Thursday 10 August 2023

CHECK AGAINST DELIVERY

What would you do if you were given 18 months to live?

How would you spend that time?

Travel the world? Experience as much of life as you could?

Not many of us would think to write a book on Australian national security.

Yet that’s what Jim Molan did.

As the shadows grew long, he laboured hard for his country.

He marshalled his strength, mind and pen for Australians past, living and yet unborn.

It was Jim’s final act of patriotism to warn us of the dangers ahead, and the risks if we fail to act in the face of a rising China.

Very few people who depart this world can speak their mind in such a way.

On a national stage, with a powerful message, and to so many people.

Jim gave us ‘Danger on our Doorstep’ – a book that argues that war on our doorstop is not just possible in the coming years, but that it is also likely.

It was an uncomfortable read, as it was intended to be.

And tonight, it is my honour and privilege to build on some of these themes in this inaugural Jim Molan Oration.

I begin by acknowledging the Molan family: I know that Mrs Anne Molan is not able to be with us tonight, but I would like to thank her for agreeing to the launch of the Oration.

I’d like to acknowledge her strength of courage, support and love for Jim and for her love for our country.

I also acknowledge Felicity Cooper, Jim’s daughter, and Dale; and also here is Clare Page, Anne’s sister, and her family.

I understand how difficult this past year has been for you as you mourn your loss.

Many of us gathered at the Duntroon chapel in January to lay Jim to rest and we are grateful for your presence and support tonight, and for the opportunity to honour Jim in this way.

Can I also acknowledge the organisers of this event: Mark and Natalie Schweikert; and Matt Shea, and their hard work making tonight happen.

One of the primary themes of Jim’s work has been that of resilience and self-sufficiency.

He argued that Australia lacks both.

What did he mean by resilience and self-reliance?

By resilience he meant the ability for Australia to take a hit such as the reduction or cessation of shipping due to international tensions or war.

By self-reliance he meant the ability of Australia to domestically manufacture the goods and services we need.

Jim argued that our prosperity has come at the expense of our security, making us vulnerable to economic and strategic coercion. Our weakness has become provocative.

How did we did get to this point?

The last forty years have seen an economic revolution across the English-speaking democracies of the United States, the United Kingdom and Australia—now joined through the AUKUS pact.

Market-centric reforms in the 1980s opened the AUKUS economies to global markets, international finance, and foreign competition.

Under Bob Hawke, Australia abandoned tariffs protecting jobs and industry, the financial system was deregulated, the dollar floated, and foreign banking competition introduced.

We’ve seen vast changes over the last few decades. Many have been good. We’ve enjoyed great prosperity.

We’ve seen a massive lift in living standards here in Australia. The OECD Better Life Index has Australia outperforming the average on income, jobs, education, health, environmental quality, social connections, civic engagement, and life satisfaction.

On income alone, we beat the OECD average by almost 25%.

The average Australian household net-adjusted disposable income per capita is USD 37 433 a year, more than the OECD average of USD 30 490 a year.

But it isn’t the full story.

This has not come without cost to the Australian industrial base and workforce.

Without government support, Adam Smith’s invisible hand swept a lot of our sovereign industry off the Australian map.

We’ve seen Australian manufacturing offshored into East and Southeast Asia, drawn by the relatively cheap labour, and accelerated by the free-trade agreements struck with several countries, notably China in 2014.

Australia has transitioned to a services economy, with 90% of Australians now employed in the services sector, accounting for approximately 80 percent of economic activity.

Since around 1991, manufacturing has declined from approximately 14% of industry output to less than 6% in 2022.

For many Australians, the collapse of our car industry is the story of manufacturing decline in this country.

Yet the decline continues.

Business investment as a percentage of nominal GDP into Australia continues to decline, but particularly in advanced manufacturing.

Australian labour productivity growth is now at a sixty-year low, averaging 1.1% for the decade just gone.

It’s clear that we’re facing some strong economic headwinds.

All this is happening as authoritarian powers like China and Russia flex their muscles in the region.

Our need for a reborn Australian manufacturing sector is now vital. Our sovereignty depends upon it, our allies and partners depend upon it.

But therein lies the promise and opportunity of AUKUS: not only in the delivery of nuclear-powered submarines, but also in the potential to rebuild a sovereign manufacturing sector.

Australia is uniquely positioned as the junior partner in AUKUS to build security in the critical minerals and rare earth supply chain.

By virtue of our geography and our rich endowment of resources in this country.

It was historian Geoffrey Blainey who first coined the phrase, the ‘Tyranny of Distance’, to describe the way Australia’s geographical position and isolation has moulded our history.

Distance has been something that we’ve had to overcome.

It explains in part why the Australian car industry struggled, and ultimately failed.

The long-term shift of car manufacturing into emerging economies such as China, India, and Thailand killed off Australian car production.

Our distance from export markets played a role, too. We have always been at the periphery of global car production.

Local plants here operated independently, without deep integration into the global supply chains of their parent companies.

Nor did Australian manufacturers make significant technological innovations that shaped the global automotive sector.

Relative remoteness diminished our competitiveness.

Geography matters, especially when you sit at the tail end of a competitive global industry.

Yet, as Blainey notes in his final chapter, distance is not always a tyrant. It can benefit and protect as well as harm and impede.

Especially in times of crisis – like a pandemic or a war.

In our present time, our geography is a strength—something to be leveraged.

