PRIME MINISTER
The Right Honourable Malcolm Fraser, M. P.
ADDRESS TO THE CONFEDERATION
OF AUSTRALIAN INDUSTRY
ADDRESS TO THE CONFEDERATION OF AUSTRALIAN INDUSTRY
The following is the edited text of an address
by the Prime Minister, the Rt Hon. Malcolm Fraser,
to the Confederation of Australian Industry
on 12 May1980.
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 in a wide range of industries
to look at their future direction and shape.
Much has already happened in the 1980s 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 1 970s 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 OPEC;
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 our
favourable geographical location; all of these factors
enable us to face a difficult international environment
in a position of advantage and privilege.
Challenges ahead
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 * 1950s and 1960s 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 of key
manufacturing industries. A brisk migration program
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 1960s, industry met new demands in the
1970s. 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 1 970s, came the. energy crisis, triggered by
massive OPEC price increases, followed by a world
wide bout of severe wage and price inflation and
recession. All 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, significantly developed at
the end of the 1960s; 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 make 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 program for promoting this, has
involved investment allowances, export incentives
and research and development assistance.
Strength in industry
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 GDP, to under 2 per cent this year; sought
to contain wage pressures and held the money supply
at responsible levels.
It is also a matter of concern that our political
opponents continue to attack the Government's investment
and other business incentives. Their firm
restatement of those traditional commitments, I believe,
diminishes the possibility of achieving bipartisan
support in matters which are of major concern
and interest to a thriving, prosperous and
profitable Australian business. Our progress in the last
four years, though difficult, has been significant. Our
inflation rate, running at more than 17 per cent in the
March quarter of 1975, was little more than 8 per cent
in the March quarter four years later.
Over the twelve months to March 1980, consumer
prices have risen by 10.5 per cent. 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 twelve months
to February, inflation in the U. S. A. was 14 per cent; in
the U. K. 19 per cent; and the OECD generally over
13 percent.
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 per sent to 20 per
cent. The Statistician's major production series for the
March quarter 1980 compared with the year earlier,
showed rises in twenty-one of the thirty 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 per cent over the past two years.
Income per farm more than doubled to be 75 per cent
higher than in the first few years of the 1970s. All of
this is reflected in the employment position. While unemployment
is still too high, in the twelve 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 benefits for 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 years ahead.
To take advantage of these opportunities, business
and industry in the 1980s 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.
The Asia market
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 of 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 per cent to 12 per
cent 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 11Ip er
cent per annum in real terms, then the opportunity for
Australian industry is significant indeed.
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 $ 409m; in the
last financial year, they were $ 152 1 mn.
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 1970s.
Yet we can do better. Our share of the market in
these economies is only a little over 3 per cent compared
with Japan's share of 30 per cent and the
U. S. A. 19 per cent. Thus, even a small increase which
must be within our capacity, given our present low
base, would represent a significant gain for Australian
exporters. Wi th 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 per cent of
Australia's exports went to East Asia. Twenty years
later the level had risen to almost 40 per cent. By comparison,
in 1958-59, we were selling about 54 per cent
of our exports to Europe.
Today, that market receives only about 19 per cent
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.
Yet, in spite of these already developing trade patternis,
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.
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 which 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 Government's 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 that 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
management 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 ruralbased
industries which in recent years have had to
compete with EEC agricultural products in receipt of
government support in excess of $ 30 billion for the
calendar years 1977 to 1979.
Steel industry record
The Australian steel industry has an even prouder
record in international competition and it has
achieved this in the face of massive subsidies to its
European competitors. For example, the French steel
industry received approximately $ A800m in direct
and indirect assistance from the French Government
in 1979. And the U. K. steel industry received approximately
$ Al250m in producing a little over twice as
much steel as BHP. And despite massive government
assistance to many overseas producers, our manufactured
exports are successfully penetrating overseas
markets. In 1979 Australia enjoyed a 28 per cent 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 programs 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 program of government intervention
which distorts the process of change and locks
capital and labour into unproductive enterprise.
Adjustment to change
Adjustment to change is the weather-vane of industry;
for, in a real sense, change in industry is 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 economidc factors; on
an identification of needs; an examination of costs;
and a capacity to reconcile both of those in a profitable
way. 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.
This is 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, LPG and natural gas.
Energy policies
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 $ 500m in 1980; an excellent recovery
from the state of investment fatigue in the mid
1970s. In 1979, the rate of increase in our petrol
consumption was only half the average of the last five
years and proof of the validity of pricing our oil according
to its value in world markets.
There is one aspect of the energy problem that has
not been emphasised and that is the agreement by
member countries of the International Energy
Agency 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.
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 oil; and if further emergencies were to arise as a result
of shortages in Middle East supply or production,
then the IEA would be entitled to look 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, was 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 Rundle shale oil
project poses a challenge to technology and an opportunity
for Australia to increase dramatically its indigenous
supplies of crude oil, coming on stream
hopefully at a critical time in the production of Bass
Strait 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 aluminiumn industry is already 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 energyendowed
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. 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 metallurgical
processing industries such as zinc and copper.
Human input
To this must be added the human input, the skilled
labour, the development and application of advanced
technology and the entrepreneurial skills involved 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 of equity and fixed interest capital; which
Jhelps Australians to become partners and participants
as investors in our development projects. A great program of national development lies in
front of us. Australia will be capital hungry in the
1980s. Funds will be 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 effective 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
in the provision of modem 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 commi ttee-the Campbell Committee-to
inquire into the ways in which the Australian financial
system can achieve its utmost potential effectiveness.
The Committee has been asked to make its inquiry
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.
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 and 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
that in the years ahead the promise that we now see
will become the progress we all seek.
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