Jennifer Westacott speech to the Department of Foreign Affairs and Trade, Business Envoy Speaker Series

Speaker: Jennifer Westacott AO, chief executive, Business Council of Australia

Venue: Department of Foreign Affairs and Trade, Canberra

Synopsis

After the pandemic, the risk is Australia adopts a mission accomplished mindset – failing to confront the significant challenges ahead of us over the next two decades.

To meet these challenges, we’ll need to act differently. We’ll need to embrace:

  • multilateralism, not nationalism
  • openness and free and fair trade, not protectionism
  • competitiveness and innovation, not stagnation and decline; and
  • an orientation to the Indo-Pacific

We’ll also need to be a more dynamic and modern economy, remembering what’s on our doorstep: the growing Asian middle class, innovative companies and economies that are powering up.

If we cannot work out how to be competitive in those markets, then we run the risk of becoming a second-order economy.

We need to lift our competitiveness across the economy, removing impediments so we can build on our success in traditional areas while also creating new and lucrative industries.

But business investment as a share of GDP is at 30 year lows, and it’s a roadblock to our success.

Investment in utes and office equipment is important, particularly to small business, but that’s not enough if we want to be a more export orientated and dynamic economy.

For that, Australia desperately needs to be a magnet for big game-changing capital in transformational projects that can capture new export markets, drive innovation and accelerate economic growth.

To achieve a high wage economy - across the board - we need to expand our economic base, increase innovation and remove regulatory rigidities.

***Check against delivery***

I would like to start by acknowledging the Traditional Owners of the land we are meeting on today, the Ngunawal and Ngambri people, and pay respect to their elders past, present and emerging.

Thank you for the invitation to speak with you today.

I want to start by saying that for the past year, Australia - just like the rest of the world - has been laser focused on:

  • how we keep people safe and pull through this pandemic
  • how we vaccinate our citizens, and
  • how we reopen up our economy.

As we make gains, the risk now becomes that this is the beginning and end of our thinking.

The risk becomes that we adopt a mission accomplished mindset – failing to confront the significant challenges ahead of us over the next two decades.

I’m here today to say that as we recover from COVID we need to start thinking about:

  • the kind of society that we want Australia to be
  • the type of economy we need to achieve it, and
  • how we stake out our place in the world.

I would argue that the risk is the pandemic accelerates the rise of Asia and reinforces the malaise that has characterised many OECD nations in the last decade.

As we plan for our future after the pandemic, Australia has a choice.

We can either be part of a malaise or we can be a more dynamic and competitive economy.

It means putting in place the policy levers and tools to maximise the opportunities in the region.

It means acting differently.

It means embracing:

  • multilateralism - not nationalism.
  • openness and free and fair trade - not protectionism,
  • competitiveness and innovation - not stagnation and decline, and
  • an orientation to the Indo-Pacific

This is where you come in.

Here at the Department of Foreign Affairs and Trade, your job is pivotal to advising governments and managing situations that shore up the strength of Australia.

You are fundamental to the strength of our economy, civil institutions and the responsible role we play on the international stage.

Your role is to ensure we have a seat at the table, to assert Australia’s influence in support of our national interests.

Australia now has the opportunity to deepen our orientation to the Indo-Pacific, acting as a stabilising force in the region while protecting our sovereignty, our security, our values and the strength of our society.

We can do this while making sure our economy is more dynamic: a combination of:

  • production
  • education
  • innovation
  • mining, and
  • agriculture as we move up the value chain of production and create higher paying jobs.

Here at DFAT, your role is to think beyond the strict domain of foreign policy to the wider economic and social agenda that will drive a more prosperous and secure Australia.

 

Asian economies powering ahead

I want to take a moment now to explore the growth challenge ahead of Australia as nations regain their economic footing after the pandemic.

The trail of COVID destruction in Western economies and societies has just been staggering.

The global death toll is almost 2.5 million people and by the end of the day around another 10,000 people will have died.

The death toll in the US is more than the country experienced in World War Two.

Here in Australia - notwithstanding all of the great things we've done as a country to manage the pandemic and keep people safe - our economy is forecast to be around $110 billion smaller this year than what we expected before the virus.

Think about it this way – our economy has lost the equivalent value of the entire manufacturing sector.

And that’s just this year.

If we don’t get back to the growth trajectory we were on prior to COVID, the losses will mount to $2 trillion over the next decade.

We’ve got to work really hard to make up these big losses.

Much of the world was in lockdown during the June quarter last year and the virus was spreading around the globe. We saw some of the biggest falls in GDP:

  • Australia was down 7 per cent
  • the US was down 9.5 per cent, and
  • the UK was down more than 18 per cent.

