WEST AUSTRALIAN CHAMBER OF MANUFACTURE~ S
1970 ANNUAL DINNER
PERTH, W. A. 0 APRIL 1970
Speech by the Prime Minister, Mr. John Gorton
Mr. Chairman, Sir David Brand, Distinguished Guests and Gentlemen:
Thank you very much, Sir, for that introduction, and thank you
for the opportunity that you have afforded me to speak tonight to this
very representative gathering of Western Australians.
I don't think there is any point in my detailing to you that which
you all know so well and that is the great and exciting changeO. that are
taking place in this part of Australia. Let us take that virtually for granted
because indeed I suspect you know more about it than I do, though I think
I know a great deal about it, particularly about the iron ore developments
in this State. Yet, we know this, and your menu tonight in capsuled form
shows that one thousand new factories have been opened here in the last
five years and that alone is an indication of what is happening here and all
throughout the Commonwealth of Australia.
And so what situation do we reach? What economic poosition do
we reach as a result of this surge of development in secondary industry,
in minerals not unfortunately in primary production, though the increase
is there but not the return but what do we find now economically as a
result of this? At this stage we see in Australia that we have reached an employment
situation which we have not known since 1965, the situation where we
have absolutely full employment, in my view, and indeed a situation where,
on the statistics, there are more jobs available than there are people to fill
them, a tight labour situation indeed as I do not have to explain to anybody
in this audience. In the field of home construction ( I am going througi' all those
indicators which show the sort of state that an economy finds itself in)
one of the tightest labour situations since 1965, one of the most obvious
booms in housing construction and other construction that Australia has ever
known. Motor registrations rising year by year to an extent not previously
even expected by the motor industry itself. Consumer spending rising
quite high, hire purchase debts increasing, wages rising by some 9 per cent
or so this year.... all of them indicators that in normal times, and in the
past, one would have expected to lead to be indications that there was a need,
if inflation is to be avoided, for demand to be reduced. ./ 2
And yet we find, looking at the obverse side of the coin that the
cost of living index this year is rising at the rate of about 3 per cent which
is not unbearable as long as the rise does not continue to accelerate; which
is surprisingly low compared with all the other indicators that I have given.
We find that capital inflow having dropped off in the early part ode the year
is increasing again because of conditions overseas. We find our reservesi
not falling but beginning to rise, and we find our overseas trade balances
showing most healthy balances in our favour. And, norm-ally, in the past the
original indicators that I would have shown would have led people to expect
that overseas trade balances would fall instead of rise, and overseas reserves
would fall, and so there is an economic difference here from anything we have
seen before in our national life.
And because of these differences, and because we are going to have
this year what we aimed for, and that is an internal surplus of at least
$ 500 million, and because there have been some measures talcen to reduce
the demand for money by increasing the price that has to be paid for money,
because of these things, I believe it unlikely that the indicators which one
would have thought would lead to inflation, will in fact lead to such inflation
at least during the balance of this financial year.
At that time, when a new Budget is being looked at, then the
situation must be looked at anew; but it does appear that in spite off that
prosperity, in spite of the housing boom, in spite of the tight employment
situation, that so far we are being enabled to avoid an irilation which must
eventually be avoided. And this is due, to some extent, to the changing
pattern of production inside Australia itself.
We have in the past lived on primary produce, on the sheep's
back during all our formative years as a nation, but last year, I am told,
on the figures, rural produ ction was 51 per cent of earnings, minerals
23 per cent and manufactures 18 per cent of our earnings. And last year,
the mineral exports of Australia, for the first time, brought us in more
than the greasy wool crop of Australia, and within the next few years,
Western Australian iron ore production alone will bring in as much as
our entire wool crop. Western Australian iron ore production alone;
leaving other minerals in other States out, is estimated to bring in as much
as that crop on which in the past we have entirely depended.
