PRIME MINISTER
ADDRESS BY THE PRIME HINISTERr THE, R( ON P J KEATING, XP
TO THE INSTITUTE OF COMPWIE DZIECTORS r MELBOURNE,
OUNZ 1992
Z KO PROOF ONLY
Well thank you very much Brian ( Loton), ladies and
gentlemen. it is a pleasure to speak to the institute
again, I have now had a happy association with It over
nearly ten years and I used to assiduously atteand your
funotions at Lenader, I think is the name of the place, when
I was Treasurer, and I always found miembers at the Institute
to be interested and enquiring and open to argument, and
when you are in public life that Is the only audience that
you basically warm to. So I appreciated, first of all you
asking mes and for coming in much numbers.
I thought I would, today, talk to you about Australia In the
broad, about the economy, about our-society adstart with
making a few refierence to Victoria. You don't need to be
an economic analyst to know--that Victoria has been in a
severe state of recession, of down-turn and on the
unemployment figures we saw last week, Victoria and South
Australia are the two states where unemployment is
continuing to rise. This is not so around the rest of the
country. tn the graphic illustrations of employment, in the
statisticians release lost weak, we saw New South Wales with
the rise of unemployment, and then it coming of f, the same
also In Western Australia, in Queeneland plateauing but in a
much lower level than In any of the other states. And one
could reasonably assume that it, Queensland will feel the
recovery again earlier and more strongly than some other
places. And so the pattern In that in New South Wales,
Queensland and Western Australia we are seeing a recovery
more evident than we are seeing in Victoria and South
Australia and we are seeing a deoline in unemployment arnd a
pick-up in employment growth in those three states, but not
so here and not so in South Australia.
Now, what is the reason for that? Well it is very hard to
say and I know many people have sought to ponder that
question, but I think the answer is that we are seeing
structural change and cyclical decline, we are seeing a
decline in the Victorian employment base coming from the
cycle, and we are seeing a structure shift as the whole
economy changes from what It was, and that was en economy
where which was largely protected and where w6 hadn't the
kind of Sophisticated Industries which we are now starting
to soo emerging.
I think there are a number of other reasons why Victoria is
languishing. I shall just go through them. I think the
first is, the 1980s notion that you could build employment
off public sector spending, which In the end of course is
unsustainable, secondly the debt hangover, which you may
say, well it hangs over other states, I think I would bay it
hangs over here moru particularly and even some of the
businesses which may be known to headquarter themselves
elsewhere, but financed out of Victoria, the problem of
Stat, Banks, the problem of State Banks In the Institution
of banking these days, end seeking to find themselves a
place by being bankers, if not of last resort, near last
resort, and the problems which has come from that; and the
cyclical movement away from mfanufacturing, as I mentioned
earlier; and the labour hoarding which wa6 promoted by
lower labour costs in the 1900s. 1 think the combination of
l@ ovur ' hoarding from low labour cost* in the 1960a and also
public sector spending In Victoria ink the 1980s, had
unemployment here in victoria, to its lowest levels in the
Commonwealth in 1988-89. Levels that many of us thought
were unsustainable and that I think because of the fact that
Victoria was primed, pumped primed and then supported by a
very ambitious financial sector, that the decline in the
economy which hbucU ome from the recession, plus the
structural shift, meant that the Correction in Victoria has
been more pronounced and more profound than it has been in
other states.
well I suppose the question Is where do we go from here.
Well I think the first piace we go from here ise the recovery
In general. And we are seeing the recovery, in the three
quarters to March we have had Just upon two per cent of nonfarm
GOP growth. Now the budget has a forecast of 2.7 per
cent, which would mean we would need .7 In the June quarter
we may get It, we may not. flvt the economy is clearly
growing again. And I notice today that the business Council
of Au~ tralia or yesterday made a release which didn't rate
that well in the newspapers, but It said; the Business
Council considers that the economy is recovering, employment
opportunitias well improved as a recovery becomes more
broadly booed, this will only happen If the Government
continues to lock-in low inflation and pursues microeuonomio
reforms. The Business Council seem a consistent
pattern of signals for recovery and economic activity over
the next six months In its survey of member companies. And
it goes on, signs of recovery and economic activity over the
next six months are indicated in the 6urvey. in particular,
the majority of respondents expect Increases in Volume of
sales, exports and revenues, there hag been a signif icant
increase In the number of responbdents Intending to Increase
stocks and nearly half of the Manufacturing respondents have
upgraded pilans for capital expenditure. I think we should
believe, reasonably, that a rooovery of substance to coming
through. go that is the first thing about where do we go f rom here.
