CEDA STATE OF THE NATION 2016
10 OCTOBER 2016
PARLIAMENT HOUSE, CANBERRA
Thanks Stephen and thank you for inviting me to speak today.
I am a big fan of CEDA. It does good work and makes an extremely valuable contribution to the big debates and what should be the big debates in this country.
I have been to a lot of CEDA events – when I was in the private sector, and as a politician. I was actually at the CEDA State of the State Address in Townsville last week delivered by the Queensland Premier.
But this is the first time I have spoken at a CEDA Conference. And it is a real privilege to be asked. So thank you.
I thought I might kick off with an easy question for a Monday morning.
Who do you think is the most important person who has ever lived? And the answer is not Malcolm Turnbull.
Here’s my theory.
I think it’s a musical instrument counterfeiter from Glasgow.
Around the same time Captain Cook landed at Botany Bay and Thomas Jefferson was drafting the Declaration of Independence, this musical instrument maker was tinkering with steam engines.
He didn’t invent the steam engine, but he did improve it. His changes transformed it from an inefficient device for pumping water into something that would lead to the creation of factories, mass production, railways, mass transportation and the emergence of the modern city.
His name was James Watt, and what he did between 1765 and 1776 transformed the world.
Have a look at this: this is a graph of the growth in the world’s population and human development over the last eight thousand years or so. It comes from a great book called The Second Machine Age.
Those little bumps you can see are the rise of Ancient Greece, the Roman Empire and the Renaissance. The massive cliff face you can see on the right – that’s the Industrial Revolution.
James Watt lit the fuse for all of that. That, I think, gives him a pretty decent claim to being at least one of the most important people to have ever lived.
There’s also a pretty good argument that something like this is happening again – right now. But this time it’s not steam engines that are doing the heavy lifting – it’s computer power, it’s the internet and digital technology.
A DIGITAL BANANA REPUBLIC
This week the Singapore Prime Minister Lee Hsien Loong is in town, and thinking about his visit, it reminded me of those famous words of his father almost forty years ago that stung us into action.
Remember back in 1980 Lee Kuan Yew said we would become the “poor white trash” of Asia if we didn’t reform – if we didn’t open up our economy.
We still remember those words today. They certainly stuck in the mind of Bob Hawke and drove a lot the decisions he made.
When Lee Kuan Yew died last last year Hawke said:
“I thought he was right, and his harsh but fair comment helped galvanise my determination to undertake the reforms that would save us from that fate and set us on a better path”.
Thirty years ago this year, Paul Keating gave us an equally brutal assessment of our economic prospects.
He was in the Kyneton in country Victoria talking on the phone to John Laws on 2GB when he said if we didn’t reform we would end up a ‘banana republic’.
Those words caused a bit of a stir at the time. The stock market dropped. And Bob Hawke who was in China at the time was less than impressed.
But looking back now, those words seem like a turning point. They shook us out of the economic stupor we were in.
We finally got it. We had to wrench ourselves out of this bog of complacency. We had to strip away all the things we were hiding behind. All the things we were used to. And we had to change the way we did things. We had to become globally competitive. And we did.
The result was an economic transformation.
An economy now three times the size it was in the 80s. Real wages rose. Living standards improved. Unemployment is almost half what it was in the early 1980s. Inflation has been squashed. And we have continued to grow, when other countries have gone into recession, for the last 25 years. A world record. It is an extraordinary achievement.
What’s the equivalent challenge today?
Well, we tend to spend a lot of time and a lot of column inches on things like tax and industrial relations and fiscal policy. And they are all very important.
But I don’t think we don’t spend anywhere near enough time and energy on the things you’re talking about today – innovation and in particular the digital transformation of our economy.
This isn’t a boutique debate. I think it’s just as important to making Australia globally competitive in the 21st century as Hawke and Keating’s reforms were in the late 20th century.
Smart companies get this – you have to keep up and adapt or you die. You disappear.
When we were kids you took photos on a camera and then took the Kodak film to the chemist to get printed. It usually took a day. If you paid more you could get it done in an hour. In its heyday Kodak used to employ 145,000 people. Now it doesn’t even exist. Instagram does though. In 2012 when it was bought by Facebook it had 13 employees and 30 million users. And Facebook paid about $1 billion for it.