This is, I think, a dramatic illustration of the change of Australia's
economic orientation, From this growth so far, from this change in pattern,
enormous opportunities are going to open up throughout Australia, given
a Government which is prepared to be unpopular as we would be prepared
to be unpopular if necessary, by ensuring there is no inflation,. given that
kind of stability, then there will be enormous opportunities. / 3
I want to examine just some of the things which are involved in
the accelerating growth in the future, which I believe that we can expect.
I want to examine it against the background of overseas investment in
Australian industry, in Australian mining, and of Australian participation
in Australian industry and Australian mining.
Let me at the start set out the Government's positior: n regarding
overseas investment. We believe, indeed we know and I am sure you know,
that it is impossible to generate within Australia the amount of capital that
is going to be required if we are to proceed to develop at the rate which
history demands we should. If we are going to increase our industrial
capacity, if we are go-ing to increase the rate of our extractive mining
industries, if we are going to increase the processing of the minerals,
then we cannot within this country generate the capital which is required.
So we welcome and encourage and want overseas capital in enterprises
in Australia. Let us make that quite clear from the start and from the
beginning. Having said that, I still think that we should bear these things
in mind. Our motor vehicle industry in Australia today, important to our
economy as you would agree, is 90 per cent owned and controlled by
overseas capital. Our chemical industry in Australia today is 75 per cent
owned and controlled by overseas capital. Our electrical and
electronic industry which will play an even more important part in all
branches of industry in the future, is over 50 per cent owned and controlled
by overseas capital, and the alumina and aluminium industry based on
deposits of bauxite which perhaps may be the greatest in the world is
almost 100 per cent owned by overseas capital. Let us bear this in mind,
not in the sense that this is bad in itself, not that this does not bring us
benefits because it does in many ways. You and I are 50 per cent partners
in all these enterprises L icause of the company ta-:.*. hat you and I collect.
Not in any sense saying ., hat this is bad, but recog,:.: sing it and putting it
in our minds as a fact of life.
We hear on all sides people saying most of Australian industry
is owned by Australians and controlled and operated by Australians, x per
cent of factories is so owned. And so it is, but that is not the point. The
point is what is the size of those factories, in what fields of enterprise are
they engaged. And again, for background and to keep in our minds, the factories
with under 50 employees are ' 46 per cent, only 26 per cent owned by
overseas capital. Over 50 employees 34 per cent by overseas capital.
Over 100 employees 37 per cent. Over 500 employees 43 per cent.
So the larger enterprises, the larger the factory, the more likely it is that
there will be this control or this ownership from overseas. And perhaps
in more definite terms and perhaps again to put in our minds what in fact
is the case before we draw inferences from it but just what in1 fact is the
case let me trespass on your patience a little by giving some examples
of actual foreign-owned or majority foreign-owned companies in Australia,
some examples only which I have culled from a much longer list and which
I have sought to distribute over various fields of industry. ./ 4
We find in this list such household words as GMH, Ford, Chrysler,
ICI, Union Carbide, Heinz, Kelloggs, Frigidaire, Hamersley, CRA, Alcoa,
STC, Philips, Vicars, Caterpillar, Massey Harris, Colgate, Portland Cement
and others which I won't go on with because I merely sought to indicate some
pointers on this list. Now, all that has been good.
All right, as some people do, to attack GMH, for example and
say they have a 100 per cent owned company in Australia and they built up
with the profits they made in Australia, but you must look at the obverse
side of the coin, too, and realise all the smaller factories which have
come into being as a result of GMH-, and which are providing GM/ H with the
spare parts or which are providing them with services of various kinds,
and you must take into account the export drive which GMI-has made I
don't say it is better than Ford or Chrysler but I am using it as an example
which they have made to contribute to the Australian economy.
These are not one-sided things I am trying to put. I am not
trying to say this shouldn't have happened or isn't good f'or us. I just want,
as a preliminary to what I propose to say later, to show that these things
are in fact happening. And they may happen to a greater extent in the
future in this era of opportunity that is opening up.
