Ideas and Engagement: The Western Australian Economic Story

I'm speaking today to a business breakfast in Perth, on the theme of innovation in the Western Australian economic story.

Ideas and Engagement: The Western Australian Economic Story*

Andrew Leigh MP
Shadow Assistant Treasurer

Business Breakfast, Perth
21 February 2014

I acknowledge the Whadjuk Nyoongar people, the traditional owners of the lands on which we meet, my federal colleague Alannah MacTiernan, Western Australian Shadow Treasurer Ben Wyatt and Shadow Minister for Planning and Finance Rita Saffioti. My thanks to the Perth Writers’ Festival for flying me over to the left coast.

It’s a pleasure to have the chance to speak with you today.

When I was in my mid-twenties, I had the chance to work for the late Western Australian Senator Peter Cook. He was then the Shadow Minister for Trade – a perfect portfolio for a Western Australian.

Peter taught me a great deal about politics, and about Western Australia. I enjoyed travelling with him through places like Kalgoorlie, Karratha and Carnarvon, talking with mine workers and farmers, local business leaders and politicians.

Peter was an instinctive internationalist. He took the view that you couldn’t be a social democrat without believing in an open Australia – and you couldn’t believe in openness without a proper social safety net. He was a yachtsman, with a yen for open waters.

For many Western Australians, internationalism is instinctive. The ‘Swan River Colony’ began exporting wool to Britain in the 1830s and sandalwood to Singapore in the 1840s.[1] It was open to migrants: one indicator of how many migrants flooded in is that by the 1850s, there were two men for every woman. You don’t get a gender ratio like that in a closed society!

No surprise, then, that the Free Trade League, established in 1871, is thought to have been this state’s first political organisation. And at the time of Federation, Western Australia lined up on the side of free trading New South Wales, opposing protectionist Victoria.

In more recent decades, it was Western Australian John Dawkins who was the foundation chair of the Cairns Group of agricultural free trading nations. Western Australians on both sides of politics have continued that tradition. The likes of Paul Hasluck, John Hyde and Peter Walsh are a reminder that this state produces more than its fair share of straight-talking politicians.

Today, the numbers tell the story of a transformed state. When I worked as an economics professor at the Australian National University, one of my colleagues, Bob Gregory, liked to say that if you wanted to see economic growth in action, you could either watch Australia for a century, or China for a decade. In a similar vein, economists watching Western Australia over the past decade have seen their share of eye-popping numbers.

Try these five statistics, for example.

  • Western Australia accounts for one-sixth of Australia’s GDP, but nearly half our exports.

  • In a few years, iron ore exports will total 25 tonnes a second (up from a third of a tonne in the late-1960s).

  • The cost of the Gorgon gas project – the world’s largest LNG with geosequestration project – is approximately the size of the GDP of Lebanon.

  • Hundreds of Australians now work as fly-in, fly-out workers, including some who have chosen to commute from Bali (a shorter flight from Perth than it is to Sydney).

  • Historically, Western Australia has had a similar level of inequality to other states. Now, it’s the most unequal jurisdiction in the nation, with a gap between rich and poor similar to the United States.[2]

In a fast-changing business environment, you need a federal government that will be predictable, responsible and responsive.

As Federal Labor Leader Bill Shorten said when he spoke in Perth a week ago, the extent of the previous government’s dialogue did not match the size of our reform.[3]

It isn’t an error we will be repeating in Opposition – nor in government, if given the chance to serve again.

My Western Australian colleagues – Mark Bishop, Gary Gray, Sue Lines, Alannah MacTiernan, Melissa Parke, Louise Pratt and Glenn Sterle – are each thoughtful parliamentarians who understand that good governments must take the long view.

In doing so, it’s vital that we recognise the diversity in the mining sector. Over the past decade, the Reserve Bank of Australia’s commodity price index has more than doubled.

But that average hides significant differences across sectors. Iron ore prices are at least six times higher than a decade ago, yet bauxite and alumina now face challenging conditions. The gold price has dropped by a quarter in the past year.

The advances in mining technology over the past decade have in some cases been nothing short of extraordinary.

We need to keep the partnerships between public and private researchers that encourage this to continue.

Australia has the potential to take global leadership in some technologies, such as carbon sequestration and floating LNG.

The same is true in agriculture.

In the early days of Western Australia’s founding, wool dominated wheat in the export markets. Per kilogram, it was 10 to 20 times more valuable. And it required less processing.[4]

The story of Western Australian wheat isn’t a story of picking low hanging fruit.

It’s a tale of ingenuity.

CY O’Connor’s pipeline took water 600 kilometres, and was the longest pipeline in the world at the time of its opening.

The pipeline water wasn’t used to water crops, but it made inland wheat growing possible because it sustained the settlements along its length.

The rail network made it possible to get the wheat to market at a reasonable cost.

A bulk grain handling system – the nation’s largest cooperative – cut costs and boosted wheat exports.

Western Australia is one of the oldest supercontinents on earth – around 3 billion years old. But as a result, your soils are some of the least fertile in the country. They have less phosphorous, nitrogen and copper. So technologies have had to be better – using the right fertilizers and choosing the right seeds. Western Australian farmers have had to be more ingenious than farmers in other parts of the world who started with better soils. Necessity, as the saying goes, is the mother of invention.

