KGB: Dick Warburton

The chairman of Manufacturing Australia says up to 400,000 jobs are at risk without a proper industry plan balancing owners, managers, unions and the government.

Manufacturing Australia chairman Dick Warburton tells Business Spectator's Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:

Alan Kohler: Dick, do you think the car industry is a model for the rest of manufacturing?

Dick Warburton: I’d like to believe that it’s a starting process, but it’s still a long way from being an example of best practice, Alan. You know, the need to continue to get subsidies or some sort of protection means that it’s not happening as it should, so I’m not sure that you’d say it’s the best example of what should be happening for manufacturing, but there are certain elements of it that are very important to us.

AK: But do you think it’s reasonable to support the car industry with subsidies and not other industries, in particular other manufacturing industries?

DW: Well, I won’t get into the other industries, but let me tell you about the car industry because I do believe that the car industry is one of the national industries, along with petrol refining and along with steel, and I believe you’ve got to try and keep those industries operating within Australia. I think it’s important from a national point of view because, who knows, in 20 or 25 years’ time if we’re ever isolated – not much chance of it looking it at the moment, but we could be – you can’t turn on and turn off these industries like a tap, and so I believe that you’ve got to try and keep them operating. Now obviously subsidies [are] one way to keep it going for the time being, but hopefully you’d get a situation where they become self sustaining in their own right – not an easy thing to do, but that’s what you’ve got to work towards.

AK: There’s never been any sign of that with the car industry.

DW: Well, no. I listened to Mike Devereux the other day from General Motors Holden and he stunned me a little bit by saying that every country that manufactures cars either does so behind high tariff walls or from subsidies and that makes me then wonder about the car industry globally, let alone just in Australia.

Robert Gottliebsen: But increasingly the car industry is about robots and very high productivity. My fear is that the Australian industry has not made the investment that, say, the US car industry has made in terms of its efficiency, and unless it does that we have got a difficult situation.

DW: Well, they don’t appear to be going at the pace of what we’re seeing overseas and so clearly if it’s going to be sustainable, there’s got to be more of it done in this country. To go the way we’re going at the moment with almost ad hoc appeals from the car industry every couple of years for "please give us money otherwise we’ll pick up our bat and ball and go” is not a good way to be running the car industry. If we’re going to do this, there’s got to be a significantly longer medium-term to long-term plan which involves both the car industry and the governments, but then also the employers, employees and the unions.

RG: Any chance of that?

DW: If we don’t do it, then I think that we are doomed. I get pessimistic then, but being an optimist at heart, I believe you’ve got to try and work very hard at going to that particular level of productivity that we need.

RG: Dick, we’re seeing the Australian dollar rise further and further, particularly as our currency becomes equated with gold. How many jobs do you think are at risk in manufacturing?

DW: The dollar now – it would appear almost to be a structural change rather than a cyclical change. Whether it be structural or cyclical doesn’t really matter, it’s what we’ve got. It’s created one extra burden to what we always had before, and that was high labour costs versus the lower labour costs overseas, and all I say, in manufacturing generally, – and we tend at the moment to be focused on the car industry, I’d rather be focusing on manufacturing as a whole – we’ve got to try and learn to take better advantage of the advantages we have to overcome the disadvantages we have, and there are certainly ways and means of doing that.

RG: How many jobs do you think are at risk unless we do change? Are we talking ten thousand or a hundred thousand?

DW: Oh look, if we keep going down this path, we’re talking closer to a hundred thousand, which is a real concern because manufacturing in total, and the car industry is a big part of that, is a great employer of people. And it’s not just the employment of people that’s important; it’s the cluster businesses that come to the side of that, which probably represents something like three to five times more the employment in those side businesses of part manufacturers.

RG: So, you’re talking about if there are a hundred thousand in the base business, you’re saying this is a three hundred- to four hundred thousand-job situation; that we could lose three to four hundred thousand people if we mess this up?

DW: Well, that would be disastrous. You’re on the downward spiral and it would be very, very hard to recover from that. What we’ve got to try and do is just stop it at this stage.

RG: Do you agree that if we get it wrong, they’re the sort of figures involved?

DW: Oh, very much. If we get it wrong now, as I’ve said, we’ll be on a downward spiral that would be very, very hard to stop. We’re not at that tipping point, if you use that term that’s been thrown around a bit lately, we’re not at that tipping point yet, but boy it doesn’t take long to get there if we don’t correct things pretty soon.

RG: I wonder whether what you’re really saying is that given that Tony Abbott has a pretty ‘stand back’ view in terms of this, this in fact might be Julia Gillard’s ticket to be re-elected. She’s now more popular than Abbott as a prime minister in some of the polls and she will have this motor, and perhaps extending to other industries, support base as a major attraction for three or four hundred thousand people plus their families to be reelected.

