Western Australia Leadership Matters Breakfast – Remarks as Prepared for Delivery
Good morning. It is a pleasure to be back in Australia – and an honor to be with all of you today.
It is especially great to be in Perth. Like my hometown of Darwin, Perth is full of that adventurous, pioneering, bold spirit that defines our country. Plus it is full of Kazzie Greeks like me, who are examples of the immigrants who help build and drive Perth and Western Australia’s success.
I am looking forward to our conversation today… because I believe this is a crucial moment for our island nation.
THE LUCKY COUNTRY
They say Australia is the Lucky Country. If that is true, then Western Australia, with its plentiful energy and mining reserves, is certainly the Lucky State.
Extracting and selling the resources beneath our feet has driven Australia’s prosperity for many years. Indeed, while much of the world has struggled to recover from a Great Recession, we continued to grow. Forty-five percent of that growth came from mining.
But the commodities cycle is unkind. It means booms and busts. It means tying your fate as a nation to resources that are forever dwindling.
In coming years, the government expects mining to contribute just sixteen percent of Australia’s growth. But it is hard to count even on that. The global energy market is growing less stable and predictable, almost by the day.
Relying too much on commodity exports has always been risky. But today, in a macroeconomic environment characterized by unprecedented volatility, it is untenable.
We all know that. And, recently, we have been taking major steps to change it. That is why this moment is so crucial.
It is a moment where we exert an uncommon degree of control over our own future. A moment where we can choose to drive growth in a 21st century model, and not simply chase the growth that the last century provided us. A moment where, more than ever before, leadership matters.
My perspective on the challenges that Australia is facing is informed by my own experiences as CEO.
I would not go so far as to compare a company to a country, but we at Dow know something about the mercilessness of the commodities cycle. A little more than a decade ago, when I was just settling into my role as CEO, Dow’s success was dependent on the cycle. We rode it up and down like a roller coaster.
The path we were on was unsustainable. We were not in control of our own destiny.
State-owned enterprises were driving industries like ours further toward commoditization… into volatility... and were driving companies out of business. Many of our competitors went bankrupt. Some are still trying to ride the cycle – and seeing profits fall.
At Dow, we chose a different path. We laid out a strategy to transform the company into an engine of innovation, a close partner to customers in solving their challenges. A company of higher earnings and less volatility.
We evolved as the world evolved. And today, our company is transformed. Our success is driven not by commodities, but by innovation and integration:
- Already, our portfolio is more than two-thirds high-margin sales, driven by intellectual property, and its volatility has been cut in half.
- Last year, Dow earned 667 U.S. patent grants, an all-time record, and 6 times as many as the commodity-focused Dow of 2005.
- We were also named to the Thomson Reuters Top 100 Global Innovator list for the fifth consecutive year.
This innovation has driven record performance for thirteen straight quarters – without any help from the commodity cycle.
The strategy will culminate over the next two years when we complete a historic transaction: a rare merger of equals with DuPont, another storied chemical company – a step that I have been working on for a decade. Once this merger is complete, we will leverage our synergies and split into three highly streamlined, specialized businesses. This is “smart scale” at its finest: we will leverage the benefits that come from increased size, while creating three focused enterprises for this century’s challenges. These businesses will be even more nimble… and more capable of adapting to a changing world.
Australia can make a similar transformation to higher-value growth... to a quality economy vs a quantity economy. Indeed, it is already underway!
Australia possesses enormous amounts of low-cost energy feedstocks… significant financial resources… and, in its people, underleveraged stores of knowledge, talent, and creativity.
These are the ingredients that fuel stable and sustainable long-term growth. So today, allow me to propose three steps to unlock this value… and propel Australia’s economy to new heights. Based on Dow’s experience over the past decade, and our deep roots in Australia, we believe it is crucial for our country to implement a smarter energy policy…create a better business climate…and help create free and open global markets.
I will briefly discuss each in turn.
- A Smarter Energy Policy
First, we need a smarter energy policy. Often, when people talk about diversifying Australia’s economy, it sounds like they want us to neglect our wealth of natural resources. Leave them in the ground, do something new. In fact, the opposite is true! We need to extract these resources, but more important, we need to extract as much value from these resources as possible.
Immediately exporting them does not achieve this. Especially not when there is no free and fair global energy market.
Instead, more of these resources should be reinvested in our economy – used as low-cost feedstocks for value-added industries like advanced manufacturing. Petrochemicals are not only good for being burned. They serve as the building block, at the molecular level, for all manner of high value, high-technology products, such as the materials that make your cars and trucks safer, but also lighter and more fuel-efficient.
But government policy has not, to this point, encouraged advanced manufacturing based on our low-cost energy building blocks… and Australia’s manufacturing sector overall is suffering. Once, it comprised nearly a third of our overall economy. Today, it is less than 10 percent.
When we fail to reinvest our natural gas resources back in our domestic economies, we lose out on the opportunity to create an industry worth 21 times the value of the natural gas exports themselves.
That is why energy-rich countries around the world are pursuing energy policies that balance exports and domestic investments, ensuring a robust supply of affordable natural gas for domestic producers. Such policies help secure these countries’ futures, both in the short term and as their energy supplies dwindle.