The success of Western Australia’s mining and farming sectors aren’t just a source of pride and prosperity for Australia – they are also a key part of our engagement with the world.

In a number of speeches since entering politics, I’ve argued that Australia’s foreign aid program should focus on our comparative advantage: the things we do relatively better than other nations.[5]

Two of these advantages are mining and dryland farming.

Initiatives such as the International Mining for Development Centre and the Australian Centre for International Agricultural Research are a good start – but as I argued when I opened the ‘Mining for Development’ conference last year, we can do more.

This involves taking ideas out of Perth and into Africa. Australian mining companies’ standards of corporate social responsibility and safety can help raise living standards in the world’s poorest continent.

But Western Australia isn’t just a quarry and a farm – important as quarries and farms are.

This is also the state that produced Nobel Prize winners Barry Marshall and Robin Warren – who were willing to give themselves ulcers to transform our understanding of that condition.

It’s the state that gave us Fiona Wood, whose breakthroughs with spray-on skin have made lives of burns victims more bearable.

It’s the state that produced great economists like Nugget Coombs. And like Ross Garnaut, who I’ll be joining in discussion later today.

It’s the state that produced novelist Tim Winton – who regularly tops polls of Australia’s greatest author.

And it’s the state that produced singer-songwriter Tim Minchin, who is currently wreaking offence and hilarity across the United States.

Innovation is at the core of Australia’s future prosperity, and Western Australia is as well placed as any part of Australia to capture its benefits. Western Australia is a great example of innovation at work.

The Square Kilometre Array is one example of such a project. The Murchison site, 315 kilometres northeast of Geraldton, will be part of a project that will test Einstein’s theory of general relativity, search for dark matter, and assess if there are other planets out there capable of supporting life.

But innovation also happens at a more modest scale – through breakthrough architecture firms, health researchers, manufacturing exporters and the like.

It’s also about how companies make their production methods more streamlined, thereby raising overall productivity.

Better productivity isn’t like a cake that governments slice up and hand out.

But governments do play a role.

Governments need to ensure that every child gets a first rate education, which provides broad skills and critical thinking. Many of today’s graduates will finish their careers doing jobs that don’t exist today, so they need to learn to be flexible and adaptable.

Governments must provide appropriate infrastructure, such as urban rail. Look around the world, and you’ll be hard-pressed to find a highly productive city that hasn’t made the most of its city centre.

Congestion isn’t just maddening, it’s bad economics. And any government that thinks it can get away with skimping on infrastructure needs to get serious about productivity.

Finally, governments need to maintain what Lindsay Tanner once called a philosophy of ‘Open Australia’.[6] The old Australian model of tariff barriers and a White Australia policy made us poorer in wallet and spirit. Today, governments need to be willing to make the case for foreign investment, rather than merely pandering to the old canard that investment is good, except if it comes from overseas.

* * * * *

If you ever visit the headquarters of the World Trade Organisation, the leading advocate of global free trade, make sure you look at the murals on the wall. The WTO occupies the building that used to be the International Labour Organisation, so social realist friezes of happy and productive workers smile down on the trade negotiators as they go about their business.

It’s an image that Peter Cook always appreciated: the idea that prosperity and engagement can go hand-in-hand. It requires us to be optimistic about the ability of our firms to compete in the world economy. It necessitates that we make the smart investments in education and infrastructure, and resist the temptation to hunker down. It’s a vision that befits Western Australia, and one that I hope we can work towards in the Asian Century.

Peter Cook entered parliament in 1983, and within a few years had made an impact on the young and increasingly confident Hawke Government. One of the reasons he did so was that he entered the parliament without baggage. Intellectually, he brought with him an instinctive Western Australian understanding that markets – properly functioning – are a great generator of wealth, but that government has a vital role in promoting prosperity and fairness.

When you stand on one of Perth’s great beaches and look west, you can watch the sun set over the ocean. It’s a scene that always reminds me of Peter Cook. In politics – and other walks of life – fireballs rise and set. But there are a few who make big waves. That’s what Peter did. Western Australia – and the nation as a whole – is better for it. And it’s a lesson for each of us to follow today.

* I am grateful to several colleagues and staff for valuable comments on an earlier draft of this speech.

[1] Western Australian Department of Treasury and Finance, 2004, ‘An Economic History of Western Australia Since Colonial Settlement’, Research paper produced for the 175th Anniversary of Colonial Settlement 1829-2004.

[2] Andrew Leigh, 2013, Battlers and Billionaires: The Story of Inequality in Australia, Black Inc, Melbourne.

[3] Bill Shorten, 2014, ‘Leadership Matters’, 14 February 2014, Perth.

[4] As economic historian Ian McLean has pointed out, wool and gold shared two key characteristics: they were high value for weight, and required minimal processing before export.

[5] Andrew Leigh, 2011, ‘Fragile States and Agile Aid’, Lowy Institute, 18 May 2011, Sydney; Andrew Leigh, 2013, ‘Opening Keynote’, Mining for Development Conference, 20 May 2013, Sydney.

[6] Lindsay Tanner, 1999, Open Australia, Pluto Press, Sydney.

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