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Thursday, 18 November 1993
Page: 3112

Senator SPINDLER (11.58 a.m.) —I rise in this debate on Appropriation Bill (No.1) 1993-94 to address Australia's non-existing industry policy. The third sentence in this year's budget speech says grandly:

The greatest issue facing our nation is how to provide jobs for our fellow Australians.

Three lines down it states:

The primary objective of this Budget is jobs.

Unfortunately, these are just empty words. The budget contains no evidence of the coherent, strategic industry policy we should have had in place long before this budget. Instead we get nothing in the budget and now, five months into the current financial year, the Minister for Industry and Regional Development, Mr Alan Griffiths, at long last promises a change of direction—a positive, strategic industry policy to boost exports and to replace imports. We might say not before time, with one million Australians on the scrap heap and imports still rising at a rate 25 per cent higher than exports, while the economy is in the doldrums and before it lifts and people start buying imports at an even greater rate.

  It is high time that we took a leaf out of the policies pursued by countries with unemployment rates like 2.3 per cent, as in Japan, 5.4 per cent as in Germany and 6.9 per cent as in the United States. In Australia, unilateral tariff cuts, the abolition of quotas and a generally hands-off attitude to industry assistance have directly added at least 200,000 jobless to the new high of 11.2 per cent unemployment. Tragically, this level of unemployment could have been avoided if Australia had been prepared to adopt a more deliberate and considered approach to the reduction of protection.

  The Keating government's childlike and ideological belief in the mythical level playing field has cost us dearly. In recent days, a series of articles by Tim Colebatch and David McKenzie in the Melbourne Age has confirmed the evidence provided to my inquiry into tariffs and industry development. Increasingly, Australian manufacturing jobs are being taken by cheap imports, with the TCF industry probably the worst hit, and tens of thousands of jobs being lost, predominantly in metropolitan and regional Victoria.

  Two-thirds of all clothing articles sold in Australian stores are now imported. One-third are made in Australia. Only about three years ago that proportion was reversed. With production costs in China and other Asian countries being one twenty-fifth of the costs Australian textile and shoe manufacturers have to meet, tariffs are clearly no protection. But we should note that we are now the only country to have abolished all import quotas. The last such legislation was passed late last year over the strenuous opposition of the Australian Democrats. Clearly, it was supported by the coalition parties, which usually profess a great interest in the wellbeing of Australian industries. Unfortunately, their actions belie their words.

  The lesson we are being taught by other countries is that one assesses the prospects and the needs for each industry sector, one assesses the social costs of unemployment and one takes into account the mobility of labour when one determines the speed and depth of a tariff cutting regime. One cannot retrain a semi-skilled textile or metal process worker to be a computer programmer overnight. This also was borne out by the inquiry evidence. In regional Victoria, less than five per cent of the workers who lost their jobs in these industries were retrained for other jobs.

  Clearly then, one component of a sensible industry policy must be the development of our capacity to respond intelligently to outside pressures. If it becomes obvious that a particular product, process or industry cannot survive international competitive pressures in the long term, the decision about the most appropriate adjustment must take into account the mobility of labour and capital in that industry, the availability of alternative products and markets, the strategic and social consequences of an industry's demise, including the effect on related industries—all leading to a considered decision on the type of response required, the timing of that response and the acceptable level of the cost trade-off as far as consumers and other industries are concerned.

  Clearly, we are not suggesting that we should have high protection walls around Australia. We should not go back to the 1950s and 1960s. What we are asking for is a considered, intelligent decision making process. It is the kind of decision the United States makes to maintain its farming community by providing an average 44 per cent of United States wheat farmers' income through direct subsidies, import quotas and tariffs. It is not too late to adopt some of this attitude even now, when the government's unilateral economic disarmament policy has destroyed a substantial part of Australia's industrial capacity. We must stop the rot.

  This may become a little more palatable to even the most blinkered economic rationalist when we find out that some of the highest protection is available to industries in Asia, including the supposedly raucously competitive Asian tigers. Thus we find that car tariffs in Taiwan are 40 per cent; in Singapore, 45 per cent; in Malaysia, 50 per cent; in Indonesia, 100 per cent; and in Thailand, 200 per cent—as compared with Australia's current rate of 32.5 per cent. Fresh vegetables carry tariffs in Taiwan of 40 per cent; in Singapore, 0 per cent; in Malaysia, 5 per cent; in Indonesia, 30 per cent; and in Thailand, 30 per cent. Australia, needless to say, has no protection in place for its vegetable growers.

  The other aim of a positive industry policy is the strategic and selective application of measures designed to boost exports and contain or replace imports. Here it is becoming clear that high quality, innovative products and services offer the best road to survival and prosperity. A good start has been made here, as the rising export figures for elaborately transformed manufactured products show.

  However, above the din of self-congratulation, which one can see in the press almost every day, we should also hear a more sobering message; namely, in the September 1993 quarter, merchandise imports rose by 12 per cent whereas merchandise exports rose by only nine per cent. The direction may be right, but the level of effort is woefully inadequate. We are still going into debt. We are still exporting jobs.

  Two of the key inputs for product innovation and high product quality are research and education. The need to survive in a competitive environment invites comparison with the effort other countries are making in these areas. Australia's gross expenditure on R&D in 1991 is estimated to have been $5,088 million, representing an increase of 20 per cent over the two years since 1988-90 and 1.36 per cent of GDP, compared to 1.25 per cent in 1988-89—a slight improvement.