The United States, for instance, exports a significant percentage of its natural gas. But it has also ensured a consistent supply of affordable natural gas for domestic producers… which has resulted in a manufacturing boom. To date, more than $160 billion in new projects have been launched. These projects are expected to create 5 million new jobs by 2020. Chemistry exports linked to shale gas alone could double from $60 billion in 2014 to $123 billion in 2030.
And reinvesting energy like this is not only important for national economies. It also advances human progress around the world. By investing this energy in the high-performance materials that reduce overall energy use, we can use fossil fuels to lower our greenhouse gas emissions as we transition to cleaner energy sources. That is a policy everyone should be able to get behind.
Creating a balanced energy policy that speaks to value add would be a big step toward Australia’s transformation.
- A Better Business Climate
Yet it is only one step. Second, Australia should create a better business climate that encourages investment.
In today’s globalized world, countries are competing against each other for business just like companies do. A better business climate is a real competitive advantage. The countries poised to win this competition are the ones where regulations are streamlined and sensible… where innovation is encouraged… and where capable workers are in abundant supply.
Australia’s dependency upon commodities masked, for a time, our poor track record in these other areas. No longer.
- According to the World Economic Forum’s Global Competitiveness Report, when it comes to regulatory burdens, Australia is ranked 80th worldwide.
- Last year, 79 percent of all Australian patents were filed by foreign companies.
- And the Australian Industry Group recently surveyed more than 300 businesses and found that 44 percent had difficulty recruiting people with backgrounds in the STEM fields of science, technology, engineering, and maths. More than one-third (36 percent) of the businesses said that the difficulty stemmed from applicants “lack of qualifications relevant to the business.”
Fortunately, the Australian government is now taking steps to encourage business investment, positioning our great country to replicate the best of what other nations have achieved – and reach even higher.
One important effort is the Growth Centres Programme, launched last year. I am honored to serve as an Independent Member of the Advisory Committee.
This initiative, which aims to bolster Australia’s competitive strengths and drive growth in innovative industries, is focused on four key areas:
Investing in education and training… improving our business climate through regulatory reform… improving Australia’s access to a free and fair system of international trade…and enabling business and academia to collaborate on innovative solutions that meet pressing global needs, and then commercialize them quickly.
Our Growth Centres are a promising step forward in the effort to move Australia toward high-value, export-focused industries.
And in December, Prime Minister Turnbull announced that we will be building on this success by launching an all-new National Innovation and Science Agenda – a $1.1 billion initiative to trigger an “ideas boom”… and revitalize our economy through innovation.
The initiative will be a significant step in the right direction. Such a significant step, in fact, that it has received almost universal acclaim. A few days after its launch, the Australian Financial Review asked: “Has there ever been a government policy statement better received?” Quite an achievement, in this day and age!
But if we want that cheering to be sustained, we have to follow through. That, then, is the task ahead.
- A Free and Open Trade Environment
Finally, we must help create a free and fair international trade environment by opening doors for high-value exports… improving the exchange of goods and idea… and linking Australian businesses with global value chains and growing markets around the world.
The good news is that we are operating from a position of strength. Australia has long taken a leadership role on trade across this region Just over the past few years, we have signed bilateral agreements with Japan, South Korea, and China.
I would particularly like to congratulate the Australian government on the landmark China-Australia Free Trade Agreement that went into effect in December. Last month, Dow imported our first raw material shipment from China at zero percent duty under this new accord.
It is developments like this one that make Australia a more attractive place to do business!
The mother of all such opportunities, of course, is the Trans-Pacific Partnership. That historic trade deal would allow Australia to build on existing relationships by establishing common rules and business certainty with a dozen countries throughout the region. TPP was officially signed last month, and individual nations will need to ratify it soon.
The Australian government has shown strong leadership in helping build support for the deal among foreign governments. For instance, a few months ago, Aussie leaders met with U.S. lawmakers to advocate for a free and open trading environment in the Pacific. It is efforts like these that will help get this deal implemented.
We must continue to make the case that the benefits of free trade flow most significantly to countries that export high-tech, high-value products. And then, we should heed our own words – we should see this new trade environment as an even more powerful incentive to strengthen the cutting-edge industries that make us competitive. After all: when it comes to achieving long-term competitiveness and growth, innovation is the only game in town.
CALL TO ACTION
None of these three steps, I know, are easy. But together, they present a singular opportunity to transform this country.
It is rare indeed that a nation exerts this much control over its own future. So often, policy is a series of best guesses, carried out with limited resources.
But right now, the best path forward is clear. We know what works, and we have an enormous body of evidence from around the world to prove it.
We see countries succeeding when they invest their natural resources in their own development… when they roll out the red carpet, not the red tape, for businesses… when they create trade policy that makes the entire world their market. And we see them falling behind when they do not. We know what we have to do.
What is more, here in the Lucky Country, we have the financial resources, the natural resources, and the human resources to transform.
You – the people sitting in this room – are among those vital human resources.
With your help, we will prove that Australia is more than simply the Lucky Country. We are the Enterprising Country, the Determined Country, the Innovative Country. We are a country that decides our own destiny.
Thank you. I look forward to our discussion.