In the last five years, which we can take as an indication of the
next five years, we had $ 18, 000 million invested in industrial enterprises
of all kinds in Australia. That is $ 18, 000 million from all sources, internal
and external. And of that $ 18, 000 million, one-sixth or 000 million
came from abroad. Ten years ago, investment from abroad was $ 388 million.
One year ago, it had risen to $ 967 million. And in ning, particularly, thereis
this pattern being reproduced. Five years ago, overseas investment was
$ 34 million, It has risen on the last figures 1 say, to $ 244 million, which
has been accompanied by a rise in overseas ownership and control of
minerals. Indeed, the control of production, the Australian co: n. trol of
production in minerals has dropped from 63 per cent in 1963 to 47 per cent
in 1967. And this process probably will continue, given the facts I set out
at the start, that if we are to progress as fast as we must, then we can't
generate inside our own community enough savings and enough f-inds to
allow this to happen.
Now I said that this was not bad. I said that on balance this was
good, and I believe it to be so, but surely there must be a requirement to
see, in this situation, that as much of the new development as is possible,
without turning away overseas capital, without impeding its inf-low, that
as much as is possible remains under Australian ownership. The
Government has taken that view, and we have taken various courses to
try and see that it would happen. 0 0 0
We have first indicated our views, our desires to overseas
companies and to overseas governments-that there should be an opportunity,
as far as possible, for Australian participation, for Australian ownership,
for Australian management and for Australian control not said that we
would force this, not said this would be a legislative matter, not said that
we would bring in regulations, but said this is what the Goveryrinent would
like to see, and it has had a r ' esult from responsible overseas companies
of stature. The result has been that there has been more offering to
Australians of equity in new developments in this country. If we can't take
them up, that's too bad, but the offerings have been made.
We have brought in a system of guideliie s which manyT of you
gentlemen will know about on the borrowing in Australia of fixed interest
by overseas companies, wherin we have laid down that let us use this as
an example, 20 per cent ot total new funds to be put into industrial
development, 20 per cent only can be borrowed in Australia by an overseas
company; but given an incentive to overseas companies by saying " if
there is more than a certain proportion of Australian owinershib in your
company, then you dan borrow more than that 20 per cent on Australian
markets on fixed interest, and this is a real incentive because the
interest rates here have been so much lower than they have beep. abroad.
And we have indicated that we should restore the benefit of allowiing
convertible notes to be issued by companies, so that those Australians
who have money to invest and who must get a return on that mo-ney in
order to live, will be enabled now to invest it in a company krnowing
that they will get interest on it and knowing also that they will have an
opportunity at the end of a fixed period of years to translate that fixed
interest investment into equity in the company in which they invest. All
of these things were done for the purpooe of giving more opportunity, more
incentive, more chance of the greatest possible Australian ownership
and control of Australian industry.
Now, we propose to take another step, and we propose to take
it for the same reasons. We propose to establish an Industry Development
Corporation of which many of you might have heard. I cannot go into
details of this yet because the detailed bill has not been introduced to
Parliament, but I can discuss some of the questions which this proposal
has raised and I can give the reasons behind this decision and what we
hope this decision will lead to. a 9. / 6
We believe that there are important areas of Australian industrial
activity in which the potential financial requirements in the developing years
ahead are not completely served now and, as we think, may not be able to be
completely served by existing financial institutions. For exam-ple, in the
mineral field alone, which must in the nature of things take a prominent place
in all questions of Australian ownership, experience shows that in the extraction
and the subsequent processing, particularly t he subsequent processing of basic
material resources, there is overwhelming foreign ownership because of
the enormously high capital required in this field.
And leaving that field, coming into secondary industry generally,
we think that new scientific developments, new technological developments,
new knowledge as the frontiers of knowledge are pushed back, are going to
lead to capital needs which industry has not in this country hitherto known.