  Let us have a look at the ratio of Australian research and development and GDP and compare that ratio with those of other OECD countries. When we look at the table below, we find that Japan leads the way with 3.07, USA follows with 2.77, Germany with 2.73 and so on. When we go down the list of OECD countries, we find that Australia is fourth from the bottom with 1.36, followed by Italy, Iceland and Ireland. I seek leave to incorporate this table in Hansard.

  Leave granted.

  The table read as follows—

Australia's R&D/GDP Ratio compared to OECD countries

Country  R&D/GDP Ratio

Japan 3.07

United States of America 2.77

Germany 2.73

France 2.42

UK 2.22

Netherlands 2.06

Finland 1.87

Belgium 1.69

Canada 1.44

Austria 1.40

Australia 1.36

Italy 1.30

Iceland 1.03

Ireland 0.90

Source: Australian Bureau of Statistics Catalogue No.8112.0, 1993

Senator SPINDLER —If we look at how we handle R&D, we find that the Commonwealth government provided 45 per cent of total R&D expenditure in 1990-91, up from 44 per cent in 1988-89. Business enterprise provided 40 per cent, down from 42 per cent in 1988-89. State governments provided 11 per cent. While the government's expenditure on R&D is comparable to most OECD countries, the expenditure by the business sector lags badly and is responsible for our position of fourth from the bottom in the list of OECD countries.

  Recent changes in Australia's company tax rates, from 40 per cent in 1988 to 33 per cent now, have meant that the value of the original 150 per cent concession for R&D—since reduced to 125 per cent—has decreased from 73.5 per cent of the investment to 49.5 per cent. In contrast, Singapore's R&D tax incentive, which is modelled on the Australian scheme, is set at 200 per cent, as reported in the Australian Financial Review in July 1993. This may not be the only option but, clearly, the issue of industry investment in R&D must be addressed.

  Let us have a look at another country where R&D is clearly playing a major part in that country's progress. In Germany, the ministry of research and technology is specifically responsible for coordinating all federal R&D expenditure. The German technological innovation system is clearly a major factor in making German firms world-class producers of high quality goods. Industrial innovation is a specific goal rather than an indirect result of defence spending, as it has been for decades in the United States, or a by-product of basic and broadly based academic research, the historical avenue in Anglo-Saxon countries.

  Industrial innovation in Germany is generated through an extensive network of institutions, largely structured on a regional basis. The application of new technologies to the existing manufacturing process is supported very widely with financial incentives.

  This innovation infrastructure serves the different needs of large and small firms. While industries dominated by a small number of large firms provide the bulk of R&D funding in their sector, industries consisting of many small innovative firms—for example, working on machine tools—depend on resource pooling and information exchange.

  Industrial research cooperatives and trade associations help set the government's national research agenda. While the private sector is clearly the driver of industrial R&D, the federal government adds value to research conducted by individual firms by adding public funds to private R&D resources and by making technological information from academia available and useable.

  In Japan a determined R&D push designed to stay in the forefront of technological developments is the result of close cooperation between industry and government, a traditional feature of Japanese economic and industrial development. In addition, Japanese firms regard global scanning for technological insights as an integral part of their business strategies. This includes sending researchers, engineers and technicians to international conferences and trade shows or to visit their global competitors and to work in overseas laboratories. In 1988, over 5,000 scientists worked in the United States alone. Japanese government agencies also gather technological information from around the world and make it available to industry.

  In its 1991 report on competitiveness, EPAC identifies two ways of enhancing innovation in Australia: one, by integrating research and development into the generation of new products and processes within individual enterprises; and, secondly, by tapping the vast pool of overseas R&D. This process could be accelerated by allocating more government resources to research programs with an industry focus, as is increasingly the case with the work done by CSIRO, and by establishing a system of targeted incentives and a framework for close cooperation between industry and government agencies on a sector by sector basis.

  Training and education is the other leg underpinning industrial innovation and excellence. As is the case with its contribution to R&D, Australian business contribution to training also lags well behind that of other countries. For example, German industry spends five per cent of its payroll on training while Australian industry spends only 1.5 per cent.

  The contrast with Asian countries is stark. More than half of Singapore's male university undergraduates and one-quarter of the female undergraduates study engineering. Science and business related subjects are close behind. In Singapore every student is getting on with some form of vocational education. In Australia it is just one in five. However, citing these examples should not be taken as a push for narrowly specialised vocational training. Singapore itself is conscious of this by focusing on picking the skills that pick winners. On the ABC's Four Corners program on 7 September 1992, Brigadier-General Lee said:

You never know which industries are going to be in the ascendant in five or 10 years time, and to identify which company will do well, and make sure that (it) is here, is even more difficult. But we know what skills will be necessary in five or 10 years time, whichever the industry is. You must be numerate, you must be literate, you must be mechanically oriented.

Perhaps I could add that one must be creative and innovative, and that requires a broad educational base, the capacity to think and the capacity to draw connections. These are just some of the considerations the Minister for Industry, Technology and Regional Development, Alan Griffiths, should include when he prepares his new, activist, industry policy. Research and training initiatives clearly must be an integral part of such a policy. It is critically important for the future of Australian industry, indeed for Australia's future as a nation, that this policy is based on a careful, intelligent assessment in each industry sector carried out in close cooperation between employers, workers and government agencies.

  Above all, we must ensure that we do not exclude any of the array of measures available, ranging from selective and time limited import containment to stronger support for research and education, to financial and tax incentives, low cost finance, labelling and quality control of imports and government purchasing policies which favour Australian producers. We can no longer afford to delude ourselves that free markets will solve our problems. The so-called level playing field is a fraud. We must grow up and shape our own future; no-one else will do it for us.