Thank you for that generous introduction.
And thank you to the Melbourne Chamber of Commerce for hosting this event.
As you know, I am frequently in Australia – both because it remains, in the truest sense, my home, and because Dow has a substantial presence here. But as often as I return home, I am struck by the degree to which the situation here changes from month to month. This is not unique to Australia: the pace of change in the world at large is quite extreme.
You see this most obviously, of course, in the rapid rate of technological progress. We continue to be amazed and at times overwhelmed by new technologies that are revolutionizing the ways we live and work. The days of bricks and sticks are gone.
I am not simply talking about digitization of communication, or e-commerce. I am not just talking about smart phones. I am talking about the digitization of entire industries: Analysts empowered by real-time data about every aspect of a business. Factories filled with machines that learn and communicate.
But it is not only technology that is moving at the speed of “live.” The geopolitical world is as well.
It is easy to forget… but just a year ago, while the EU was challenged, it seemed more resilient than not. The United States seemed on the verge of ratifying two of the largest multilateral trade agreements in history. A matter of months changed the picture – if not completely, then quite dramatically.
World leaders have been forced to listen – more than ever before – to the people who have cried out that globalization has left them behind… people who cannot afford a basic standard of living, and who worry that their kids will not have what they had.
Finally, we are being forced to acknowledge that, if the pieces of the economic pie are not well-distributed, the market-based economies of the world that have adopted capitalism as their centerpiece have not done their job.
Clearly, this is a moment of disruption.
It is also a moment of opportunity… but only if we make the right choices.
TOWARD MORE INCLUSIVE, SUSTAINABLE GROWTH
Globalization and technological progress have the power to drive incredible prosperity.
But for too long, too many countries have contented themselves with short-term boosts to their economies. They have failed to do the difficult – if rewarding – work of crafting policies to make growth long-lasting and widespread.
We have seen that short-term mentality here in Australia.
So we should take this, then, as a moment of pause… a moment for us to step back, think hard, and develop smart strategies to build an inclusive, sustainable economic system. One that works for everyone… and sets countries up for success in the long term.
ADDRESSING AUSTRALIA’S ENERGY CRISIS
In Australia, that begins with the topic that is on everyone’s minds: energy policy. This is not the first time I have discussed this topic, and I am afraid it will not be my last.
Australia, as we all know, is facing an energy crisis that is creating blackouts in the middle of summer, and driving businesses, who see an unpredictable energy environment in one of the most energy-rich countries in the world, to invest elsewhere.
This is a calamity – but not a natural one.
It is a product of a cascade of human decisions… of inaction, inertia, and short-sightedness by policymakers from both parties who for years allowed – encouraged – more and more of Australia’s natural resources to flow out our borders at unsustainable rates... even as some in the business community, such as Dow, anticipated just such an outcome and sounded the alarm. And the sad aspect of this is that we have been successful privatizers of our national electricity grid. This is not a supply issue. It is a price issue. We have gone from affordable power to unaffordable and interrupted power.
The costs escalations have been signalled from long ago, and they have now arrived.
Manufacturers can no longer afford to overlook them. Analysts estimate that by 2021, Australia’s self-defeating energy policy will result in a loss of $118 billion in manufacturing output – and cost 14,500 jobs. This is on top of the over 150,000 jobs that have been lost in the manufacturing sector since the beginning of the global financial crisis – many of which have been attributable, again, to this exclusive emphasis on exporting natural gas.
The good news is that the crisis has led to concrete action by the government and the energy sector – a seven-part plan to get our energy situation back under control. But there is more that Australia must do. Australia must take steps to craft a balanced, all-of-the-above energy policy.
First, we should lift the moratorium on gas exploration and development here in Victoria. A blanket ban is far too broad – it keeps us from benefiting from resources that could be extracted safely and sustainably.
Second, we must encourage more exploration and development around the country. We cannot invest our energy wisely if we do not even know the extent of the resources beneath our feet. Likewise, when resources are discovered, we must ensure that they are developed and not simply banked. In other words, use them or lose them.
Third, Australia needs to build a more open and connected gas pipeline system – one that multiple users can access for a fair price. It should be far easier to send gas across our country than across an ocean.