We think that in many fields of n-anufacture, Australian enterprise must be
much more massive than is the case in much of Australian industry, if there
are to be economies of scale to enable that industry to compete on a world
market and to compete in Australia with overseas industry wit'a a minimum of
tariff protection. In other words, the industry must grow to be comparable with
a massive world industry if it is ultimately to be able to compete and the
capital requirements of this are going to be most significant.
And we believe that it is desirable in these fields which I have
mentioned to aim at such co mpanies, whether they be new processing plants,
whether they be industrial companies which are going to be developed, to
aim at their development, while still retaining as much Australian ownership
as it is possible for us to have. Now, at present the statistical facts show
that this is not happening, and it is not happening for one of two reasons.
Either there is not a will on the part of industry and owners of
industry to retain ownership in Australian hands, and I discount that because
I believe the will is there, either there is not a will or there is an inadequate
opportunity to obtain the capital required and at the same time retain
Australian ownership. Well, at any rate, statistically, either one of these
factors is operating because more and more of our industry is passing into
foreign control. And we haven't had in the past enough policy on this, and a policy
saying that the primary purpose we must have is to enable not the prevention
of the inflow of overseas capital, but the retention of the maximum Australian
ownership. This has not been a policy and it seems to me that Australia
has lagged behind in the past. / 7
Sir, it is towards filling this very significant gap in our policy
that the Industry Development Corporation is intended to be established.
I think it clear that the phenomenal pace of industrial development in
Australia over the last ten or twenty years has been facilitated by that
huge inflow of capital which has brought with it technical skills and access
to overseas markets of which I have spoken. And let rile reiterate we
recognise this as a government, and we approve it and we want it to
continue. But there is absolutely nothing connected with the iLdustrial
corporation we propose to establish which will in any way inhibit or
firghten off or prevent the inflow of this capital in this way. Vat it will
do, we hope, is as an Industry Development Corporation, be able to
give assistance to Australian industry, a particular Australian industry
when, and only when that assistance is sought, when and ordly when that
assistance is sought to help such an industry to obtain the capital it
needs from overseas without having to take in an overseas partner in order
to get overseas capital. In this way, we will not stop the inflo. of overseas
capital because the object of the IDC is to borrow overseas itself. We will
hope to make available to an industry in Australia which wants -o develop,
the capital to enable it to develop, if it asks for it, if it is a good business
risk; and retain its full ownership in Australian hands.
I think, Sir, that too many Australian industrial enterprises
which are growing and have grown, have run into limitations in the past
on the ability to raise capital. They have had, in order to obtain capital
to borrow, to break in a partner who can borrow abroad, and resolve
the dilemma of being unable to raise the capita) themselves in Australia
or overseas; to resolve that dilemma, they have taken in as partners a
company which can raise that capital, but which is foreign.
I think that hardly a week passes, Sir, when we don't read of
an important and growing enterprise which for one reason or another has
been taken over by an industrial concern from abroad. Now, again let
me make it clear that takeovers and mergers are not necessarily bad.
They can be good in many cases they are good. They are part of a
normal business scene, maybe part of the process of an industry developing,
growing up, becoming more efficient; or it may be that a joint venture
between Australians and foreign firms may be a desirable step in Australian
industry development and the opening up of overseas markets to an
industry. All these things are true. But it is also true that it is frequently
an unfortunate feature in the pattern of such arrangements that when the
Australian partner can't get his share of the capital requirements, whether
equity or loan, he will at best become the minor partner in the new
enterprise that results. We wish, not to stop the new enterprise, but to
enable the Australian partner to be not a minor but an equal partner in it,
by helping him to borrow abroad through the IDC. / 8
Sir, that there are great resources of capital overseas willing
for investment in Australia, surely nobody has to prove. It is therefore
either equity or fixed term lendings, and the facts of the capital inflow
into Australia themselves prove that this is so; just as the fact that the
high interest rates required for such capital do not prevent it from
being borrowed by such firms, for examiple, as Hamersley because, on
a business judgement, it is possible to pay that for the capital a-nd still
make a profit. I am sure nobody doubts that these firms that are
borrowing it will do this. The capital is there, but is riot available to
small firms. It is available to Hamersley. It might be available to
BHP, to GRA, to Utah, to Comalco, to some world-wide company of
great stature and great standing, but it is not available to a relatively
small company. An industrial corporation established in Australia can have
the stature and the standing of a great international company and can when
approached by an Australian firm a relatively small firm, act for it.
