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Address to AMWU National Conference, Newcastle.



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Innovation, Industry, Science and Research: Ministers and Parliamentary Secretary

ADDRESS TO AMWU NATIONAL CONFERENCE

Newcastle City Hall Newcastle, New South Wales

This union - in its various guises - has been at the forefront of technological, industrial and social change since the Amalgamated Society of Engineers set up shop in 1852.

It has handled everything capitalism has thrown at it during that time.

There is no reason it can’t handle the challenges we face today - including globalisation and climate change.

There’s no reason Australia can’t handle these challenges either.

People are looking to the labour movement for answers.

They look to us for social justice. They expect us to show leadership.

They want the pains and gains of globalisation and climate change shared fairly.

They want their jobs to be safe and their living standards to be maintained.

These are legitimate expectations, and there is no doubt in my mind that we can fulfil them.

Nothing can quench my optimism about the future.

Nothing can diminish my faith in the power of innovation, science and research to solve just about any problem that comes along.

Bundling industry with these other parts of my portfolio isn’t a way of downgrading it - it’s a way of upgrading it.

It’s a way of underlining that industry is part of the innovation system - part of the solution, not part of the problem.

Innovation is about making Australian industry indispensable to global markets and supply chains by boosting its efficiency and unleashing its creativity.

Innovation is the key to increasing our market share without increasing inequality or exploitation -

Innovation Minister > Senator the Hon Kim Carr

Speech

Senator the Hon Kim Carr

29 Jul 2008

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to reducing unit costs without reducing our material wellbeing.

Building innovation capacity means building our capacity to solve problems.

It means building hope - and remember that hope is the currency of progressive politics.

Fear and suspicion are what the other side deals in.

Our trade is appealing to the best in people, not the worst. It is having faith in the future. It is maintaining confidence.

Because without confidence, without faith in the future, people won’t make the investments we need to maintain prosperity.

And I’m not just talking about investments in physical capital. I’m also talking about investments in human capital.

Business confidence is important, but so is the confidence of working people.

We can’t expect them to invest their lives in manufacturing or any other industry if they can’t see where it’s heading or figure out what the government’s intentions are.

Manufacturing in Australia

That’s why the Prime Minister’s enthusiasm for manufacturing is so important.

That’s why his support for an activist industry policy to attract investment is so critical.

Like me, he understands the value of a sector that employs 1.1 million people, generates 10 per cent of GDP and continues to grow - defying the doomsayers falling over each other to declare it dead.

Manufacturing exports are increasingly strong and reached a record $87.2 billion in 2007.

By way of contrast, mining exports were $62.8 billion last year, and agricultural exports fell 20 per cent to $6.7 billion. (ABS 5368.0 May 2008)

Manufacturing employment is also rising nationally - up an average of 32,300 for the year ending May 2008 compared to the year before. (ABS 6291.0 May 2008)

These are quality jobs.

They are high-skill, high-wage jobs - and skill levels are rising all the time.

As everyone in this room knows, manufacturing jobs are being transformed.

We now have 30 per cent more advanced technical workers and 34 per cent fewer production workers in the manufacturing workforce than we did in the early 1990s.

This is a fact the economics club doesn’t want to acknowledge.

Their argument that we should surrender manufacturing to low-skill, low-wage, low-cost countries like India and China is based on an antiquated view of manufacturing as the mass production of simple goods.

That kind of manufacturing has been migrating to developing countries for the last thirty years - and

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it will continue to do so.

It’s true we can’t compete with textile workers in Bangladesh earning 28 US cents an hour, or in the inland provinces of China earning 55 cents an hour.

We can’t compete with autoworkers in India earning US$1.29 an hour, or in Thailand earning US$2.99 an hour.

But before we slash our wrists, we need to consider a couple more points.

What the economics club fails to realise is that a lot of manufacturing is actually in high-tech, high-skill, high-wage sectors.

And our competitors in these sectors are very often first world countries like ourselves - the US, the UK, Canada, Scandinavia, Western Europe, Japan and Korea.

And by comparison with them, our manufacturing labour costs aren’t high at all.

In fact, if we look up rather than down, Australia is very competitive.

For example, our autoworkers cost around US$33 an hour. In America it’s US$58.

The American figure includes the cost of health benefits, which in Australia are publicly funded.

This is a reminder of how important the social wage is to our international competitiveness.

Ideologues who rant about dismantling the nanny state might want to bear that in mind.

The second point is that labour productivity in Australian manufacturing is high - and it’s been rising steadily for decades.

According to the Productivity Commission, it has more than doubled since the Whitlam years, climbing 118 per cent between 1974-75 and 2006-07.

That translates into an average increase of 2.4 per cent a year, which is better than we’ve seen from:

• mining

• six out of the nine service sectors that have measurable productivity

• and the economy as a whole.

The third and most important point is that we don’t have to compete on price alone.

We can also compete on originality, quality, design, technology, service, creativity, product safety and environmental responsibility.

If developing countries have an edge in low-value, low-tech segments of manufacturing, it’s time for us to move into high-value, research-driven segments instead.