Just months earlier, China’s GDP had fallen by almost 10 per cent when it experienced its lockdown in the March quarter.

But as the world seeks to dig its way out of the largest economic hole in a generation, Asian economies are rebounding much, much faster.

Looking at IMF growth forecasts pre-COVID to 2022, advanced economies are estimated to be 2.3 per cent larger.

The US is estimated to be 4 per cent larger or US$0.9 trillion over this period.

Emerging and developing Asia is estimated to be almost 14 per cent larger in 2022 compared with its pre-COVID level.

This includes China, which is estimated to be almost 17 per cent larger in 2022.

That means China is expected to grow from US$14.4 trillion to US$16.8 trillion.

So, notwithstanding vaccines and the capacity to bounce back, it means that for western economies like ours the post-pandemic period can’t just be about recovery

  • it also has to be about reinvigoration and the next huge wave of growth.

From a historical perspective, western ascendancy has been a recent and short-lived phenomenon in the long, long sweep of history.

The rise of Asian economies has been rapid.

We’ve been blindsided by the ability of Asian economies to be good at capitalism, obviously in some cases without the checks and balances of democracy.

But they’ve relentlessly pursued access to markets and innovation.

 

What does all this mean for Australia

So, what does all of this mean for Australia’s place in the world and our prosperity.

Fundamentally, we have been a high performing economy and nation but we were not going as well as we could have done pre-pandemic.

Growth was 2.2 per cent.

Wages were stuck in the slow lane.

We’re not as competitive as we should be - we’re at number 16 in global competitiveness rankings.

We're hopelessly over-regulated – we’re number 80 out of 141 countries on the World Economic Forum’s burden of government regulation ranking.

Our political system is often gridlocked, unable to reach agreement on even modest reforms for example the industrial relations changes before the Senate.

 

The type of society we want

So, my challenge to you today is to please take that long-term custodian role of public policy.

For you not to think election cycle to election cycle, but to think in the true Westminster way of frank, fearless and independent advice for the coming decades.

To think of the kind of society we want to be and how we get there.

A society that:

  • drives ambition and ability in all its citizens
  • where people have good jobs and good pay
  • where our citizens can advance and feel included
  • where we reject the notion that systemic inequality and entrenched disadvantage are inevitable by-products of market economies
    • they shouldn’t be - they don’t have to be
  • a society that isn’t divided between metropolitan and regional locations
  • where people are rewarded for effort, and
  • most importantly, where we have confidence through security and stability.

As I said earlier, in order to fulfil that vision, Australia needs to embrace:

  • multilateralism, not nationalism
  • openness and free and fair trade, not protectionism
  • competitiveness and innovation, not stagnation and decline, and
  • an orientation to the Indo-Pacific.

These are the themes I want to explore with you today.

Our future, as you here at DFAT identified, is entwined with the region.

The 2017 Foreign Policy White Paper placed the Indo-Pacific at the centre of Australia’s strategic framework.

It linked the region to our economic prosperity, jobs and living standards.

And it made the case for greater engagement to lead and shape the region’s trade and diplomatic architecture, in the context of increasing strategic competition.

 

Multilateralism, not nationalism

Let me turn to multilateralism, Australia’s prosperity in the world is underpinned by:

  • our commitment to multilateralism at the global level, supported by modern high-quality regional trade and economic arrangements
  • by strong and effective security relationships, and
  • by strong, stable and resilient neighbours.

 

Existing bodies – G20, UN, WTO

As a middle power, we have an important role to play, but Australia’s size means we must embrace and work through multilateral agreements.

We cannot prosper and be secure on our own – we are always going to be stronger with others.

Our success in the post-World War Two period has been supported by a set of international rules of the game.

As slow moving and imperfect as they are – the key multilateral bodies – and I’m talking here the WTO, the G20, and the UN system at large – create the conditions of cooperation that reduce uncertainty and open up opportunities for business to trade and invest globally.

We need to really champion Australian multilateral diplomacy as a key plank of economic prosperity at home and boosting our influence and the values we want to see upheld in the world.

That is why I absolutely back the government’s commitment to deepen multilateral engagement, supporting effective, strong and transparent global institutions.

The question I ask you today is whether or not we can do more with these existing institutions to pursue a fair and free trade agenda.

 

New bodies in trade and new blocs of cooperation

And, of course, we should continue to realise these ambitions through regional trade agreements that are continually evolving.

Whether it's the Regional Comprehensive Economic Partnership Agreement or the Trans-Pacific Partnership.

We have to be participants in those agreements.