As that general recovery comes through it is going to pick
up, in part, Victorian commerce and Victorian activity the
same as It is the rest of the economy.
2 think secondly, we have got to push the restructuring on
but get the volumes up. The now efficiencies which are
coming in to industry, because the downside of those new
efficiencies iS higher unemployment, the upside Is of
course, greatly enhanced productivity. That from those new
efficiencies we should be seeking to build volume and
employing people in businesses with a greater volume base,
albeit businesses which are more efficient* And Instead of
seeking, as some people do in the debate, entrenched
inefficiencies, In the belief that volumes will be held
constant, but where in reality volumes will be slated to
die. Now perhaps an example of that is in the motor
Industry in this State. We are seeing the Ford Capri
exported to the United States, work for people at the Ford
Plant that would not exist In the old motor Industry. We
are socin? the Toyota motor company establish a $ 400 million
stae-f-e-rt plant, in part to export that vehicle, that
Is the Toyota Camry. And we are seeing now engine
praduotion, for export we would not have seen some years
ago. in other words, the plants may not be employing the
number of people they were employing in the 19809 but they
now have an economic future, both at home and abroad that
they would not have had, We are still producing In the last
12 to 15 months or even in the highest times, a year or so
ago, two years ago the same number of motor vehicles we
produced In 1973, because there is simply buyer resistance
to price, people won't pay the price to turn their car
over. So if we are seeking to maintain an industry, built
on a high-cost, low-efficiency basis of production and hope
that by some, if you like, staging of that, come pause in
the structural shift, that that will maintain employment in
the State of Victoria, don' t think that is true. So the
new efficiencies have got to be pressed on with, but we have
got turn it into bigger volume$, And that simply meant
focussing again on exports as well as tha domestic market.
The third thing I think about where we go from here; Is
defitiliq the role for Government In making markets work.
And I put that in contradistinction to the 1980s Victorian
view, which was for the Government to be a market itself,
because It Is no stcret to any of you, that I argued over
this point in the 1980s. There is a role for Governments in
making markets work, we have seen it in the One flation
eatement, which Brian referred to In his introduCtory
remarks. In estab. lishing a new national rail highway, which
can Only be done by Government, trying to make the transport
market, or the transportation market Work, LA~ a better
interface between the ports and rail. Or separating power
generation from distribution, tojproduce a true market for
electricity. This is the thing abut the role of Governmrent
and the DCA retor& to it yesterday in its release talking
about micro-oonomic reform, that Is keeping the changes
coming through, again in contradistinction to the New
Zealand approach, now adopted by my political opponents,
where you basically turn the œ lam-thrower on the Industry,
we have some sort of gigantic national funeral pyre, " n
from the ashes emerges some phoenix even though we know that
market force@ alone won't change the rail system, because no
private Interest will Invest In it, or the ports or the
power generation, etcetera.
So I think those things: press on with the recovery; press
on the with structural change In the efficiencis; get the
volumes up; get the Governmient in there to break the lo-g-
Jame in the market to get the efficiencies moving; anid try
and keep the economy together and the community together in
a sort of commitment to the change In general.
