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Address to the confederation of Australian industry



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PRIME MINISTER

__________________ ?C, ____________ _

FOR MEDIA MONDAY, 12 M AY, 1980

ADDRESS TO THE CONFEDERATION OF AUSTRALIAN INDUSTRY ______ . LAKESIDE HOTEL, CANBERRA. .

I am very pleased to be with you to address such an important national forum as the Confederation of. Australian industry. . It provides an essential opportunity for those engaged, iri a. wide range of industries, to look, at their future direction and shape. ' . . ' · .

Much has already happened in . the 80s. which suggests that we live, in difficult international circumstances. . Yet, in spite of this, Australia has entered this: decade blessed with a combination of assets, some or all of which are denied to other countries. ’ .

This, is not the time to be daunted by the prospect of . . .

difficulty. Rather, we. need to add to our impressive legacy, of endowments a motivation and determination to capitalise on—the undeniable opportunities unfolding before us.

It is the same with any new period in history. Each decade

presents new challenges-, new opportunities , · . unimagined . difficulties and the prospect of inevitable change. But none can justify a reluctance to tackle the future.

It is worth remembering that the most dramatic, political and economic events of the 70s.were quite, unforeseen at the . beginning of the decade. The lesson in that is that we must be ready to identify and face new challenges as they occur; .

seize new opportunities and seek from them productive advantage

We must never allow our creativity and our sense of enterprise; our preparedness to take risks and our willingness to. surmount obstacles; we must never allow these timeless qualities to be corroded by crises or diminished by difficulty.

Certainly there are difficulties. The political and. economic instability in the Middle East and West Asia pose a continuing threat to the availability and price of oil.. The staggering increase in oil prices has not only resulted in higher international inflation; but also, it has meant a significant transfer of real resources from the industrialised countries to O PEC; and both of these have contributed to lower growth rates. .

These are some of the factors leading to increased pressure . from international industries for Government assistance and * protection.

Another consequence of the international position, and in particular, the Soviet invasion of Afghanistan, has been a. heightened visibility "of.· the growing military power ' confronting us. ' . '

The . response by Western allies to this growing power has been a welcome commitment to the development of an increased defence preparedness. Yet this also has to be achieved at a time of severe inflationary pressures. Certainly then,, we face an extremely complex.set of inter-related political

and socio-economic problems.

Yet, paradoxically, the combination of these factors has led, on balance, to a greatly improved position for Australia, relative to that of her. trading partners. ....... '

Our political stability; our skilled management of_the . economy; our abundant natural resources; our proven skill in­ finding and. developing them; and o.ur favourable geographical . location:; all of these factors enable- us, to face a difficult international, environment in a position· of. advantage and’ privilege1

Of course, challenges still confront us. The new international economic, conditions, will continue to require our industries- . ■to adapt .at a pace not always so pressing when the economic- environment is: more favourable. After all, the 50s and’ . 60s;

were, on the whole., years of relative stability and moderately strong growth. ■ ·

An expanding domestic market was serviced by the rapid growth and maturity of a number o f ’key manufacturing industries. A. brisk migration programme accelerated the forces of supply and demand. It was a period of diversification with a good, deal of impetus coming from import replacement in the home market. But having passed through-a: phase of relative stability

in the 60s, industry met new demands in the 70s. - -

First, we had a massive mineral boom and a strong inflow of foreign investment which came with it. This resulted in a rapid strengthening of our balance of payment position which for so long had been a constraint on domestic economic growth. Our capacity to import vital goods for industry was improved. . · . ’ . . .

Then in the.early 70s, came the energy crisis, triggered by massive OPEC price increases, followed by a world-wide bout of severe wage and price inflation and recession.

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A l l .the Western industrialised countries felt these pressures but the response in. Australia of the Government of the day was, in itself, a transparent crisis of management and policy because in many ways, Australia was in a more fortunate

position than most other countries. . .

Our natural resources, signif.icantly developed at the end. of . the 60s: our great endowment of energy; our long record of lower inflation: these should have provided the foundation for a relative improvement in Australia's position during these difficult years.

Yet, we. lost ground. Australia suffered a severe, loss of international competitiveness. Australian industry lost export markets; faced increasing competition from imports; and, .

as a result, became locked in a struggle for survival, let.alone adjustment'.