It will act for it under the control of a board of directors, predominantly
drawn frxom private industry, in due course, to retain all the benefits
which that capital has brought irn the ownership of that industry itself.
This must surely be a proper objective. This. must surely be another
step in retaining as much as we can of our ownership and of our control.
This must be a help to the developmeint of Australian firms, and it must
surely be obvious that it cannot in any way interfere with that continuing
flow of overseas capital to overseas-owned firms % h ich we still want to
continue along with this. This is the last step that the Governmrent has
taken, along with indicating its desires, with its borrowing guidelines,
with its convertible notes, this is aiother step along that path.
And I hope, gentlemen, that it will commend itself to the thinking
of most people. It has been attacked by people who do not understand it,
who have been misled by initial press reports about it. But bear these
major points in mind it can only act when it is asked to act; it cannot
interfere with a company; it will be by law prevented from getting an equity
share in a company which will control that company; it will by law be
required to divest itself of any equity it gets in helping an Australian company,
as soon as it is clear that that equity can be disposed of on the Australian
market to Australian buyers; it will only act when asked; it will mobilise
funds which Australian industries of small or medium stature cannot
mobilise for themselves. And it will do it in a way that the Resources
Development Bank and other institutions cannot do, because the
Australian Resources Development Ban.%, important as it has been, has, in
fact, as an institution owned by the trading banks, been mobillsing / 9
9.
Australian capital to great effect and to great benefit. Some $ 250 million
or more has been mobilised inside Australia from Australian Lsources, almost
nothing has been borrowed from abroad. And, indeed, it is not altogether
surprising because the Australian Resources Development Bar.-, is a bank
and is subject to banking requirements, and what bankcs pay for deposits
is not comparable with what many industries pay for capital, and indeed
not comparable with what Eurodollar market requires to be paid for its
capital. Further, by the very nature of banking, certain risk enterprises
do not commend themselves very much. But whatever the reasons may be,
the pragmatic fact is that there has not been the borrowing by this great
and effective institution, there has not been the borrowing abroad that we
seek to get now. And this, I think, will get capital to the great goo Of
Australian industry, to the ultimate saving of some interest which would
have to be paid overseas, the ultimate saving of dividends that :-ight
otherwise have to be paid overseas, and yet without in any wiay interfering
with the flow of capital we need as well. We are merely seeking to see
that if it is unnecessary to pay a high price for capital from abroad for
development, then we don't have to pay that price and that is the objective
of the IDG. If it works and if the development expands and accelerates in
the future, as I am sure you all believe it will, then in ten yean,* time,
I think we will be able to look at it, and say this has served Australia as
well as that other institution which was attacked in the same way at its
beginning and I refer to EPIC as well as that other institution, EPIC,
has served Australia, and Australian industries and Australia:--manufactures.
I thought I would take this opportunity of speaking to you and
proposing the toast of secondary industry, to set out, necessarily in a
brief form, the approach which the Government has in these Matters not
a chauvinistic approach but a business-like approach, which we have
taken, and the thinking underlying the next step we propose to take.
I hope, gentlemen, in the years to come at gatherings such as
this, when people rise to talk, it will be no longer necessary to speak,
because events will have proved the success of what we are now setting
out to do for industry, and, as we believe, for Australia.