We offer not tyranny, but liberty.  Two liberties, in fact.

The liberty of distance. And the liberty of abundance.

These two natural advantages, fostered by leadership and government support, could turn Australia into the innovative edge of the AUKUS enterprise.

Build our resilience. Revive our sovereign industry. Lift our productivity and wages.

First, the liberty of distance.

Great power rivalry is back. Authoritarian powers are on the move.

The rise of China and Russia poses the greatest threat to our security in a generation.

China is undergoing the largest military build-up since the end of the Second World War. Russia has drawn the sword against Ukraine.

Together, China and Russia support each other through the ‘No Limits’ partnership.

This has consequences.

Geopolitical tensions now pose a threat to the security of global supply chains.

Many of our partners in the region sit uncomfortably close to China’s military capabilities, whether in the South China Sea or beyond.

Our allies like Japan, South Korea, and US bases are within range of Chinese ballistic missiles. 

The northwest Australian coast sits at the outer edge, but we are vulnerable if they are launched closer.

Our allies and partners are also vulnerable to coercive statecraft. We can no longer count on the free movement of goods and services in the region without the risk of interference.

The need to diversify supply chains and offshore advanced manufacturing—as we are seeing with the South Koreans—presents a unique opportunity for Australia.

Australia sits at the edge of Chinese force projection, and so our geography and remoteness make us a place where partners can diversify their manufacturing and supply chains.

If globalisation led to the offshoring of Australian manufacturing, then the new geopolitical disorder can bring it back home.

Second, the liberty of abundance.

We are a country richly endowed with natural resources.

Our primary exports are iron-ore, coal, and gas.

Most of those exports go to China. That’s no secret. But we also have an abundance of critical minerals and rare earths.

And herein lies the opportunity: both critical minerals and rare earths are vital to many of the emerging AUKUS capabilities, as well as defence innovations of the future including missile guidance, satellites, and aircraft.

There are also a myriad number of applications across the civil economy including automobiles and clean-energy industries.

Our partners need to diversify their supply and production chains away from China, which enjoys a dominance over the critical minerals and rare earths processing sector.

China casts a long shadow over the supply chain from the shovel at the mine site through to the pointy end of the modern battlefield.

This must change.

And this is where Australia has an unrivalled comparative advantage here: we have an abundance of essential mineral reserves, a world-class mining sector, relatively easy access to the minerals, a stable political system, advanced infrastructure, and the knowledge economy to support the growth of this industry.

The sheer abundance of Australia’s battery-minerals reserves—those minerals essential to batteries and defence manufacturing—puts us, especially WA, at number one in the world by country—far above second-placed China. 

We dwarf the US and UK in reserves of lithium, cobalt, manganese, nickel, iron ore, copper, bauxite, and rare earths.  Rare earths are especially critical to our partners, with approximately 3,300 items of US military equipment dependent on them.

Fighter jets, naval vessels, electric vehicles, green energy—they all depend upon it. As does your phone, your laptop, and anything that stores electricity.

We have a liberty of distance, that in this time of increased geopolitical risk, makes Australia an attractive location for our close allies and partners to diversify their advanced manufacturing and critical mineral supply chains.

We have a liberty of abundance, that puts us in an enviable position with our world-leading reserves of critical minerals and rare earths.

Our close allies and partners need to break China’s dominance of the critical minerals and rare earths supply chain, and we are in unique and favoured position to do that.

The question is: where to from here?

Do we want to become the innovative edge of the AUKUS enterprise?

Do we want to recover advanced manufacturing in Australia?

Do we want to build a critical minerals and rare earths mining - processing - production value chain in Australia?

More to the point, can we afford not to do so?

Can we take that risk with our sovereignty, and that of our close partners?

These are fundamentally questions for government.

I think the answer is that we should do all these things.

But we cannot continue with business as usual, with the same economic orthodoxy of the last forty years and pretend that the market will take care of it.

Jim’s grave assessment is that Australia has become weak.

So how do we now play to our strengths?

Governments need to be involved and support industry. The UK, US, Taiwan, Japan and South Korea have vibrant industries because their governments have supported them through different incentives and direct support.

They pick winners, and work closely with business and industry. And they aren’t squeamish about it.

It’s a reality of the world we live in. We need to wake up to it.

Witness the US CHIPS Act, a bipartisan bill, which has provided some USD 280 billion in new funding to boost domestic American research and manufacturing of semiconductors, including USD 39 billion to support home grown chip manufacturing and tax credits for related equipment.

This legislation bolsters the US in its advanced technology development of artificial intelligence, quantum computing and other innovation.

Back here, for some reason, we can support the renewables, aged care, and childcare sector with subsidies, yet we have not done nearly enough to build and support advanced manufacturing.

West Australian company, Lynas Rare Earths, wouldn’t exist today without the support of the Japanese government.

It persevered 11 years without profit, and it was millions of dollars of strategic investment from the Japanese that made the difference.

The message is clear: the great game is afoot. And the way to win is by rebuilding resilience and self-reliance.

We need strategic leadership from government, business, and our partners to create these industries and value chains.

Even Adam Smith, who has been unfairly misrepresented by politicians over the years, conceded that the government has a role in the economy on the grounds of national security.

As he put in his Wealth of Nations: ‘defence is of much more importance than opulence.

In the case of AUKUS, I think we can do both—we can secure ourselves from strife and build our prosperity at the same time.

Thank you.