Now, five years later, as a result of steady application of responsible policies, designed, first and foremost to reduce inflation and inflationary expectations, dynamic forces are at work in the Australian economy and Australian industry which give; cause: for justifiable optimism... . · : . .

The Government has worked from the premise that it must restore a stable economic climate in which business can jnake decisions.. . . '

It has remained dedicated to the belief that much of the . . .

future prosperity of Australian industry will come from . a fuller participation in world trade; that, as a ’

consequence of this, our first priority must be: to encourage the development of internationally successful industries by improving and maintaining our overall competitive position. And part of our programme for promoting this, has involved

investment allowances, export incentives and research . and development assistance.

Just as importantly, Government policies have been designed to foster strength in Australian .industry. In the three years to 1978-79, Commonwealth Budget.outlays showed virtually no growth in real terms. At the same time., we have reduced., the deficit, as a percentage of G.D.P., to under 2% this year;

sought to contain wage pressures and held the money supply at responsible levels. '

Against this background of hard won achievement, it is regrettable that the Labor Party continues to advocate substantial increases in Government expenditure.

The A.L.P. are already firmly committed to spending an additional $1,800 million in four specific areas, in housing,welfare, "make work" schemes, and a promise of return to Medi-Bank.

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Unless there were substantial increases in. taxes, these programmes would expand the deficit-.

They would accelerate inflation, put upward pressure on interest rates, and would threaten our. hard-won economic progress. . .

It is also a . matter of concern that the Australian Labor Party continues to attack the Government's investment and other business incentives. .

To complete this attack on private enterprise it promises to establish Government owned, business'.corporations in areas where plainly the Government does not belong.

The Labor Party's firm restatement.of-its traditional commitments represents the. re-cycling of the failures of the 1970s.

Our progress- out of that economic nightmare,. though difficult, . has been significant. . -- - -' . .

Our inflation rate.,, running at- more than 17% in the March Quarter of -1975, was little more, than 8% in the March Quarter four years later. -

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Over the 12 months to March 1980, consumer prices have risen, b y 10.5%.. This increase derives- primarily from -strong rises in the price, of oil and other internationally ' - traded commodities·, and must strengthen us in our determination

to.maintain our anti-inflationary stance. .

It is worth comparing the success of our performance with what has happened in a number of other countries. In the 12 months to February, inflation- in the U.S.A. was 14%, in the U.K. 19%; and the OECD generally over 13%. . .

Maintaining our inflation success relative to that of our major trading partners is fundamental to. our international competitiveness. And this competitiveness has been restored to levels which existed at the beginning- of the 1970s, with

a sustained improvement over the last four years in the ,

order of, 15-2.0%.

The Statistician's major production series for the March Quarter, 1980 compared with the year earlier, showed rises in 21 of the 30 seasonally adjusted items with significant .

increases in.steel, bricks, chemicals, refrigerators and some textiles. .

In rural industries, the recovery from deep recession has been even more remarkable. The value of rural output rose by over 60% over the past two years. Income per farm more than doubled to be 75% higher than in the first few years of the 1970s. . . .

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All of this reflected in the employment position. While . unemployment is still too high, in the 12 months to. March 1980, total employment rose by over 180,000. These are encouraging signs. .

The 1980s promise a continuing recovery for Australian industry. That is the only way we can be sure there will be benef its: f or all Australians. ' .

The vast trading potential to our north; our mineral and energy resources; the accelerated growth in all our industries from renewed.competitiveness; and the beneficial effects of

all of these on the· economy will provide new opportunities for Australians in the years7 ahead. · ' ·

To take advantage of these opportunities, business and industry in the 80s must be outward looking. We must be aggressive in. our market thinking rather than tentative. We must take advantage of our geographical position rather ·

than lament the mistaken view that we are geographically isolated.

It is not such a long time ago that Australia, was described as an. isolated Continent, distant from the markets of Western Europe and North America. . . ■ . · . ,

Yet today industrialising countries of Asia are a major and growing market for. Australian exports at a time when Australia^ enjoys the· combination O f -a favourable: geographical position:: a privileged resource strength and an increasingly sound . economy. .

Most of the economies of East and South East Asia are growing; at rates ranging from 7-12.% per annum, an impressive result when much of the world has. been experiencing economic recession.