And finally, an all-of-the-above energy strategy must also include renewables and a price on carbon that transitions over time. Renewable portfolio standards must be affordable and not destroy industries and cost consumers a disproportionate amount of the burden. Investment in technology alternatives are a must. Adding renewable energy to the mix in a smart, strategic way – acknowledging both its advantages and its limitations – is crucial to preparing Australia for the future.
PIVOTING TO VALUE-ADD INDUSTRIES
But beyond any one policy, my hope is that this is the beginning of a more substantial reorientation in Australian thinking. Now is the time to reduce Australia’s exposure to the commodities cycle and to fully modernize our economy.
Because, in an increasingly volatile global economy, countries that are rich in natural resources have two basic choices. We can simply ride the cycle up and down, exporting everything we possibly can during the boom years, and suffering through the inevitable bust. That, as we know, is what Australia has done.
The other choice – the road not taken – is to export some of those natural resources, but also to invest some in innovation-driven, high tech, high value-add industries that drive sustainable growth – industries like manufacturing.
There is an analogy to be made to the choice that we at Dow faced a little more than a decade ago. When I became CEO, Dow – like the Australian economy – was overly dependent on the commodities cycle. When prices were high, we thrived – but when prices were low, we struggled to survive.
So we put in place a strategy to add more value to those commodities. We transformed our company into an engine of innovation, a close partner to customers in solving their challenges. As a result, we have experienced record, consistent success, without any help from a slow-growth global marketplace.
This strategy – this transformation – is what has set us up for our upcoming merger with DuPont, and our subsequent split into three specialized companies – allowing us to be more nimble, more market-focused, and more inventive than ever before.
If Australia makes a similar pivot – and untethers itself from dependence on the commodities cycle – the economic rewards will be great and widely felt.
Natural gas can be sold for a profit, of course, but natural gas has far greater value when it is used as low-cost feedstocks in the manufacturing process. According to the National Institute of Economic and Industry Research, reinvesting natural gas in the domestic economy can create an industry worth 21 times the value of the natural gas exports themselves.
In this way, Australia’s natural resources can become something more than a quick fix in the up cycle – they can become a driver of long-term, sustainable growth, based on high-tech, high value-add industries whose products the world wants and needs – whether the price of raw materials is high or low.
OTHER COUNTRIES ARE LEADING
We are seeing countries around the world move more in this direction.
The United States, for example, exports a significant percentage of its natural gas. But it has also ensured a consistent supply for producers at home… which is resulting in a manufacturing boom. As of last year, more than $160 billion in new projects had been launched in the U.S. Those projects are expected to create 5 million new jobs by 2020.
This is only part of what it takes to rekindle the manufacturing sector.
That is why I have been working hard with the new administration in Washington to shape pro-growth, pro-business policies that will help move the U.S. from an economy focused on consumption to an economy focused on investment and growth and job creation for the new age – not yesterday’s era, but the new era.
We are seeking to boost U.S. manufacturing by focusing on four pillars of competitiveness.
First, on retraining – reskilling – our workforce for the 21st century. This means apprenticeship programs. This means national skills certification. In an age where businesses are starved for properly trained employees, and workers are hurting as old economy jobs have disappeared, this is one of our most important workstreams. This should be a key focus for Australia, as well, which I will have more to say about in a moment.
Second, we are streamlining regulations – because we can keep our people and our environment safe while, at the same time, making it easier for businesses to grow and prosper. We must make sure that regulations are simple, science-based, and harmonized as much as possible across borders.
When they are not, the burdens on industry can be overpowering. In the U.S., the manufacturing sector pays, on average, $19,564 per employee to comply with federal regulations; in all sectors combined, that number is just short of $10,000. So manufacturers are shouldering a disproportionate weight.
Third, the U.S. has pledged to invest in infrastructure. In an era where it is easier than ever for businesses to choose where to set up shop, they are not going to invest in places where airports cannot meet capacity and roads are crumbling. To stay competitive, we have to rebuild.
And finally, we are reforming tax policy to encourage more investment – moving the U.S. economy from primarily a consumption economy to a consumption and investment economy. To operate in the United States, businesses have long had to pay high taxes – and navigate an unnecessarily complex tax code. This is driving money overseas. We are going to fix that.
