What has become more important to the Australian economy than getting competition policy right and getting more changes into unfair contract terms?
We currently have shortages causing deep concern for industry. This includes things we didn’t even know were essential — like urea, or AdBlue, for trucks and CO2.
It is now obvious. If we want to be able to deal with future emergencies, current pandemics, and ongoing changes in climate, as well as trade wars (think China), we need a manufacturing sector that is flexible, innovative, efficient and bigger.
The fostering of small manufacturers, and the clearing of obstacles to their success, has become critical.
Manufacturing doesn’t have to be about a few huge factories with thousands of workers — those days are gone. Small and medium businesses already make up the greater number of manufacturers in Australia — there are over 40,000 small businesses in the domestic manufacturing sector. However, there can be more and there must be more.
The COVID-19 pandemic has shown again and again that Australia is lacking in certain key supply chains and our national sovereignty is under threat.
It’s not just urea for trucks (who would have thought that?), it is also PPE for the health sector, machinery parts for agriculture and transport, and micro-chips for just about everything; our reliance on imports and the lack of domestic suppliers has created real problems. This was particularly true in the early days of the pandemic as we rushed to develop responses and provide protection for front line workers and the vulnerable.
We now find there are further supply chain issues as the lack of workers affects the domestic market and decisions made in overseas markets eat into our own imports.
One important and dynamic way to develop a better and broader manufacturing base is through access to government tenders and government supply chains for smaller businesses.
It is important to note that the major aim of a government tender process remains the same: to get the best outcome, in ways of quality, for the best price. There is also consideration of the public good, of due process with transparency, and of the best use of the taxpayers’ dollar.
Not all small businesses will want to tender or compete for government work, but the small business sector is where the innovators and the people with big ideas exist.
There are several ways we can do this. Through: skills development; changes to competition policy; and improving the relationship between the big businesses who will win the large contracts and their small suppliers (a small business will never build a large bridge or a new hospital but they will be sub-contractors to the eventual winner of the government work.)
Competition policy is of course important. Now that Rod Sims is retiring as chair of the ACCC we need to take a closer look at this area and ensure the work he has done is not undermined by mindless laissez-faire ideologues.
Competition policy must be about the future as much as it is about the present. If competition policy, or the way it is regulated, creates cheaper goods now but destroys our domestic capacity to make or sell those goods, then the future is one with fewer local jobs. Then, as always, when competition decreases, prices will rise as a very few multinational companies dominate the marketplace with cheap goods manufactured elsewhere.
Any policy cannot be about protection, as that makes businesses lazy and inhibits innovation. It must be about ensuring competition and choice that creates a secure functioning domestic economy.
The need to improve fairness in contracts between big and small business remains an issue. Many big businesses understand the need to work professionally with their small business suppliers, but too many — often multi-nationals, particularly in construction — see small businesses as prey and include completely unfair and unworkable clauses in contracts. The federal government has legislation in play that lifts the threshold for unfair contract term provisions to take effect from $200,000 to $2 million. This is an essential change that must be supported by all parties.
As well as unfair contract terms, the issue of payment times from big business to its small business suppliers is a critical issue. When a big business wins a government contract there needs to be steps in place, from government agencies, to ensure the big business pays its subcontractors on time.
Finally, given the complexity that will always exist with government tender processes, there is the need for training and skills development of small business people and staff who want to get into the government marketplace but cannot get access due to the lack of ability and understanding. The NSW government has developed a training package and skills development process focused on increasing the number of small business suppliers to that government. Other states should follow suit.
A functioning, efficient manufacturing base adds resilience, flexibility and depth to an economy.
We must get competition policy and regulation right, make contract terms and payments between big and small fairer, and give small business people the skills to compete for government tenders.
Then we can have a buoyant innovative manufacturing sector and a more reliable economy and greater faith in our own sovereignty. And maybe even make our own urea.
Peter Strong was CEO of COSBOA for many years, and has worked for the federal public service, the World Bank and the UN.