Now we have heard a lot said about comparative advantage,
and there is a lot of literature published In recent years
about it. But It seems to me we have a number of
comparative advantages In this country. There are at least
five that one can think of: there is resources and food;
there is space; there Is a trained workforce; a high
quality Government R& D base, if not a private ML bse; and
proximlity to the Asia-Pacific: they are all things which we
hove. Of these we all know about resources and agriculture, we
have all been brought up on those industries, that is
knowing about them. We know about a trained workforce, but
we are only just learning the value of It, how to use it,
and how to build it. Because In the post we have put too
low a premium on that training and our trained workforce is
in a stote of decline. It Is now changing, rapidly. This
is good for us. In 1983, only three children in ten
com~ pleted secondary school, this year that is nearly eight
in ten and we have now created In since the iniddle-1980a
120,000 univerbity places, or the equivalent of twelve
cnpuses to take 40 per cant, just on 40 per cent of that
stream of kids out in to universities. we are just a jot
behind the United States In university places, as a
proportion of the schooling, those finishing compulsory
education and way ahead of most OECD countries. But we have
been poor at the next stratum of our educational system,
which is training and vocational education. Where we have
got ki~ ds cascading out of school into the milk-bars, railway
stations, shopping mall plazas, instead of In to a properly
structured vocational education end training system.
we have always though of trade, I think trade and vocational
training as something not really going on beyond
apprentIceships or riudiimentary skills. The notion that
adding value and sophisticated manufacturing or
sophisticated services, required Sophisticated skills and
that you couldn't develop one without the other, Is really a
late development in our national thinking, but a development
we nkow have to press on with. And It is not the answer to
go back to dead-end jobs, as John Howard would have us do,
but to leave that behind and continue with a ski lls based
workcforce, an education system that takes kids beyond that
sort of unskilled area we had In the 1960a and 1950s, In to
skills jobs which we have shown they have been able to got
when the economy Is growing.
Go : think we have to take the view that It there In any
resources boom in the future, It is not the resources boom
that Malcolm Fraser and John Howard had in mind, of digging
up) enother mound of minerals, or growing another paddock
full of wheat, but a boom in intellectual resources, which
we have at our hand, but have been, to date not fully
prepared to utilige. And that is of course using the skills
of our children.
Now the legacy of the lost year. of opportunities Of the
1970s was a nation unable to pay for its imports, and a
nation with disappearing dead-end jobs. And so we have seen
a rise in structural unam.. 2oye-t, which has been cis most
apparent in this state as it has been in any other state.
The lament should not be to go back to It and try and hang
on to it, but again to press ahead with the skills based
Change of new efficiencies in industries and to get the
volumes going.
Now I wanit to put this % heme to you because I have got now a
very aggressive opponent and there was a time when I was
very genteel at these sort of meetings, and If it is just
after an election I think you are entitled to a couple of
years of a very haughty diet of thoughts, but with in
proximity of a poll I think some political factors ought to
be brought to mind. But I want to put them in this
important eo~ ial and economic context. I don't believe that
we can produce the kind of country we are now in the course
of developing; that to one with an external orientation,
where a premiiumi is going on skills and research and
development, in product innovation, in exports, in import
competiLloa, exploiting the proximity of the Asia-Pacific, I
don't believe that you can develop that sort of country from
the stale mineral, agricultural reliant, low training, low
levels of participation education base from the 1970s we
have come from, without getting basically national
commitments to these things. So what I am maying to you is
I don't think you can run the place without some sort of
consensus approach. Now whether you want to call it
consensus or consultation or co-operation or tripartite
commitment, uall it who% you like if we want to take
ourselves from the industrial museum, the Coalition were
happy to leave us In tor the better part of a couple of
decades, an~ d take us to being what we should have always
mainained our~ zlves as; a sophiaticateO economy, where the
premi~ um wos on higher value products and services ani more
interesting jobs, then I believe you have got to have
basically Agreements about those things. Now as you know,
People have said well you have had that With the Accord
process, with a conasensus model developed f rom the 1983
Economic Summit, and the answer to we have. The claim then
made is, It is these processes which have slowed structural
change, economic change. my claim is a counter-claim, that
the change we have been through Is quite profound, " n quite
rapid and could only have been dons In this context. In
other words, the consensus model, the co-operative model hats
allowed change that we would not have had, but I bslieve
change which he@ come more quickly. And that our opponents
view, which is now the sort of New Zealand view or the
Thatcher view, that you basically expose the place to markest
forces and the devil will take the hind-moot, that there
Isn't a job for Government moving to the creations markets,
that there isn't of the Government lifting the participation
market rates in echools, that there Isn't a job for
Government remodelling the training of the skills-based
system of the country, that there Isn't a job for Government
with management pulling that together In to a competitive
whole, I think without that kind of approach we won't be
abla to do it.