I have little doubt that, with reforms like these, job creation and economic growth will really take off.
Other countries, too, are building for the future – even as they address near-term challenges.
China is of course a great example. Having benefited enormously from globalization for decades, today the Chinese government is strategizing ways to support its own, expanding middle class, while addressing its more muted rate of growth. I say “muted,” but at $10 trillion in GDP, China overall – even at “just” 6.5% growth – adds a G20 economy every year!
But they are being smart about that growth – not taking it for granted. We are seeing key reforms in urbanization, energy efficiency, environmental protection, and private consumption – all of which have big implications for businesses like Dow, and greatly improve our ability to contribute to China’s employment and prosperity.
I could cite a number of other examples – such as Saudi Arabia, which has recently begun investing in re-skilling its workforce, and is investing more of its natural resources in value-added industries that will provide the foundation for future growth.
Australia needs to be just as determined – just as strategic – when it comes to its own competitiveness.
The Growth Centres the government launched in 2015 are a promising start. As many of you know, the Australian government has engaged business leaders to craft strategic plans for key Australian industries. I am honored to serve as an Independent Member of the Advisory Committee.
The plans focus on the right 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.
But in certain areas, we are not yet doing enough. We still need an actual mechanism to encourage researchers to commercialize Australian innovation here at home. And we can do more to encourage corporate R&D – for instance, providing upfront funding instead of tax credits after the fact. We also need to accelerate regulatory reform efforts to match the increasing pace of change in global economies.
If we stay committed to the Growth Centres and take these steps to ensure they meet their goals, it should do a great deal to boost Australian businesses.
In that same spirit, I am encouraged by the steps that Australia has taken recently to prepare for a world that is increasingly digitized. This is a must-do for any nation that wants to compete and win.
Recently, as some of you know, the government launched an Industry 4.0 Task Force that will help build cooperation on global standards for the Industrial Internet of Things. This will help keep Australian businesses on the forefront of technological development – and encourage more and more innovative businesses to invest here.
But if we are honest, not everybody is ready to benefit from this growth.
That is why we need skills training that educates the workforce for these new, technology-focused jobs.
I can tell you that this is some of the policy work we are most excited about in the U.S. Because as my friend Ginni Rometty of IBM likes to say, when it comes to jobs, it is no longer about white collar or blue collar. It is about new collar. Jobs across the world are getting more technical – and going unfilled, because workers lack the requisite skills.
Reskilling Australia’s workforce will help ensure that nobody is left behind as the economy evolves.
And that should be our highest priority… because Australia’s greatest natural resource is not what lies beneath our feet. It is the talent and drive and creativity of our people. Right now, that resource is going largely untapped.
It must be put to use once again. Indeed, technology and innovation should not be feared, but we need to prioritize vocational training and other forms of education to ensure that we are developing our talent with the right tools and the right skills. Because if we invest in our people, they will fuel Australian prosperity long into the future
Let me now close with an observation – one that, over time, becomes clearer and clearer to me from my vantage point as CEO of a global company… a company with deep roots in countries from Australia to China, from Saudi Arabia to the United States.
Companies compete. Countries compete. This is obvious to anyone in business, and we embrace it.
Yet we are too accustomed to thinking that for every winner, there must be a loser – perhaps many of them. There are certain respects in which this is absolutely true. But in a larger sense, it is time to shift away from this kind of zero-sum thinking.
Because when the Australian economy is really growing – when Australian industry is really innovating – it is not only good for Australia; it is good for America and China and Saudi Arabia. It is good for their economies and good for their workers and consumers. This is true in the reverse, and in all directions.
Our businesses have, of course, a responsibility to our shareholders. But we also have a responsibility to a far broader set of stakeholders. And those two sets of obligations need not be at odds. In fact, they cannot be at odds, or we will continue to leave people, communities, entire nations behind.
Indeed, all around the world, it is time to reorient our psychology… not only to believe that the world economy can truly work for all people and all nations, but to demand that it does… and to put in the long, difficult, crucial work to ensure that it does.
An inclusive capitalism requires an inclusive effort.
Business, government, academia, civil society. All working together toward shared goals, for shared gains.
More than ever before, we rise and we fall together.
So let us, all of us, choose to rise.