These economies will need to supplement the output of their own growing industrial bases with a wide variety of imports., not only basic raw materials. .

There are immediate opportunities for Australian rural industries for coal, iron ore, alumina and.aluminium, iron and steel, . agricultural and specialised industrial machinery, consultancy services and the. range should widen.

There is also considerable scope for the use and application of Australian technology and expertise, notably in the agricultural sectors of developing countries in the region.

When one realises that the growth of the total import market in the developing economies of.Asia has been projected by the Industries Assistance Commission at about 11% per annum in real terms, then the opportunity for Australian industry is

significant indeed.

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Asian countries are already high on our list of important markets. In 1978-79, Korea was our fifth largest market, China sixth, Malaysia ninth and Hong Kong tenth.

Only six years ago, exports to the developing countries of . East Asia were 409 million dollars; in the last financial year, they were 1521 million dollars.

The importance of these newly industrialising economies is heightened when we note that many of Australia's traditional markets either have restricted access for Australian products or have relatively mediocre growth prospects over the .

next few years. ,

On the other hand, if current trends continue, the developing Asian market economies will have contributed about as much to Australia's trade by the end of this decade as Japan had by the end of the 70s. . . ' !■ .

Yet we can do better. Our share of the market in these

economies is only a little over 3% compared with Japan's . share of 30% and the U.S.A. 19%. Thus, even a small increase which must be within our capacity, given our present low . base, would represent a significant gain for Australian exporters.

With the right business attitudes and appropriate Government policies, there is no reason why Australia cannot seize .

these opportunities, especially when our industries have demonstrated a capacity to seek out new markets and to change their pattern of trade. .

For over the last two decades, such a. change has been dramatic. In 1958-59, about 16% of Australia's exports went to East Asia. Twenty years later the level had risen to almost 40%. By comparison, in 1958-59, we were selling about 54% of our exports to.Europe. .

Today, that market receives only about 19% of our exports. These changes, already under way in our trading patterns, are not temporary. They will, continue as real incomes rise in the East Asian and South East Asian region, producing a

quickening in demand for consumer goods, and for inputs for industrial development.

Y e t , in spite of these already developing trade patterns, we have heard, in. recent years, an almost incessant request for Government assistance to achieve structural change in industry.

It is important to understand Government and industry responsibility. The essential Government role must be to create the institutional infrastructure and broad economic policy framework in which . market forces can operate.

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We take the view that Government- cannot replace the key .

role of investors and' company managers in deciding where . . new funds will be directed; in determining which companies and industries will, successfully carry new projects through

to completion and subsequent profit; in anticipating vfoich products, can compete effectively in a tough and changing: ,. . .

trading scene.

Where appropriate we are prepared to provide incentives to our industries; but the main engine of growth and .

. progress must be our private sector. It alone can respond adequately to market signals and take productive· advantage of the· support for business: development offered, by the. Government1s policies.

I have great confidence in the capacity of our business managers to recognise the changes in the external environment and to .

perceive the new trading and investment opportunities which . these changes are creating. . . . . '

To speak of industries failing is to ignore the fact thatT .

•good management in industry is synonymous with=-successful ’ adjustment to change. . '

Some firms may wither and fail; but no firm need do so. \

.The historical lesson of Australian industry is that - -successful, ma nag erne n t does- not wither; it adjusts .

Australia's economic strength has been based primarily on the capacity of entrepreneurs, business managers and - .

farmers to create, or build upon, industries which can .

compete effectively in the trading world.

Notable amongst these, are our great r.ural-based industries which in recent years have had to compete with E.E.C. . agricultural products in receipt of Government support in - excess of $30 billion for the calendar years 1977 to 1979. .

The Australian steel industry has an even prouder record in international competition and has achieved.this ein the face of massive subsidies to its European competitors.

For example, the French steel industry received .

approximately $A800 million in direct and indirect .

assistance from the French Government in 1979.

And the U.K. steel industry received approximately . $A1,250 million in producing a little over twice as much steel as B.H.P. .

And despite massive Government assistance to many overseas producers, our manufactured exports are successfully penetrating overseas markets. · .

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In 1979 Australia enjoyed a 28% growth in the volume of . manufacturing exports, proof of the increased orientation , of Australian management towards the- external market,.