DW: I’m not quite sure which way the Coalition is going – clearly Abbott has made it very clear, but they’re obviously still debating the issue within their own party and I think they’ve got to come to their own Waterloo as to what they’re going to do going forward in this.

Stephen Bartholomeusz: Dick, let’s get back to the macro picture. Dick, you were a senior executive in industry during the ‘70s and ‘80s when the tariff walls came down and there were real fears about the future of industrial Australia, but the resources flowed elsewhere and we ended up with a more modern, more efficient industrial sector including manufacturing sector. Why wouldn’t that happen again?

DW: Well, I believe it can happen, Steve. If I go back to the early ‘90s when we had the Australian Manufacturing Council operating and there was very good cooperation between the government, between management, between unions to arrive at and seek best practice in manufacturing. You might recall in those days we had the best practice demonstration project where we studied those companies that are successful utilising best practice to get the best productivity and the best returns and the lowest costs, and that was successful. There are no two ways about it back then. We seem to have drifted away from that and that’s one area that I would like to encourage all parties to come back to again. And one of things in Manufacturing Australia I’ll be attempting to do.

SB: But you could transfer this practice knowledge without necessarily having to have taxpayer assistance.

DW: To transfer the knowledge, you really do have to get all parties cooperating rather than heading towards what is now a more antagonistic style again which was more common in the ‘80s and early ‘90s before we stopped it. Somehow, somebody or some people or some group has to try and get these parties to see that cooperation is far better than antagonism. It sounds altruistic, but it’s a true story.

AK: Dick, in your new job of head of Manufacturing Australia what are you actually asking for? What are you trying to get?

DW: Well, first up we want these parties to do what I’ve just been talking about. That’s one of the things. But secondly, we clearly have to try and encourage advanced manufacturing, better technology. Clearly we need to improve our productivity. We’re flat-lining at the moment on productivity. Now, how do you improve productivity? There are a number of factors. There’s IR laws, there’s taxes. There’s innovation, creativity. A number of things come under that umbrella of productivity, but these are the areas, and what somehow we and Manufacturing Australia are going to try and do is to encourage the parties that these are the important things we should look at rather than letting things just drift. I believe they’re drifting.

AK: But Dick, are you lobbying the industry rather than lobbying the government?

DW: I’ve been doing both because the industry’s got to do it themselves. It’s not just the government. You can’t run to the government and say you’ve got to do this, in fact far from it. Management has got to step up to the plate too and work very hard at making the changes that I’ve been talking about.

RG: Would you agree with me, Dick, that bad management is probably a very big part of the problem? And I illustrate it with the food industry where you had some of our worst executives. They signed agreements with their workforces which were absolutely hopeless and as a result their shareholders wouldn’t invest in the plants and one by one almost all the food manufacturing plants were transferred to other countries and it wasn’t so much that we had an inherent disadvantage, it was because bad managers had signed bad agreements with their work places making it impossible to invest. I fear that’s the case elsewhere.

DW: Yeah, Rob, it’s the combination of all three. It’s certainly, whether you call it ‘bad management’ or ‘not good management’ – I’m playing with words when I say that obviously – but it’s a combination of management stepping up to the plate which they must do. There have been some foolish things done, but by the same token you’ve got to have unions and employees wanting to work with management. Now, how do you get that to happen? You get management to get closer to the workforce, give the workforce greater opportunities to be part of the sort of programmes you need to do to get this cooperation going, as we got going in the early ‘90s.

SB: Dick, you referred to the oil industry before as a kind of essential industry. You obviously have plenty of hands on experience of that industry. Is it rational that we should have a refining industry in Australia where if you put all the refineries in Australia together, they’re still smaller than some of the new refineries built offshore?

DW: Well, the refineries we have at the moment are all relatively small. The largest one of course is Kurnell and every one of them is in this day and age too small to be actually productive. What you would need if you ever wanted to do it is to have at least one, maybe two, large scale refineries, but that would mean all of the companies, the three basic remaining companies there, to pull together and do that. There’s no sign of that happening at the moment because each one points to the other and says well we’re the ones who should do it and not you. So, it’s a long, long way from getting that large scale refinery that we could do if they would all cooperate and work together on it.

AK: But that’s the thing, isn’t it, Dick? All of the talk that you make is not going to make either the oil refining or the steel industry competitive. I mean they just can’t be. You could talk all you like – it’s just not going to happen.

DW: Well, it’s not at the moment. There are no two ways about it. However, what’s the alternative? The alternative is eventually they all close down and we don’t have a refining industry in Australia. That to me would be a strategic disaster. Now, we did have some discussions going back 15 years ago with the possibility of could you perhaps close Kurnell and maybe even utilise that as the extra airport and build a large refinery up at Newcastle? This was after BHP had moved out. The land is there. The space is there. The port is there. There’s even the line between Newcastle and Sydney. It was spoken about initially, but didn’t really get off the ground. That’s the sort of thing though that you’d have to do. But I’m a bit with you. I’m a bit pessimistic it would ever happen.