It’s the best hand we have to play.

It’s how we can level the playing field – through trade blocs, multilateralism and cooperation.

We also need to pursue and update bilateral trade agreements, and deepen policy thinking and coordination with key partners.

Much more could be done with countries like Canada and the UK in the G20 where we share common values and in the case of Canada, quite a comparable economy.

The best way to deal with nation states that don’t play by the rules is to buddy up to people who do.

 

Security blocs

On security, we are clear-eyed that Australia faces a more complex strategic and economic environment.

How can Australia prosper in this environment?

We need to recognise that security and economic power are mutually reinforcing.

Our security relationships – underpinned by the ANZUS alliance –have kept trade routes open and underwritten stability in the region since the end of World War Two.

It is vital to continue to nurture these, including initiatives we are developing with Japan and India through the Quad, and with greater security cooperation with ASEAN partners, especially Indonesia.

 

Foreign aid and the Pacific

We must also remember that our success is linked to the economic fortunes of our neighbours and the contribution we have made to shape those outcomes.

Our less developed neighbours – desperate for infrastructure – are increasingly turning to alternative financing like China’s Belt and Road initiative.

Reports of a massive Chinese infrastructure fisheries project in Daru in PNG – even if speculative – should be a wake-up call.

It is a warning shot that we need to urgently resource and scale up our diplomatic leadership and development assistance across the Indo-Pacific

And to do so in a way that plays to our strengths: on governance, sustainability, and transparency.

It’s why it’s so good to see our government leading the charge on distributing vaccines in the region with five-hundred-and-thirty-two million dollars in support for the roll-out across the Pacific and Southeast Asia.

This is not only about supporting public health in developing countries, but also about the stability, resilience and livelihoods of a region that is critical for Australia’s prosperity and security.

 

Openness and free and fair trade, not protectionism.

I now want to speak to openness and free and fair trade, not protectionism.

It’s perfectly legitimate to have a conversation about national sovereignty but the simple reality is that Australia is going to be highly dependent on complex global supply chains, exports and foreign capital.

We rely on foreign capital, with net foreign investment equal to around $940 billion in September 2020.

And we’re highly dependent on exporting our products and services.

Australian exports were 24 per cent of GDP in 2019-2020– almost double what they were 60 years ago.

We need to constantly explain to people why fair and free trade is important to them. How it improves their lives.

And now as the dust settles on Brexit, it’s so important we conclude our agreements with the massive markets of the UK and EU.

I also believe we need to examine whether we are extracting the best value we can out of our FTAs with Japan, South Korea and China.

How do we compare with similar countries with similar agreements – are they doing better? We can learn from them.

Let’s also examine whether our foreign investment screening system makes sense to investors who are essential to finance major projects.

What more can we do to get a common set of rules while managing for national security risks?

And how can we enhance the agreements to facilitate the transfer of skills and talent to Australia, to support local jobs and drive the industries we want to develop?

 

Competitiveness and innovation, not stagnation and decline

To really take our place in the Indo-Pacific and have influence in the world as a middle power, Australia needs to be a more dynamic and modern economy.

In order to do that we need to more productive, competitive and innovative.

Let me illustrate this for you.

If we go back 35 years, the top 5 companies in the US by revenue were:

  • General Motors
  • Exxon
  • Mobil
  • Ford, and
  • IBM

Today, the top 5 companies by market cap are:

  • Apple
  • Microsoft
  • Amazon
  • Alphabet, and
  • Facebook

If I go to Australia, 35 years ago, the largest Australian companies by assets were:

  • Westpac
  • ANZ
  • the Commonwealth Bank
  • NAB
  • AMP, and
  • BHP

Fast forward to today, and with the exception of CSL, the five largest Australian companies are still the miners and banks:

  • BHP
  • NAB
  • the Commonwealth Bank
  • CSL, and
  • Westpac.

During this period, the US has reshaped its global domination of markets through innovation, not stagnation, and now Amazon and Apple are among the largest companies in the history of the world.

I want to add very clearly, its biggest failure is not building a functional safety net - and that has unleashed the forces we’re seeing playing out in the era of Donald Trump.

Now to China.

While China’s story is a little different, they have transformed from a big agriculture sector and SOE dominated economy to one where large tech firms also feature in the top five.

We now have Tencent and Alibaba in their top five companies.

If we look at South Korea, Japan, Taiwan, Vietnam and India, we’ll see the same story over and over again – diversification, innovation and expansion.

It’s a reminder of what’s on our doorstep:

  • an Asian middle class that is estimated to reach 3.5 billion people by 2030
  • innovative companies that are going from strength to strength, and
  • economies that are powering up to be mega-economies.

