A Roadmap to Competitiveness for Europe
Andrew N. Liveris
Chairman and CEO
The Dow Chemical Company
Remarks as Prepared for Delivery
Swiss-American Chamber of Commerce Luncheon
May 31, 2016
INTRODUCTION: WHO WILL LEAD THE REVOLUTION?
Thank you for that generous welcome, and thank you to the Swiss-American Chamber of Commerce for the invitation to speak with you today.
I come to Davos every January for the World Economic Forum, and every year I resolve to return to Switzerland more often. So I always appreciate an excuse! And of course Dow has deep roots in this country.
I have been thinking a great deal about Davos, actually. Not the resort, but the topic we discussed at this year’s meeting.
Our focus was the Fourth Industrial Revolution. This topic has fascinated me for a number of years now, for it has become increasingly clear that new technologies – such as the Internet of Things, those constantly communicating machines that touch every aspect of our lives – are about to revolutionize business every bit as much as electricity did.
Most of our discussion back in January centered on what this change will entail. But today, I want to ask a slightly different question: who is going to lead this change? Will it be the United States? China? Or will Europe show the way?
Europe has been on the front lines of each of the previous industrial revolutions. It was a European, James Watt, who invented the steam engine that jump-started the First Industrial Revolution and who learned Italian and German to study earlier designs. It was another European, Werner von Siemens, who drove forward the development of electrical machinery in factories and transport in the Second Industrial Revolution. And it was again a European, Alan Turing, who built the first general purpose computer that would lead to the Third.
So the question now is: Will Europe continue to be on the front lines of progress?
This is not a given. In fact, it never is.
This is not to sound pessimistic. The European economy is, I believe, already stronger than people realize – and will continue to improve if and when looming uncertainties like a possible Brexit and the refugee crisis are resolved.
My point is simply that for countries, no less than companies, leadership must be continually earned.
For my part – and speaking for all of us at Dow – I believe that the people of this continent have the opportunity to lead yet another revolution in the way humans live and work. But in order for this to happen, European nations will need innovation – innovation by businesses in creating the solutions that humanity needs, and innovation by governments in creating the policies that encourage investment and promote growth.
I will talk about both sectors today: public and private.
BUSINESSES OF THE FUTURE
But before I do, I want to spend some time talking about our end goal.
I want to talk about what the businesses of the future are going to look like.
Some of the businesses of tomorrow are emerging today in advanced manufacturing – a field so exciting and transformative that I wrote a book about it.
If the old manufacturing created low-margin products and low-skilled, low-paying jobs, advanced manufacturing is creating the high-skill, high-tech, high-paying jobs that are the foundation of healthy economies.
If the old manufacturing was defined by repetition, advanced manufacturing is defined by innovation, which is creating sustainable solutions to some of the world’s greatest challenges.
As an ever-growing population strains the world’s food, water, housing, and energy resources, advanced manufacturing is inventing solutions to help us meet these essential human needs. We are finding new ways to multiply scarce resources, use them more intelligently, and deliver them to people who need them most.
At Dow, we have spent the past decade transforming our company to seize these opportunities – and to create new ones. When I became CEO a decade ago, we were a commodity chemical company, selling basic materials – and we lived and died by their price in the global marketplace.
But we saw that our company could perform better, and more consistently, if we jump-started our innovation engine – and partnered with customers. So Dow has transformed. We have refreshed and rehired and rewired… so much that I like to call us a 119-year-old startup.
Today, we are innovating at the intersections of all the sciences to address global needs and drive growth – from energy-efficient housing in China… to affordable, pure water in Africa and Saudi Arabia… to lightweight, eco-friendly transportation here in Europe.
We are doing this with high-throughput experimentation, powered by robotics and big data analytics, which have enabled us to improve experimental productivity up to 100 times over the last ten years.
We now generate three times more new products each year than we did in 2005 – more than 5,000 last year alone. Last year, Dow earned 667 U.S. patent grants, an all-time record, and six times as many as we earned a decade ago.
Europe has played a key role in driving this progress. Here in Switzerland, for example, we have pioneered the development of insulation and furniture materials with fire resistance directly ‘wired in’ to the material using more sustainable technologies. We have developed high-performance flexible packaging that helps to better preserve food and reduce food waste, in line with UN’s Sustainable Development Goals. And we are looking at new technologies for recycling packaging waste into new products and energy sources – preventing it from finding its way into our rivers, lakes, and seas.
Our strategy will culminate this year when we complete a historic transaction: a rare merger of equals with DuPont, and then a split into three highly specialized businesses. These companies – including the material sciences company that will be the new Dow – will be even more focused on key markets and the needs of our customers, evolving as quickly as those needs evolve.
HOW EUROPE CAN LEAD
So here is a question we should all be asking ourselves.
When companies like the three we are creating come into existence – or when existing companies look to expand – where will they choose to operate? And how can we make sure that businesses of the future will start up, or settle in, the continent of Europe?
That question goes to the core of Europe’s competitiveness.
As someone who has been grappling with these questions for more than a decade now, I can tell you that companies need common-sense tax and regulation schemes that spur innovation, instead of stifling it.
They need modern infrastructure: modern roads, rails, ports, and aviation.
And they need a talent pool of young people whose education prepares them for careers in science and engineering – for a life on the frontier of discovery.
This requires, as I said, innovation in government.
