Australasian Science: Australia's authority on science since 1938

Six Steps to a Balanced Economy

By Andrew Liveris

Australia can take six steps to secure its future as a balanced economy, says the Australian CEO of a global company.

Globalisation has been a force for progress, but also for instability. It has upended old economic models. By its nature it favours efficiency, and thus has the potential to create serious imbalance in economies – struggling sectors can become casualties of rapid change.

At the same time we remain, in important ways, masters of our own fate. Nations that want to succeed in the global era need not – indeed they must not – sit back while the forces of globalisation drive them toward economic imbalance. Passivity is not a growth strategy.

Growth requires action. It requires bold and thoughtful intervention.

In Australia, the forces of imbalance favour the expansion of our resource economy, often at the expense of our manufacturing sector. Natural resources are vital to Australia’s economic future, but a robust advanced manufacturing base is even more so – because advanced manufacturing creates higher value-add products, maximising the advantage that our natural resources and human capital create.

Advanced manufacturing takes these raw inputs, combines them with intellectual capability, and develops cutting-edge products that meet the world’s needs – such as water purification, fuel-efficient transportation, solar panels, wind turbines, advanced agro-products and lightweight nanomaterials.

For these reasons, manufacturing has the power to create jobs, value and growth to a degree that no other sector can. It has an enormous multiplier effect, creating between three and five jobs outside a manufacturing plant for every job inside the plant.

If Australia commits itself to building an advanced manufacturing sector, as other countries have, our centres of innovation can become hubs of commerce. They will attract the best and the brightest. They will attract manufacturers who can commercialise products coming down the pipeline. This creates a virtuous cycle of economic activity, a supply chain of sustainable jobs, and the wealth of high value-add products. But again, it won’t happen by default.

There are six steps Australia should take toward building a strong and balanced economy that will be far less dependent on the prosperity of others.

First, Australia has to invest in innovation and R&D – the prerequisites of a vibrant advanced manufacturing sector. You cannot build a manufacturing base unless you build an innovation base alongside it. Yet, over the past decade Australia has fallen from fifth to 20th in the World Economic Forum’s Global Competitiveness Index, largely because our spending on innovation has fallen nearly 25% since the early 1990s. This is a trend we have to reverse.

Australia can fuel R&D by providing tax benefits and direct grants, by investing more substantially in later-stage innovation, especially demonstration projects, and by focusing R&D spending on advanced technologies. The government should also establish clear frameworks for increased collaboration across the industry. Australia must pick the sectors that will be vital to its future and support them aggressively.

Second, Australia must maximise its natural competitive advantages, especially energy. Australia presently burns most of its natural gas for power, or liquefies it for export, but would derive greater value from using it to create high-value chemicals and high-tech products. These products produce, on average, an eight-times value-add across the GDP of the entire economy, instead of the one-time value-add that comes from burning gas for fuel.

Third, because advanced manufacturing relies on access to global markets, Australia should accelerate negotiations with China, India and the Gulf Co­operation Councils to get trade agreements signed with a focus on exporting high-value products, not just resources.

Fourth, to improve its business climate and attract investment, Australia should redesign its corporate tax system to strengthen international competitiveness. It should also re-evaluate financial, environmental and health care regulations to promote the greatest possible measure of competition, choice and growth.

Fifth, improving the climate for business requires genuine partnership between business and government to create a strong framework for growth. The countries that are succeeding in the global economy have all made a commitment to public–private partnership.

Finally, education and immigration reform are critical. Advanced manufacturing jobs are high-skilled jobs that tend to require a background in science, technology, engineering and maths. Global businesses go where the talent is, and we need to make sure we are cultivating that talent in Australia.

We also need to revisit our immigration policy. Australia has a small worker base. To build an economy run by the best and the brightest, we not only need an education system that can produce them, but an immigration system that can attract them.

These steps, taken together, will put Australia on the path toward a balanced economy, and toward the long-term growth and prosperity that come with it. These are grand, ambitious goals, but I am strongly convinced they are within our reach.

Dr Andrew Liveris FTSE is Chairman and CEO of Dow Chemical. An Australian-born chemical engineer, he is co-chair of President Barack Obama’s Advanced Manufacturing Partnership, and delivered the keynote address at the Australian Government Future Jobs Forum in Canberra in October.