Building Australia’s Comparative Advantages: Article in the AFR by Catherine Livingstone

11 August 2014

This opinion article by Business Council of Australia President Catherine Livingstone was published in The Australian Financial Review on 11 August 2014 under the title ‘Boost Advantage by Supporting Global Winners’.

What will it take to drive another decade of economic growth in Australia and address the risk of rising unemployment, particularly among young people?

Given the forces of change Australia confronts, what are the actions by government, businesses and the community that will lift our global competitiveness and preserve national prosperity?

These are questions the BCA has grappled with in its discussion paper, Building Australia’s Comparative Advantages.

We are acutely mindful of the role of business in responding to the forces of change shaping our national competitiveness. Our member companies are living this reality every day.

This week’s unemployment figures highlight graphically the extent to which the community is also being affected by these forces and having to respond.

Our paper focuses on the role of government, and calls for renewed determination to maximise the value of its economic reform agenda.

We are asking government to move away from an approach that supports industries through subsidies and intervention, to one that recognises the circumstances of different sectors, and facilitates and co-ordinates their efforts to be competitive.

To do this, we are suggesting that government needs to develop a deeper understanding of the sectoral nature of the Australian economy and the global marketplace in which sectors are operating. This lens will enable government to prioritise and nuance policy to better achieve national interest objectives. For example, the government’s laudable commitment to reduce the regulatory burden on business by $1 billion each year will bring additional benefit to the economy if the effort is thoughtfully targeted to be meaningful to the circumstances of individual sectors.

We are also suggesting that specific strategies be developed for sectors which can realistically succeed on a global scale.

Is this “picking winners”? No.

Our approach calls for an investment in sectors with current significant strength to ensure they retain their capacity for sustainable job creation. Strong as they are, these sectors are at risk of losing their global advantage if we don’t pay close attention.

Are we suggesting that the government should only focus on sectors where Australia has large-scale advantage? No.

Government has a role, for example, in fostering new and emerging sectors such as biotechnology and advanced manufacturing through industry-led R&D, developed in collaboration with the research sector.

We also believe it is the proper role of government to do what it can to facilitate the transition of manufacturing sectors which are facing profound competitive challenges from low-cost economies. These sectors should be encouraged to innovate and have unnecessary regulatory barriers removed.

Had government collaborated with the automotive manufacturing sector a decade ago, to facilitate the transition to a business model based on supplying niche products into global supply chains, we may now have a viable sector.

Are we blurring the role of government in the market? No.

Government already has a role in the market through regulation, taxation, foreign investment controls, competition policy, publicly funded R&D and education. Its actions and inaction in these areas affect sector competitiveness:

  • Australia’s emissions reduction policies were designed without an understanding of their likely impacts on sectors. This has had unintended consequences for jobs and competitiveness.
  • A detailed understanding of the transport and logistics sector would have anticipated that cabotage restrictions would make it cheaper to ship some goods from Asia to Australia than it is to ship them around the Australian coast.

So, what we are suggesting is that government’s role needs to take better account of the circumstances of different sectors in the world in which they are now operating, and place greater emphasis on facilitation and co-ordination.

This is much harder than writing a cheque.

Have we suggested that government abandon its economy-wide reform agenda? No. Tax reform, globally oriented competition policy and regulation, a skills and training agenda that equips Australians for new and emerging jobs, and a workplace relations system that recognises the need for businesses to adapt are critical, economy-wide priorities.

But economy-wide reform is not enough.

A detailed understanding of the challenges and outlook faced by each industry sector is the basis of good economic policy, and a prerequisite for government and business to work together effectively to drive growth and jobs.

To dismiss the suggestions in our discussion paper on the basis of misinterpretation or reversion to outdated mantra will do Australia no good.

Fundamentally, what we propose is that government, in collaboration with business, can provide for another decade of economic growth only by setting clear goals for different sectors based on a deep understanding of their competitive position. Government must design policy in a purposeful way so that as many sectors as possible can be as globally competitive as possible.

We are not saying that the BCA has all the answers, but we are saying that Australia’s competitiveness has been eroded by an approach that fails to understand and act on the complexity of what is really happening inside the Australian economy.

The latest unemployment figures speak for themselves.



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