Now we have seen It under the Accord, with national income
determination, with the share of national income going to
profits and the share going to wages, with the wage
flexibility we have developed In recent years and are still
now developing, with the anti-inflation consensus, where for
the first time in our miodern history, we have had the
workforce of Australia committed to anti-inflation, low
inflation objectives, the consensus to open the economy up,
to take down the board of protection, to out a competitive
exchange rate mechanism, to live with all the adjustment.
pressures which were implicit in that shift, to a floating
exchange rate and a policy position of positive
discrimination In favour of employment which we saw In the
1980s, when we were doing three times the OECD average in
emiployment growth, is I think the kind of model Australia
needs, and one in which It will prosper.
we are now at the position where inflation, we have beaten
the 20 year legacy of high infladiin, Wi -ooksd at the last
quarter zero Inflation end 1.7 per cent for the year. At
the Premiers' Conference last Friday, when we looked at the
nominal payments to the States and calculated the real level
of payments, the deflator we used, the Inflation forecast of
the CPI for the coming year, was 1.7 per cent. I mean it is
eons since Australia had that position and the maintenance
of those low inflation rates and the attendant inflation
rates that come with it, bill rates of 6 1/ 2 per cent, which
we haven't seen ina a couple of decades, can power on the
next phase of Australia's development. Paul Volker broke
the back of American inflation in 1980, and gave America a
decade of prosperity as a result. But American fiscal
policy and ierican public policy in micro-economic change
did not accompany that kind of shif t, and they have run in
to bottle-necks in their society. That Is the nistekG we
II:;
7
are trying to avoid. But I believe, we will emerge from
this recession to recovery with inflation at a sasinably
low level, with basically a structural budget surplus, even
though It is In cyclical deficit, but returning to surplus
by the middle 19908, with now large changes at the
enterprise level with enterprise bargaining, a willingness
on the part of the organised workforce to change work
practices, and on the part of management, management
practices, and a focus again not on the easy resort to
inflationary profits, but the generation of income, gives . us
a unique opportunity to soore from this shift the recession,
and to take Australia through the 1990a on a sustainable,
reasonably high growth, low inflationary path.
Now, what I put to you is our opponents put all that at
risk. what they are saying, let's have an APPM approach to
industrial relations,
Where an employee an Individual person and a company will
have to agree themselves to opt back into the Industrial
relations system to maintain the benefits of awards
protection. So es federal awards excpire so to does our
holiday pay, working conditions, rates of pay and the rest
and there signed up under common law contracts for
industrial relations purpoases. That will produce industrial
relations mayhem and the anti Inflation consensus we now
have will go out the window as surely as it comes in and s0
therefore I believe this sort of confrontation approach that
ts the simple motion that market forces will fix the place
when we know a lot of the problems are inaccessible like the
rail system, the interface with ports the
telecommunications, electricity, roads in all of these areas
where basically market forcea haven't operated and can't
properly operate without governments being involved or in
training or in changing the nature of TAFE, lifting the
status of our vocational education system, looking at
training wages as we are now doing to employ more young
people than we've employed in recent times. All of these
things can only come by a process of involving employers,
unions, State Government's and Federal Government's because
the State 0overnmuents run most of the instrumentalities the
Federal Government has got macro-economic management, Of
It's essence It is consultationery as we saw last Friday at
the Premiers ConfereefC In trying to got TAFE back on the
table again to look at the national approach. it has to be
a discussion and if we rely on market forces market forces
won't do it because there is not a market working so I think
that 5nlashing the coneensus or smashing a cooperative basis
of working together to confrontationist and a product of
political primatives who don't know how to make the society
tick, that don't know where all the bits of power are and
how to strand it together into a common thread which can
work for Austrelia and its future. So what I think about Dr
H! owson is he is offering no eocial consensus, he is offering
you 8 funeral pyre, he doesn't understand keeping the
society together, he says there to no role for government
and the social consensus In things like the right to
effcrdable education not the right to pay what your parents
can pay for a university piece not the right to go and put
twelve thousand on the table to buy a place In the
university but the right to a university education If you
are smart enough and ommitted enough. The right of access
to medical treatment, a universal right to health protection
a right too often in this country denie4 to the poor who
couldn't afford to worry about their health, Income support
for families of particular low Income families the families
in people in low skilled jobs with children; naturally
income support for the unem~ ployed not tipping them offœ after
nine months and sending them down to St Vincent de Paul
Society or the Brotherhood of St Lawrence or somebody else.