Surely in the light of this, proponents of Government programmes of adjustment need to, be very clear about what they have· in mind. .

It is significant that the Secretary of the OECD in calling recently for policies of positive adjustment was really suggesting the removal of Government from the process of adjustment in order to allow the smoothness of market processes, to work. . ' · . · . ·

For, it is a characteristic of market-based economies that they do respond readily, flexibly and relatively smoothly to change and new opportunities.. . . .

How much more desirable this is than a programme of Government intervention which distorts the process of change and locks capital and labour into unproductive enterprise.

Adjustment ..to change· is the. weather-vane; o:f industry; for,, in a real sense:,, change in industry is1 the-· only thing that is permanent. .

T.S. Eliot once said - "In the- life of. one man,, the same time never returns," . ; . So it is. in, the; world of commerce. . And change, arising from-market forces is. the. greatest part . of the continuing adjustment which is taking place -in our - .

economy. · . ..

It is. an adjustment based on economic f a c t o r s o n an .

identification of needs,; an examination of costs.;., and. a..... capacity to reconcile both of those in a profitable w a y ... ....

It is when change threatens to be.abrupt, severe and. far-reaching,, especially if concentrated in particular . areas, that difficulties arise in' a social sense.

The resistance that can then build up, can be an impediment to any further adjustment. Governments can aggravate the process of smooth adjustment to change.

The European experience has shown us how massive job subsidy schemes, capital subsidies and, in the case of agricultural industries, blanket protection, obscure market forces; distort economic reality, and create circumstances, far worse in their totality than those they initially sought to. alleviate. However, we should not countenance a sudden and radical departure from existing systems of trade adjustment. .

There is no productive future in living in a giddy and unnerving whirlpool of rapid and dramatic change. Historically, Australia has a record of smooth, beneficial and manageable adjustment to new economic circumstances.

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This i"s: the most' manifest in our move from being a" country ' ' ' substantially dependent, on our farms, to the. development of: a wider industrial base incorporating one of the most important mining industries in the world, and, in the process of industrial diversification,, spawning, a highly sophisticated, tertiary.sector. .

And more recently, the dramatic worsening of the energy position of industrialised countries, bringing with it, as it.did, severe economic problems, has called for rapid adjustment in industrialised economies...

For all countries, the challenge is to maintain a long-term balance between oil demand and supply. The prospect is for even higher real prices for oil as. we move towards the . end of. the century. . '

Damaging as these circumstances are for many countries, it only serves to remind us how uniquely placed, we are to meet the new economic and energy challenges. . .

Because we have· regained our...international competitiveness,, we are able- to: fully capitalise, ~on being one of the- few net. energy exporters among OECD countries, with substantial, reserves of uranium, black and brown coal, L.P.G, and .

natural gas:. ■ . . .

Allied to this energy strength, -the: Government's' energy policies are geared to securing our future energy demands by promoting the objectives of greater exploration and development of all our energy resources: conservation of our scarce

liquid fuel reserves and greater use. of. alternatives to- oil supplies. . . ' . "

These objectives are being met. It is._estimated that total expenditure on petroleum exploration and'development will exceed $500 million in 1980; an excellent recovery from the state of investment fatigue in the mid-70s..

In 1979, the rate of increase in our petrol consumption was only, half the average of the last .5 years; and p^oof of the validity of pricing our oil according to its value in world" markets.

There is one aspect of t h e .energy problem that has not been emphasised and that is the agreement by member countries of the I.E.A. to set targets for oil imports as a means of

underlining their intention to reduce dependence on imported crude oil. .

Australia has agreed to participate in this oil import target exercise. . The targets emphasise the need for countries to adopt policies to conserve oil and to encourage the use of alternative sources of energy.

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In Australia's case, current indications are. that: in. 1980 our imports will be well below the. target figure set. Yet, if we were to indulge in the extravagant use of ail·; and if further emergencies were to arise as a result of .

shortages in Middle East supply or production, then the I.Ei.A. would be. entitled to look1, , with a very jaundiced view- on. countries·· who· failed to act" responsibly in. their . use of: scarce oil supplies. .