If we cannot work out how to be competitive in those markets, then we run the risk of becoming a second-order economy.

So, we need to maintain our traditional strengths - continuing to be good in the areas where we already excel such as mining and agriculture.

Remembering that we have been so successful because companies in these sectors have adopted new technologies and increased their productivity.

Our challenge is to lift our competitiveness across the economy - removing impediments so business can continue to build on our success in these areas while at the same time creating new and lucrative industries.

We have the opportunity to make the most out of the priority areas the government has identified to leverage co-investment, areas where we have a competitive advantage such as:

  • resources technology and critical minerals processing
  • food and beverage
  • medical products
  • recycling and clean energy
  • defence, and
  • space.

To succeed in our traditional areas of strength as well as new and emerging sectors, we need to unleash the private sector to drive investment to help transition to a more modern economy.

Our transformation will be achieved by corporations – businesses innovate, take risks and trade at scale.

Large corporations are essential to manage large capital flows, drive exports and take on risks.

Overwhelmingly, partnerships with large corporations are also critical in getting SME innovations and products into global markets.

But right now, business investment as a share of GDP is at 30 year lows, and it’s a roadblock to our success.

That’s why the Business Council constantly argues that Australia needs to change the investment equation for Australian businesses so they can better compete for global capital.

Investment in utes and office equipment is important, particularly to small business, but that’s not enough if we want to be a more export orientated and dynamic economy.

For that, Australia desperately needs to be a magnet for big game-changing capital in transformational projects that can capture new export markets, drive innovation and accelerate economic growth.

We also need to guard against investment leaving Australia. Major innovative companies like CSL and Cochlear are making investments offshore – and other countries are seeking their investments.

Investment is one of our most pressing national challenges – tinkering around the edges won’t solve it

We either need to make our company tax system more competitive or introduce extra incentives such as a broad-based investment allowance for companies of all sizes.

You cannot get innovation across the economy if big companies don’t make large investments.

Productivity increases are overwhelmingly driven by investment.

You won’t get significant diversification if foreign companies don’t decide to do more here or come here.

So, I get very concerned when people say but none of these big companies have left Australia.

That’s not the right question.

The right questions are:

  • would they have done more here, and
  • do we know about the foreign investment that thought about Australia but then went somewhere else?

We need to also remove the red tape and regulatory barriers standing in way of becoming a leading digital economy

  • with a particular focus on the single window for trade 

Let’s finally crack the code so we get better at collaboration and commercialising research and development

  • particularly at a precinct level or through a major translation initiative

We must invest in regional infrastructure to unleash opportunities in the regions

We need to modernise and provide better access to high-value skills and training through:

  • microcredentialling
  • reinvigorating the VET sector
  • working towards a user-centric model,
  • and getting international students back.

We can’t take our foot off continuing our skilled migration program which will increase the skill density we need to drive new industries.

  • skilled migration doesn’t kill jobs, it creates them.

And we need to preserve our place as an energy superpower by harnessing the new clean technologies that:

  • allow us to deliver on the target of net zero emissions by 2050
  • that see us create new jobs, new industries and new opportunities, and
  • that help keep prices down to support other industries.

That’s the transformational policy agenda Australia needs to pursue.

Why?

Because it is how we evolve into a more advanced, dynamic and modern economy with higher productivity.

It allows us to compete and pursue opportunities in new markets.

It will allow us to attract new investment and ensure companies to see Australia as a leading place to do business.

And, importantly, it allows us to take our place in the Indo-Pacific region, not as a second order player, but as a first order leader.

So, in conclusion, Australia needs to decide whether in two decades we will be content to be home to:

  • some large miners
  • a few large banks
  • a couple of supermarket chains
  • a few regional offices for major international companies, and
  • a big services economy.

No one is discounting the tremendous value of the banks, retailers or the powerhouse commodities sector to our economy – they’ve been our backbone.

But to achieve a high wage economy - across the board - we need to expand our economic base, increase innovation and remove regulatory rigidities.

Otherwise, we’re vulnerable to stagnation and left with a two-tiered wages system.

An advanced, modern and dynamic economy generates high value add, higher wage jobs.

So, this has to be Australia’s next big moment.

Our time to transform, to create these opportunities for the future

We need to bank in the gains we’ve made through our management of COVID and build on our economic prosperity over the last thirty years.

It’s our time to leverage:

  • our great people
  • our natural endowments, and
  • our proximity to emerging markets to drive a new unprecedented generation of growth.

And that’s the policy challenge over the next two decades – to deliver strength through prosperity and fairness through opportunity.