It’s a similar story at Blockbuster. Once upon a time they had 4,800 stores in the US and employed 60,000 people. Now all the company owned stores are gone. There are just a few franchisees. There are no Netflix stores, but they have about 83 million customers in more than 190 countries and the employ only 3,500 people.
Half the companies on the US Fortune 500 list have disappeared in the last 15 years. Most because of this, a sort of digital darwinism.
The same sort of threat that faces companies also faces countries – just on a bigger scale.
Digital darwinism: in the decades ahead it will be the countries that transform their economies the quickest and the best, to take full advantage of the digital revolution we are witnessing, that will be the most successful.
The ones that don’t, or take too long, will be the ones standing at the dock waving goodbye as their jobs and businesses go overseas.
Watching as unemployment goes up, GDP goes down, disadvantage becomes more pronounced and the division between rich and poor grows wider.
It’s a 21st century version of Keating’s potassium prophecy if you like. A digital banana republic.
DIGITAL DARWINISM – US AGAINST THE WORLD
It’s not easy to predict what going to happen in the future, but it’s not hard to see trends. The sort of mega trends you are talking about this morning.
I finished high school just over 25 years ago. In that time the job market has changed a lot.
There are now half a million fewer secretarial jobs than there were then.The number of labourer jobs has dropped by about 400,000. The number of technicians and tradies has also dropped by 250,000. And the number of machinery operators has dropped by 100,000.
By contrast – there are now 700,000 (or 54 percent) more professionals than there were 25 years ago. And there are 400,000 (or 87 per cent) more community and personal service workers.
This is automation at work. It’s not new. It’s been happening ever since James Watt and the Industrial Revolution. Technology destroying old jobs and creating new ones. But the pace is quickening.
CEDA has done some great work here. The report that you produced on this last year I think was very important.
It predicted that five million jobs that are currently being done in Australia are highly likely to be done by computers in the next decade or two. That’s about 40 percent of the current workforce. Another two million jobs have a medium chance of being automated.
Shocking right? It shouldn’t be but it is.
It’s these sort of figures that I think have finally forced this issue onto the agenda, in the same way that Lee Kuan Yew and Paul Keating’s comments did all those years ago.
So what are we going to do about it? The challenge here I think is the same as the one that Hawke and Keating faced. We have got to be globally competitive.
Remember what I said about digital darwinism – the countries that will be the most successful in the digital age are the ones that adapt the quickest and the best.
At the moment we’re not one of those countries. We are not as competitive as we need to be.
Harvard Business Review had a look at this last year and they ranked the digital capacity of different countries.
Countries were put in four categories: Stand Out, Watch Out, Break Out and Stall Out. We were in the last one. The bad one: stalling out.
Here’s a few reasons why:
When you look at the countries that were the most successful in the Industrial Revolution one thing stands out. They were the ones that built the best and the biggest railway networks. The tracks that James Watt’s steam engines ran on.
What’s the equivalent of that today? Arguably it’s broadband networks.
Three years ago we were ranked 30th in the world for internet speed. Now we are 60th. Singapore is first. Hong Kong is second. South Korea is third. Japan is fourth. The US, Canada, most of Europe and most of Asia are ahead of us. Even Romania, Russia, Slovakia and Poland are beating us. So by the way is New Zealand.
We are also behind when it comes to access to capital for start ups. Our venture capital industry is small by world standards. We are also off the pace when it comes to R&D, and compared to other countries we are terrible at commercialising our good ideas – getting our universities and industry to work together.
The area I really worry about the most though is skills. This is where we are massively off the pace.
In 2003, we produced about 9,000 IT graduates. Last year that number was about 5,000. It’s dropped by almost half.
Over the same period the number of people who have graduated in China with a STEM degree has jumped from 500,000 to 3.5 million.
Google employ about 1,000 people in Australia. About half of them do jobs that require STEM skills – and about half of them are from overseas.
Google isn’t Robinson Crusoe. It’s not the only company with this sort of problem. A few weeks after that CEDA report came out last year, another report came out. This one from Deloitte, and it revealed that last financial year we imported about 21,000 IT workers.
According to Deloitte we will need another 100,000 IT workers in the next six years. Australian graduates will fill about a third of these jobs. The rest (about 70,000 jobs) will be done by people we bring in from all around the world.
You can see the problem now. Over the next few decades millions of jobs in will disappear. Millions more will be created. But they won’t necessarily be done by Australians – or even here in Australia.