If we can’t win the race to the bottom, it’s time we aimed for the race to the top.

The race to the bottom means cutting wages and destroying job security. The race to the top means increasing prosperity and sharing it equitably.

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Instead of asking ourselves how we can match India and China, we should be asking how we can match the best in the OECD.

Manufacturing in many OECD countries contributes 20 per cent or more to total value added - twice as much as it does in Australia.

That includes countries like Sweden, Austria and Germany, where manufacturing wages are higher than they are here - and countries like Finland, Japan, Ireland and Korea, where they aren’t much lower.

Each of these countries has been able to maintain manufacturing capacity by investing in new ideas and technologies - and by pursuing activist industry policies.

For example, German and Italy have stayed competitive in TCF despite paying their textile workers considerably more than we do because they’ve developed unique, knowledge-based capabilities - Germany in technical textiles, Italy in high fashion.

That’s what the race to the top is about. It’s about using your brains to carve out a niche you can make your own.

It’s about building industries on the kind of scientific research, creativity and practical know-how your competitors can’t match. Making it work requires a lot of investment.

Gross fixed capital formation in Australian manufacturing was $22.2 billion in 2005 06, but it fell to $19.3 billion in 2006 07. (ABS 5204.0 2006 07)

We need to turn that around.

And if we’re serious about innovation, we need more than investment in factories. We also need investment in research and development.

Manufacturing accounted for two-fifths of all business spending on R&D in 2005-06. That’s an indication of just how important this sector is to our innovation effort.

But it doesn’t mean we can rest on our laurels.

The $3.9 billion manufacturers spent on R&D in 2005 06 represented only 1.1 per cent of their sales. (ABS 8221.0 2005-06 and 8104.0 2005-06)

Overall business spending on R&D that year amounted to just 1 per cent of GDP, against the OECD average of 1.5 per cent. (ABS 8104.0 2005-06)

There is plenty of scope for improvement.

Reviews

It was in order to drive improvements in our innovation performance that I launched reviews of the National Innovation System, the cooperative research centres program, the automotive industry and the textile clothing and footwear industries.

The first three reviews report this week and the TCF review reports at the end of August.

The Innovation Review will identify gaps and weaknesses in the innovation system and recommend

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ways to fix them.

We need to increase capacity, improve connections, concentrate efforts and harness creativity across the system.

That means strengthening the relationship between researchers and industry.

It also means being ready to back good ideas wherever they come from.

Innovation doesn’t just happen in laboratories. It also happens on the factory floor.

Workers have been improving products and processes since modern industry began. We need to recognise and value their know-how.

The government will respond to the innovation review panel’s recommendations with a white paper that will set the policy agenda for the next decade.

The automotive review conducted by Steve Bracks is focusing on innovation, the impact of climate change, access to global supply chains and markets, skills, and government support mechanisms.

Steve has consulted widely, including with the unions.

Professor Roy Green’s review of the TCF industries is similar in scope, and includes a particular emphasis on the social and regional dimension.

We are running these reviews together so we can synthesise what we learn from them and develop an integrated response.

The automotive and TCF reviews will generate ideas about how we can wind industry more tightly into the innovation system - ideas I hope we can apply across the economy.

Other sectoral responses

We believe both auto and TCF have a great future in this country, but only if we act now to steer them onto the high road - where high rates of innovation lead to high productivity, adaptability, quality, wages and profits.

This is the road I want to see all Australian industries taking, and we are already working with specific sectors to make that happen.

To that end, I have established:

• a Steel Industry Working Group

• a Printing Industry Working Group

• and a Pharmaceuticals Industry Strategy Group.

Each of these groups brings together representatives from business, government, the unions and the research community.

The printing industry group is providing ongoing advice, the steel industry group is preparing an issues paper, and I have asked the pharmaceutical group - which includes Dave Oliver - to draw up a plan to increase international investment in local manufacturing, clinical trials and R&D.

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Industry Innovation Councils

My ultimate goal is to establish a series of Industry Innovation Councils covering strategic sectors and issues.

We are currently talking to people around Australia about the make-up and operation of the councils.

The AMWU has been closely involved in the consultations. As always, I value your contribution.

The councils will include innovation leaders and decision-makers from the unions, business, research institutions and government - including state and territory governments.

They will advise me on innovation issues, identify priorities, and foster collaboration right along the supply chain.

The councils should be up and running by the end of the year.

Enterprise Connect

Equally important is Enterprise Connect, a national network of manufacturing and innovation centres giving small and medium- sized businesses access to new ideas and technologies.

I launched this $251 million initiative on the 21st of May, and it is already offering a range of enterprise improvement services across Australia.

Those services are designed to help firms become more competitive, more resilient and - above all - more innovative.

They are based on a certain view of how workplaces should operate - certain assumptions about the value of democracy, the rights of workers, and the importance of nurturing talent on the shop floor, which is the bedrock of the innovation process.

This is a huge advance on the workplace culture WorkChoices set out to create.

By the start of this month, 800 companies had applied for Enterprise Connect business reviews, 82 per cent of them manufacturers.