Provision for the aged as the population & ase providing for
them in nursing homes, hostels se-oommodation home and
community care for support at hoaie a decent standard of
living in retirement by national savings put away to produce
a retirement income. These are all the things that can
deliver a more cohesive society a more responsive workforce
and with It a commitment a low inflation enhanced
productivity wage flexibility enterprise bargaining and
basically Autralia coming together in a very cooperative
way. So the Coalition doesn't haye the sophisticated view
and on top of that it wants to add 6 7 percentage points
to the price system from the goods and services tax which
will lift the Inflation rats accordingly. which will not bs
discounted for wages which In large part will go Into
onigoing inflation and then straight away into interest
rates. Because we all know if the Inflationary floor under
Interest rates rises the nominal Interest rate rises and we
are back to those sort of double digit interest rates which
for eo long have retarded our investment and economic
growth. So I conclude on this point and I am happy to take questions
on these points. That basically we thinkc there is role
for goverulit but it Is not the role of the government
being Market. The role for government is to do the things
I mentioned; re-build a national rail network, build the
arterial roads, to establish a decent market for electricity
to exploit that huge comparative advantage of a coal seam
right the way down the east coast of Australia, to give
Australia a decent tourist Industry, to have a rational
airline policy, to develop a vocation and education system
or In even the things which are government In the tax systea
the providers we did In the One Nation statement. Private
provision for public development bonds, accelerated
depreciation for investment in this country, pool
development funds. All of these things I think augur for a
role, an interested sophisticated role for governmnent in
society and rejecting the view that if business people want
to deal with goveriviients want to create a better society,
went to do something good and sensible that basically in
some way they are offending some sort of tenent of economics
of sort of Adam Smith Economics or so john Hewson put it
when the busineas community spoke to us in the One Nation
consultation's he said they were bludgera looking for a
handout not that they were people intereuted In Australia
looking for better national outcomes but bludgers looking
9
( Or a handout. He said he was appled that business was
asking for things, what I say to you Is what business has
asked for in the last decade Is a rational set of policies
the right to a Sensible discussion with Labor the goverrnent
to take notice of the separations of these two principal
groups in the economy and In doing eo while doing so
building a social framework which people in this country
believe will look after them regardless of their eoonomie
circumstances. Now that's the sort of model I think will
pull AUStralia through and while Victoria has languished in
this recession those who want to take us back to those
stultifying days of the early 8os or late 708 of* inefficient
Industries of companies that can never hope to compete and
Just watch even the dead end jobs disappear will be doing
Australia a great disservice and the people that ought to be
listened to are the ones that want to keep a structural
change going who are not frightened by the consequences of
some of the structural change and will keep driving on until
we end up with a society which Is re-modelled wearing some
of the adjustment costs on the way through but coming out
the other side Into a low inflation competitive culture
which will stand Australia Ina good steed, provide decent
levels of employment, higher level of income and more
Interesting jobs. it's basically out there but It Is not
out there If we faltere It is not out there if we doubt it
and it is not out there It we are not sure of our place In
Asia, we are not sure Who we are and what we are and if we
go and exploit the neighbourhood we live Ina and go out there
as a proud competitive people not selling a second hand bill
of goods but something now and Innovative and clever then
there Is a placa for us.
Than~ k you for listening, I will be happy to take questions.