Actions Needed to Build Australia’s Comparative Advantages

Continuing Australia’s remarkable run of economic growth will require businesses and governments to take more deliberate and purposeful steps in response to global forces of change, Business Council of Australia President Catherine Livingstone said today.

Ms Livingstone used her first major speech as BCA President to launch a landmark paper that recommends a radical rethink of how Australia understands its economy and plans for wealth creation.

The paper, Building Australia’s Comparative Advantages, is supported by research undertaken by McKinsey & Company that provides a baseline perspective of Australia’s international competitiveness by sector, and an insight into where we can succeed at a global scale.

“What we have found is that across a range of measures, most of our industry sectors are not competitive against the United States – a country still viewed as being at the forefront of productivity and innovation,” said Ms Livingstone.

“McKinsey found that Australia was strongly competitive in only one sector – agriculture. However, it found that we had a substantial comparative advantage in other sectors with flat or diminishing competitiveness, including mining and LNG, tourism and food manufacturing, highly differentiated manufacturing, and international education.

“The BCA looked at these findings and saw enormous opportunity,” said Ms Livingstone. “But only if Australia changes its mindset to acknowledge that the unstoppable forces of globalisation and technology have shaken up forever what it means to be competitive at a world standard.”

“Australia has recorded average annual economic growth of 3.4 per cent over the past two decades, driven by structural policy reforms and a rise in our terms of trade. But we cannot continue to rely on these factors. Maintaining growth in the next decade will be a much harder task than it was in the previous two decades.

“If Australia is to stay competitive and support jobs and prosperity, then policy must be more focused on the specific requirements of each sector of our economy to maximise their comparative advantages.

This approach involves four key changes:

  • adopting a global mindset in everything we do and coming to terms with what it means to operate in a truly global marketplace
  • returning to a more thoughtful role for government in facilitating and coordinating economic development and social progress
  • dramatically increasing our competitiveness through innovation
  • growing those sectors of our economy that can win on a global scale and make the greatest contribution to lifting our national wealth.

“Business has a huge role in responding to the forces shaping our competitiveness, but we cannot do it on our own. Government has a fundamental role in wealth creation because it controls key inputs into growth, for example skills development, tax and competition policy, trade and regulation,” Ms Livingstone said.

She said governments needed to develop and maintain a deeper understanding of the dynamics of the economy at the sector level.

“Every policy should be designed to support and extend Australia’s economic strengths by building on sectors with a comparative advantage and helping others to transition with minimum disruption.

“Government must also pursue a structural reform agenda that builds the innovation infrastructure to support the agility of the Australian economy.

“This is not about ‘picking winners’ or blocking the economic transition that is underway by propping up uncompetitive industries. Nor is it about abandoning an economy-wide reform agenda.

“It is about deliberate action to support the sectors where we can gain a competitive advantage, and taking a more nuanced and sophisticated view of structural reform.

“Australia cannot afford to be complacent about the need to take control of its national destiny. By putting in place deliberate strategies to improve our competitiveness, fostering innovation and playing to our strengths, Australia can lift its performance to world standard and maintain the growth in living standards Australians have come to expect,” Ms Livingstone said.

Building Australia’s Comparative Advantages

Eight actions to drive growth and develop a structural reform agenda

Rethinking the role of government in driving growth

1. Moving to a facilitation and coordination role rather than subsidies or direct intervention. Governments should be facilitating competitive industry sectors by taking a sector view of the economy and prioritising all decisions and reforms to promote Australia’s comparative advantages. Additionally, governments should be enabling innovation across the whole economy by fostering entrepreneurship and collaboration and thus dynamic growth and facilitating skills and capabilities.

Developing specific national sector strategies

2. A new approach to national sector strategies to take a systems approach to prioritising policy action and develop specific sector growth strategies, with urgent action needed for the mining and LNG, agriculture and food production, and energy sectors, which are critical to driving Australia’s wealth and enabling growth.

Structural reforms to build the innovation infrastructure

3. Actions to lift trade and investment and foster business risk taking to ensure growth sectors can attract the capital for major projects and achieve economies of scale, and so that transitioning sectors can make investments in productivity and restructuring.

4. Regulation and competition policy for a global market to lift the performance of all sectors and allow companies to contribute to global supply chains.

5. Preparing Australians to compete in a global labour market to ensure our human capital is maintained as a competitive advantage.

6. Reducing labour market rigidities to allow transitional sectors to move within the value chain, drive growth in other sectors and enable competition at the task level.

7. Developing the physical infrastructure and population policy for an innovative economy.

8. Incentivising innovation by aligning Australia’s research and development efforts with our comparative advantages and fostering cross-sector collaboration.

Scott Thompson, Director, Media and Public Affairs
Business Council of Australia
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