt and higher taxes for future generations.
  • Taxpayers need to get more out of every dollar, especially in systems that are so important, like health and education.
  • When I talk about getting our budget under control, that’s what I’m talking about:
    • not mindless cost cutting, but careful redesign so that people get better outcomes at a lower cost.

 Conclusion

  • To conclude, business can be our ballast in uncertain and volatile times.
  • But business needs the right environment to achieve its potential.
  • As I have said, we cannot have a better society where poverty and unemployment are pervasive and there is a deficit of opportunity.
  • A robust economy driven by private enterprise is fundamental for delivering enduring prosperity for all.
  • Private enterprise is the best vehicle for making the most of the big global trends shaping our world.
  • It is the great innovator and enabler.
  • Whether it is the lights we turn on every evening, the cars we drive, the goods in our kitchen, or the smartphones in our pockets right now.
  • Business is at its best when it is delivering opportunities.
  • Like ten million jobs for Australians.
  • And dividends for nearly five million Australian shareholders.
  • But if business is to be at its best, we must be willing to take on anti-business sentiment.
  • To speak out against populist solutions that are deceptively appealing in the short term but would have devastating long-term consequences.
  • To point out that raising people’s expectations about government services only creates false hope, if you can’t explain how you’ll pay for it.
  • But we in business must do our part too.
  • We must be ethical.
    • We must tackle the reputational issues.
    • We must be open and transparent.
  • We have to work with governments and the community sector to make sure everyone sees the dividends of growth and economic development.
  • To make sure we don’t allow inequality to increase, or entrenched disadvantage to take a stranglehold.
  • This is the urgent collective leadership responsibility confronting this country.
  • To reinvigorate the social compact that has built our world class living standards.
  • And, if we can get this right, then I remain optimistic that we can grasp the monumental opportunities presented by the global forces of change.
  • If we do this, we will lift our living standards and we will protect the living standards of our children and grandchildren.
  • We should accept nothing less.
  • Thank you.