SB: If you applied that formula, say to the car industry, would you say we should only have one car plant, commonly owned?

DW: I’d have more difficulty understanding that because they all like their own particular brands and their models and so forth – certainly I would envisage that we could be getting down to two car manufacturers rather than three, but I’m not quite sure how that would operate the same as I’d see it with refining. Refining is much more a single product type thing whereas the cars are different models and brands. I’m just not sure how that would be done.

AK: But I guess that gets to the whole question of the manufacturing industry in Australia in general. I mean isn’t the message that manufacturing for the domestic market is simply unviable in Australia and the only manufacturing that really is viable on its own is for export? But the trouble with export is that our dollar is a dollar and seven US and so really, it’s a basic, fundamental problem, isn’t it?

DW: It is. And if we just took the attitude that well that’s it, let’s close the door, let’s get out of here, then I think we’ve got a very unbalanced economy. We’re limited then to basically mining, financials, tourism, maybe agriculture. And I think that’s out of balance, so that’s the pessimistic view. The optimistic view is you work hard at it. Now, we are a high cost manufacturer, no two ways about it, but so is Sweden. You look at some of the things that are happening in Sweden where there are high costs and yet they’ve got a fairly vibrant and competitive and profitable manufacturing industry in Sweden and they make for both the local market and for export. These are the sorts of best practices that I’d like to see us looking at and say why can’t we do the same as that? Why can’t we work towards those sorts of things? I believe we can. Hard work, but it can be done.

RG: What about accelerated depreciation? Would that help?

DW: Yeah. It would assist. It’s an element that certainly would assist manufacturing, but it’s got to be a combination of a number of things and I repeat them again: the IR laws, the taxes – well, the taxes come under the accelerated depreciation – and greater efforts towards better innovation, particularly the parts manufacturers and the high-tech manufacturing companies.

RG: Dick, as you move around the politicians on both sides, is there any one or any two politicians that understand that?

DW: I’ve got to be careful here... No, I really don’t.

RG: You don’t think we’ve got one politician in Australia that understands that?

DW: I don’t see anybody the likes of a John Button in that area at the moment.

RG: What about Kim Carr?

DW: And you need somebody like John Button to pull all this together. But what I’d like to do, if I could, is to try and find that one or two key politicians. Maybe Ian Macfarlane is one. Maybe Carr is another one.

RG: What about Shorten?

DW: Although Carr is out of Cabinet at the moment which makes it very difficult.

RG: What about Shorten?

DW: But somebody who really decides we’re not going to be pessimists, we’re going to be optimists; we’re going to try and make this work. And that’s what we need if we’re ever going to succeed. A tough job, but it’s the only thing we can do.

RG: What about Bill Shorten?

DW: Yeah. Bill could do it. I’m quite convinced of that. If he can make sure that the high ambition doesn’t get in the way of doing things. But he’s a very good communicator and when he puts his mind to pressing for something, I think he is actually good. He is actually one who could do it too.

AK: But Dick, everyone says John Button was great and I was a huge admirer of John Button as well, but here we are 30 years later and the manufacturing industry in Australia is still buggered. We’re still propping up the car industry. I mean he did a lot of good things at the time, but nothing worked.

DW: Well, I disagree with you there, Alan. I think things did work. I thought we had a more vibrant… Now, we are focusing on the car industry. I would like to spread it much wider to the manufacturing industry in total. The car industry is almost a different kettle of fish. The manufacturing industry in the ‘90s in my opinion definitely did show signs of improvement. We definitely had much better productivity, but it’s all drifted. There is nobody championing this particular industry with a passion that you need to have if you’re going to make it work, and it needs the passion. Maybe it sounds silly saying that, but if you don’t have that, if you just want to drift along, then I get pessimistic.

RG: Dick, finally as you work around manufacturing enterprises around the country what’s the one thing you’ve seen that is really a highlight in terms of making people efficient, something quite simple and direct?

DW: Look, what I see is the ones that are either successful or moving towards success are when you move around a plant and you see the bonding between the work units and management as such, they’re the ones that actually operate best. When you see people looking away from management, the workers looking away from management, not wishing to talk with them, or management not getting out on the shop floor and working out amongst them, you know you’ve got a problem. So, I see it as I walk around to look for the attitude of these employee-and-management relationships and when I see good ones, I know it’s going to succeed.

RG: So, when you walk on to a manufacturing floor, within 30 seconds or a minute, you know whether the company is on the right trend?

DW: I can see it pretty quickly. I can see it pretty quickly when you walk in there. You see it in the attitude of the workers. You also see it in the work place cleanliness, safety, efficiency, lines operating without bits and pieces on the floor. You can see it almost immediately the difference between those that are going to work and those that aren’t.

AK: That’s great, Dick. Thanks very much for talking to us.

DW: That was a tough one. Thanks a lot.

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