If, through extravagance now, Australia, in the future, were faced with forced, cutbacks, our industries, our economy and our way of life would be in jeopardy. ·

That is why we will not relax any of our efforts to maintain a responsible level of oil consumption. In the search for new sources of oil, the Bundle Shale oil project poses a· . challenge to- technology and an opportunity for Australia to increase, dramatically its indigenous·· supplies. of crude oil,. .

All this is happening because of the promise of competitive returns in Australia on capital., technology and labour skills, resources for which Australian industry has to. compete internationally.· ■ . · . ' '

This has brought to Australian industry a new phase in its continuing adjustment, not contemplated a decade ago. . It will provide for our industries:· a, substantial, advantage· . over, competitors, in" many-other' countries·. And our aluminium

industry is already1 enjoying this advantage.

Higher oil prices, together with greater national resource competition that they generate have reduced the number of countries in. which it is attractive to build new smelting capacity. . · ' .

Coal-based electricity generating costs in three Eastern States.are now considered to be significantly lower than those in many industrialised countries and there is: every reason to believe that this competitive edge will be maintained. .

The increasing activity by other less well energy-endowed nations to locate energy intensive industries- offshore will add undoubtedly to Australia's already favourable economic position.

Private enterprise is alive to the possibilities created by our energy advantage. And in the decades ahead we can expect that the new growth areas of mineral processing and mining will continue to expand at a rapid rate.

With increased oil costs, the cost of shipping must inevitably rise bringing with it an added inducement to process raw materials in Australia and take away the finished product rather than bulk materials. . .

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That this is, already happening· represents, a measure of the adjustment being made in Australia to the new world demand for energy and energy based projects. ·

But there are other sectors as well which demonstrate the .

increasingly competitive nature of Australia.' s. resource based industries> including pulp· and paper, wool, processing, mineral sands- and me ta 1 lurgi.ca.1 processing industries . such as zinc and copper.

To this must be added the human input, the skilled labour, the- development and. application of advanced technology and the entrepreneurial skills invo.lved in production programming, marketing and innovation. . .

These are going to be just as much a part of Australia's . productive adjustment in the. 1980s as our. raw materials and energy. .

Another element required to productively complement Australia's balanced development in the future is an increasingly . efficient and competitive, capital market. A, market which: - encourages, .the mobilising o.f . equity and fixed interest . . . .

c a p i t a l w h i c h helps Australians to become partners·, and ' .

participants as investors in our development projects.

A great, programme; of. national, development, lies in. front of. us... i i stealia will be capital hungry in the 1980s u ___

• needed from overseas, but we will also need to mobilise* "->■ Australian savings for long-term investment purposes. --And • ■ here lie new opportunities for all Australians. . ■

' ' ■ I can think of' no more ef fective use for the' investment· of · ·

our present savings than in; the development, of our national _ resources; in the support of outward-looking and aggressive manufacturing industries and i n . the provision of modern .

finance and servicing industries. -

We have already taken positive steps to facilitate the financing of private sector initiatives. . . .

To enable the Australian financial system to meet the anticipated . demands on it for long-term development finance, it is important that the system be able to respond appropriately, to such demands. .

These considerations prompted the Government to establish a committee - the Campbell Committee - to enquire into the . ways in which the Australian financial system can achieve its utmost potential effectiveness.

The Committee has been asked to make its enquiry against the background of the Government's free enterprise objectives and broad goals for economic prosperity.

. Already we have taken some preliminary steps which have furthered these objectives and assisted the operation of the capital market and the financing of domestic projects.

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Amongst these are, inter-related initiatives including:· . .. . the Commonwealth's reduction in its own demands on the capital market through a reduction of its deficit;’ the Government's streamlining of its methods of selling

its securities.

These· measures, have secured a more, effective control of the- money· aggregates: creating a more stable monetary, environment which is critical for economic growth and the control of inflation. They have induced confidence in Australia's . economic future and this confidence is well-placed..

The- diversity of the opportunities, before us is immense and constantly changing. These opportunities must surely inspire those with ideas and a willingness to implement them. They must surely galvanise into action others who enjoy challenge: and the· rewards that come· from successfully . · meeting it. . ' , — . - '■■·

One of the easiest ways to successfully predict the future is to accept, the responsibility for shaping it.. Leaders of Australian industry have a proud role in this· regard throughout our. history. I am·, confident thatrin the years

ahead the promise that we now see will become t h e " progress we all seek. .