Enterprise Connect can also help place researchers in businesses with ideas that would benefit from expert input. Once again, it’s all about bridging the gap between research and industry.

By the end of this year, physical centres will be up and running in all states - because Enterprise Connect is more than just a virtual network of consultants.

The centres will act as portals to the wider innovation system. They will be places where knowledge is created as well as exchanged.

I want to thank Jim Walker from Queensland’s QMI Solutions, and the other members of the Enterprise Connect Manufacturing Network Interim Advisory Board, including Andrew Dettmer, for guiding the implementation of this cornerstone election commitment.

Skills

Enterprise Connect is about improving management skills in general and innovation skills in particular.

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But we really need to boost skills throughout the system.

In its submission to the innovation review, the AMWU argued for strengthening the role of VET institutions in knowledge transfer, more incentives to study engineering and science, and more flexibility in the way training is delivered.

The government has already acted on many of these suggestions. We have:

• established Skills Australia

• started rolling out 630,000 extra training places

• allocated the first funds from the $2.5 billion Trade Training Centres in Schools Program

• introduced fee remissions and other incentives for students doing maths and science

• and set up the $11 billion Education Investment Fund to pay for capital works at VET institutions, universities, and university-affiliated research facilities.

Our priorities are:

• giving workers the skills they need to have a real say in the production process

• training up the next generation to succeed today’s ageing industrial workforce

• and developing the new skills needed to run increasingly knowledge-based industries.

Climate change

We will also need new skills to run a low-carbon economy.

My starting point on climate change is that it’s everybody’s problem.

That means everybody must contribute to the solution - not just Australian industry and industrial workers.

Our Carbon Pollution Reduction Scheme has been designed to achieve maximum reform at minimum cost, while maintaining living standards.

It has been designed to ensure that unavoidable costs are shared fairly. We don’t believe saving the planet should mean compromising social justice.

That’s why we are setting up the Climate Change Action Fund and the Electricity Sector Adjustment Scheme.

The action fund will focus on industries that need help adjusting to the carbon price.

It will generate the new investment needed to support new behaviours and reduce our carbon footprint.

It will provide firm-specific support as well as assistance for particular workers and communities.

Firm-specific support could include matching funds for:

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• investments in low-emission technologies

• investments in energy-efficiency projects with long payback periods

• and investments in propagating best practice among small to medium-sized enterprises.

The separate Electricity Sector Adjustment Scheme will deliver support to coal-fired power generators, their workers and the regions that depend on them.

Both initiatives will build on programs offered through my portfolio, including Re-Tooling for Climate Change, Climate Ready and the Green Car Innovation Fund.

The $500 million Green Car Innovation Fund will help our car industry make the transition to a low-carbon future, and keep automotive jobs and skills in Australia.

Toyota’s decision to build the hybrid Camry here - assisted by $35 million from the fund - is a critically important first step.

The $75 million Re-tooling for Climate Change will offer manufacturers grants of between $10,000 and $500,000 to introduce energy-efficient production processes, small-scale co-generation plants, water recycling schemes and similar initiatives.

The program will meet up to a third of the project cost and be open to firms with group turnover of less than $100 million. Climate Ready - also worth $75 million - will offer firms creating climate change solutions dollar-for-dollar grants of between $50,000 and $5 million to support research, development, proof-of-concept and commercialisation activities.

It is my pleasure to announce that Re-tooling for Climate Change will be open for business from the 8th of September - and that Climate Ready opens for business today.

My portfolio is also leading the national research effort on climate change adaptation and mitigation - through universities, CSIRO and cooperative research centres.

One focus of that effort is on carbon capture and storage.

In fact, the government is making a huge investment in clean coal, which is critical to generating the base-load power Australian manufacturers and Australian households rely on.

If we’re smart about this we can achieve great environmental results and great economic results at the same time.

The future

Which brings me back to innovation.

The answers are out there, but if we want to find them we have to get individuals, institutions and sectors working together.

We have to create an innovation system that works as a seamless whole.

And we have to get organisations like the AMWU involved.

The AMWU and the AWU are both represented on the Enterprise Connect Manufacturing Network Interim Advisory Board.

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Unionists have also served on our review reference groups.

Union participation is vital to our ad hoc industry working groups and will be just as important to the proposed Industry Innovation Councils.

As far as I’m concerned, it’s essential that you have a seat at the table. It’s essential that we talk and listen to each other.

They tell me I’m the first federal minister to address this conference since the Keating years. It’s an honour, but we can’t let communication break down like that again.

It’s time we got some balance back into the policy development process, which has been distorted by neo liberal orthodoxy for too long.

My goal is to forge an industrial compact that will lift productivity and prosperity.

That won’t happen unless everyone who matters is involved - the government, employers, the research sector - and the unions.

There is a high-tech, high-growth, high-employment path to a low-carbon economy.

But that path has to be paved with new investment.

Investment in existing industries.

Investment in new industries.

Investment in skills, science, research and innovation.

That’s my program for Australian manufacturing.

I need you to be part of that program.

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