It requires governments to think, and operate, at the speed of business – at the speed of live.
This entails many things. I will limit my discussion today to two: energy policy and trade policy.
Let us take each in turn.
A Balanced Energy Policy
Simply put, companies need affordable and accessible energy. Energy is hugely important for us in the chemicals industry where energy and hydrocarbons can represent between 50 and 90 percent of our overall costs.
That brings up a tension that challenges every responsible nation in the world: how do we speed the transition to lower-carbon energy sources … while keeping energy prices competitive?
Either extreme is a trap. Focus too much on having the cheapest possible energy source with no regard for the environment, and we will leave a planet in crisis. Focus too much on using strictly renewable energy, and you will send energy prices sky-high… and drive industries to relocate – with the same negative effect on the planet, and on your economy.
The key to a successful energy policy is balance. The EU Emissions Trading Scheme is a good example. Its goal is to meet greenhouse gas targets at the lowest possible cost, saving both the environment and economies. If it is allowed to function as a true market it will do its job.
But to maintain that balance, we must continue to develop diverse energy sources - including renewables but also shale gas – where it is safe and cost-effective to do so. Our goal must be to tap as many of our energy resources as possible… as sustainably and predictably as possible… in a way that provides a competitive advantage for domestic industries.
So we also have to avoid imposing additional costs on energy. In many European economies today, added costs have sent the end-user price of electricity up to four times above the wholesale market price. This is no way to remain competitive.
At Dow, having access to affordable hydrocarbons is especially important because for us, they are not simply fuel. They are also a feedstock – a fundamental building block – of everything we create, from packaging to building materials. This includes products that save incredible amounts of energy down the road, like high strength resins that make wind turbine blades …. carbon fiber that makes cars lighter so they burn less fuel… and home insulation that saves energy for heating and cooling.
At the same time, we are increasingly using renewable energy to power our operations. For instance, in the Sustainability Goals we released last year, we set a global target to use 400 MW of clean power – enough to power over 100,000 homes – by 2025. One year in, we have already met that target – meaning we are one of the top five industrial users of renewable power in the U.S.
Having met that goal, we have set ourselves a higher one: to use 750 MW of clean power by 2025.
That is real and substantial progress, driven by business. But business cannot do it alone. It is up to governments to set ambitious goals and to make sure that business has a seat at that table.
That is why Dow was calling for an agreement like COP21 even before it was passed. With businesses and governments working in partnership, we can achieve a balance between sustainability and economic competitiveness – the elements of real progress.
Free and Open Markets
Now, before I close, let me talk briefly about trade.
Trade will happen in Europe almost no matter what: you will import, you will export. It is the way of global commerce. And yet: if Europe wants to be truly competitive, if it wants to attract the businesses that will drive progress for the world, it must be lead in at least two ways:
In exporting the high-tech, high-value products that the world needs; and
In establishing free and open trading environments.
The greatest benefits of trade go to countries that do both.
Fortunately, we are on the brink of enormous progress. TTIP is a true game changer.
This agreement holds enormous opportunities for deeper and more efficient integration that will boost exports, investment, and incomes on both sides of the Atlantic. To reap those full benefits, we need to make sure TTIP remains ambitious and comprehensive.
Consider regulatory cooperation.
We have an opportunity to design a robust system of cooperation on priorities like scientific evaluations, common data sets, and risk assessment methodologies, so innovators on both sides of the Atlantic will have fewer hoops to jump through in getting to market. Regulators, meanwhile, will be able to work with their overseas counterparts in ways that promote transparency, certainty, and burden-sharing.
This is just one of many areas where TTIP can strengthen the relationship between the EU and the US – while setting global standards that reflect our common principles. Already, neighboring countries are asking to join the agreement. We have a real opportunity here to set clear rules to level the playing field for companies around the world.
That will let us get back to doing what we do best: competing on quality and innovation.
CONCLUSION: PARTNERSHIP AT THE INTERSECTIONS
This could not be more important… because this is the rare kind of competition that everybody can win.
Consider that, in the years to come, as global life expectancies rise, the world’s resources will be stretched further than ever. By 2025, 1.8 billion people will live in regions where clean water is scarce. By 2030, 40 percent of the Earth’s people will lack adequate housing. By 2050 – as the global population tops nine billion – demand for food will increase by 60 percent.
At Dow, we understand that confronting these challenges – and reaping the rewards – will take strategic thinking. It will take determined action and true partnership.
It will take innovation at the intersections of all sciences – because scientific breakthroughs depend on breaking boundaries.
Most of all, it will take a commitment to working at another intersection: the nexus of business, government, and civil society. Because that is the only way we can overcome inequality, accommodate Earth’s rising population, usher in a new era of competitiveness and growth, and advance human progress for billions across the globe.
When Europe puts not only its energy, but its creativity to work… when lawmakers and regulators, public and private sector leaders, and financial and real market forces enable the world’s forward-thinking companies to solve the global challenges we face… then, and only then, can we achieve a rare, across-the-board “win” for consumers, private enterprise, the European economy, and humanity as a whole.
This shared opportunity must become our shared focus. And everyone in this room, every member of this chamber, has an indispensable role to play – through the work you do, through the partnerships you create, toward the goals you seek – and reach – together.
Thank you all, once again, for your partnership – and for the opportunity to be with you today.