Credit where credit is due. The government is now trying to tackle some of these problems. A lot of what they are doing are things Bill Shorten, Chris Bowen and myself and others have proposed. And that’s a good thing. But there is still a lot more to do.
From top to bottom – Local Government, State Government, Federal Government – we have got to look at everything we do and all the laws we administer, and make sure they are fit for the digital age and are better than what our competitors are doing.
It’s what every Board in this country is doing if they want to survive, and it’s what we have got to do too.
INNOVATION & INEQUALITY
I also want to make this point. This isn’t just an economic challenge. It’s also got real social consequences.
Last year CEDA produced another important report – this one on entrenched disadvantage.
I represent Keating’s old seat of Blaxland in south west Sydney. It’s not a rich area. This is a lot of disadvantage. The unemployment rate is almost twice the national average.
Here’s the interesting thing. If you speak English well, your chances of being unemployed in Blaxland are about 5 percent. But if you don’t speak English or speak it poorly your chances of being unemployed are more like 25 percent. How well you speak English has a big impact on your employment and career prospects.
Now think about the world our kids are going to grow up in.
I’m about to become a dad for the first time in a few weeks. It’s very exciting… I’ve got my phone here just in case my wife rings.
In the world that little boy or girl grows up in it won’t just be English that determines his or her employability – it will be their digital skills.
The US economist Tyler Cowen talks about a future where there are two types of people – people “who are good at working with intelligent machines and those who are replaced by them”.
This doesn’t mean we all have to become computer programmers or software engineers. But it does mean we all need to be increasingly computer literate.
If you are not, you are going to struggle. Life will get a lot harder. And my big worry is we will see this most prominently in electorates like mine where there is already high unemployment and serious disadvantage.
This is why we (the Labor Party) put so much store in education.
I am the first person in my family to finish high school. Now if you don’t finish school it’s almost impossible to get a job. In the future it will be even harder.
It’s why we put so much focus on things like Gonski. Why boosting teacher quality and skills are so important. Why we keep making the case for teaching kids coding and computational thinking, and why we need to reach the target of 90 per cent of students finishing high school, not just on average around the country, but particularly in places like my electorate.
As Stephen said in his introduction I have got a new portfolio. I am now Shadow Minister for Trade, and I want to talk briefly about another mega trend this morning.
You see it in the rise of Donald Trump, Brexit and even in the recent election here at home and the re-emergence of One Nation.
The Prime Minister has been talking a lot recently about the threat of creeping protectionism around the world. He’s right to be concerned. But that is just a symptom of something deeper going on here.
In the decade before the GFC the living standards of many people in developed economies around the world went up. But since the GFC they have been flat lining or falling.
I think this explains a lot of what is going on.
There are a lot of people hurting – feeling like they are going backwards not forwards. It’s not just a feeling it’s a fact.
In the UK the median income for people aged 31-59 is less than it was a decade ago.
In the US the typical American family is worse off than they were a quarter of a century ago. A lot of Americans are earning less now than they were before the Lehman Brothers collapsed.
In Australia in the last two years national income per person has also gone backwards.
Some of this is a hangover of the GFC.
But it is also part of a bigger trend of increasing inequality. Here in Australia the gap between the rich and the poor is the biggest it’s been in 75 years.
And when you add to this big jumps in unemployment in WA and Queensland as the mining boom tails off, and the ever increasing cost of housing in places like Sydney where I live… and now throw in what I have been talking about today (automation – the threat of a robot taking your job) and you can see you get a really toxic mix.
That’s why you don’t hear the Prime Minister talk about how exciting it is to be alive anymore – because it doesn’t resonate. It’s not what a lot of people think.
And there is a real risk that automation and the digital transformation of our economy means this gap will continue to grow.
That it will hollow out the middle class.
If that happens we will see lower growth and more Trumps and more Brexits and more Hansons.
All the evidence from CEDA to the IMF indicates that greater inequality means lower growth.
But if we can transform our economy and at the same time reduce this gap – then our economy will be bigger and stronger and the Australia of tomorrow will be an even better place to live.
This is where the debate in Australia needs to be. It’s where I am focused. It’s where Labor is focused. We have got to get this right. Because if we don’t the words of those economic giants of 30 odd years ago will come back to haunt us.
Thanks very much.