15 April 2015

The Next Wave of Global Economic Growth, Speech to the Morgan Stanley event in New York


Check against delivery

James Gorman Introduction

I’m not sure if everyone knows this, but James is a born and bred Australian, from Melbourne.  Through his talent, leadership and a hell of a lot of hard work, he has earned himself an amazing career as a global banking leader.

New York has been good to James as it has been to many expatriate Australians.

This city is not just a powerhouse for the United States, leaders in New York set the tone for global confidence.

So New York’s new found confidence is infectious, for America and for the world.

This city has no choice but to embrace change. It is a fast moving city that embodies an increasingly diverse and innovative world.

It is emblematic of the change that is impacting every corner of the earth.

To state the obvious our world is changing rapidly.

Free markets, new technology and increasing mobility of capital and labour are shifting the sands to the benefit of consumers.

Many governments are being left behind.

Laws and regulation are failing to keep up.

Community leaders tend to fight the future based on a longing for days well past.

Consumer sovereignty is redefining commerce.

And as a result, every business in the world no matter how big or small it is, can be a multinational.

Every business can service the globe by accessing markets with an immediacy, as fast as a click of a mouse.

Capital is global.

Labour is global.

Intellectual property is global.

Supply chains are global, and the list goes on.

Of course some in the community are naturally threatened by this change.

Moreover to many, the increasing speed of change as a result of freer global markets and new technology is even more threatening.

Even in America, which has been the biggest beneficiary of freedom and innovation over the last 50 years, change associated with new technology can be dislocating for everyday citizens.

The Global Financial Crisis illustrated how quickly an integrated global market can disassemble.

The loss of wealth and the loss of jobs was more immediate and graphic than anything we have witnessed in living memory.

But the rebuild has begun.

Despite the anxiety there is recognition that globalisation has provided more economic growth and wealth than we have ever witnessed before.

It has provided remarkable opportunities for our economies, to stretch beyond the confinement of our borders, and tap into new and exciting markets.

In short, modern globalisation has created jobs and wealth on a scale previously unimaginable.

So where are we today?

Why haven’t we seen global growth return to the same levels as that of the pre-financial crisis world?

Well our citizens are moving in the right direction by embracing change, particularly through the use of new technology in their daily lives.

But governments have been much slower to adapt to the breakdown of national borders, the removal of national biases and the empowerment of individuals beyond the reach of the state.

Restarting the global economy

As I said, it is now seven years since the start of the financial crisis and global growth has yet to experience a sustained pick up.

Most alarmingly, unemployment rates around the world remain stubbornly high.

There are many economic commentators who are prepared to tell you that the future prospects for global economic growth are mediocre at best.

As they say off hand, growth remains below trend.

They don’t see our citizens and companies exploiting the potential opportunities out there. Opportunities that would enable us to prosper and grow.

The doomsayers will only be right if we give up on earning growth and improving productivity.

I’m here to tell you that the 7 years of bad luck from the broken mirror of the financial crisis can end. And it will end.

We just need to look over the wall and see the opportunities which abound.

Opportunities such as the rapid evolution and adoption of technology by individuals and not just business. The disintermediation of consumer engagement is revolutionising global commerce. A wide range of service providers and self-service apps like Uber, AirBnB and many others – are providing scope for everyday people to do business directly with each other, cutting out customary middle-men.

This trend is smashing economic traditions.

And because this trend is genuinely global there are huge opportunities in the awakening and transformation of massive emerging economies like China, India, Indonesia and Brazil.

This change is creating prosperity and demand for goods and services like never seen before. 

But we all have a role to play in delivering this growth.

And governments in particular, need to understand the urgency to put our economies in the best position to benefit from these opportunities.

We can begin by removing red tape, removing excessive regulations and removing trade protectionism.

We can begin by providing much needed critical infrastructure such as fast broadband and well supervised financial systems.

We can begin by outlining a future direction and a plan that gives you the confidence to innovate, invest and take risks.

I can report to you that Australia is open for business and is getting on with the job of future proofing the nation.

Australia’s plan is for a strong five pillar economy. An economy based on manufacturing, agriculture, mining, education and services.

I will outline aspects of this today, because it is this diversity that gives us strength.

Global Economy

I am fundamentally optimistic about the outlook for the global economy.

Both in the near and long term.

We are starting to see many green shoots in economies across the world. 

In the past 12 months, the US economy has displayed increasingly broad‑based growth, and has generated a staggering 3 million jobs. The housing market is improving and business investment is picking up.

The euro area has shown signs in recent months that it may also be turning a corner, benefiting from a weaker currency and lower oil prices.

The UK recovery continues to go from strength to strength, with activity lifting across a broad range of sectors.

Even in Japan, we have seen a promising return to growth with the IMF upwardly revising expectations for the Japanese economy.

In my view, Chinese growth will continue to be strong, with Chinese authorities doing all they can to deliver 7 per cent growth this year.

And while many will be quick to point out that the rate of Chinese economic growth has declined in recent years, they forget to mention that China is currently expected to be the second fastest growing major economy in the world, after a rejuvenated India.

Given the size of their economy, one with over a billion consumers, 6 or 7 per cent growth on a much larger economic base is an exciting prospect.

Australian Economy

Australia also continues to perform very well. Australia is currently in its 24th year of uninterrupted economic growth. 

Our links with China, and Asia more broadly, have been part of that success.

Last year Australia exported 550 million metric tons of iron ore to China.

That’s enough iron ore to build a Golden Gate Bridge that stretches from San Francisco to New York City. It’s actually enough iron ore to build that bridge twice.

Last year Australia exported 160,000 metric tons of beef to China. That’s enough beef to make 1.7 billion Big Mac’s.

We recently concluded negotiations on a free trade deal with China, a deal which abolishes tariffs across a range of agricultural and resource products.

It also opens the door for a massive increase in services exports within our time zone.

And for Australia the opportunities are huge given that services represent almost 70 per cent of our GDP, but just 17 per cent of our exports.

We have also signed free trade deals with some of our biggest trading partners, such as Japan and South Korea, and we are now negotiating with mutual fervour a new Free Trade Agreement with India.

This is great news for consumers. In Australia, we are seeing Toyota cars up to $1,000 cheaper because of our FTA with Japan.

Australian exporters have seen the removal of trade barriers on everything from dairy products to financial services.

Notwithstanding these opportunities in our region, one of our most significant free trade agreements over the past decade has been with the United States.

In that decade, the value of US exports to Australia has more than doubled.

Both sides have benefited greatly. As part of the free trade agreements, we removed requirements around foreign investment screening rules.  And in that time, we have seen a doubling in foreign investment from the US into Australia.

As an example, Chevron is currently the largest foreign investor in Australia, and employs 17,000 people in Australia. Chevron’s investment will position Australia over the next 5 years to be the world’s largest LNG exporter.

This builds on our status as one of the largest exporters of coal in the world.

But it isn’t just resources. A lot of the US direct foreign investment went into the high tech and services based industries.

We have seen, in a decade, a quadrupling of investment by the US in Australian scientific, technical and professional services, which is now worth over $8 billion.

And that’s significant, because our vision is wider.

I can report to you that in future proofing our nation we are looking beyond our traditional strengths in mining and farming.

Services are at the heart of the Australian economy and ironically it’s not mining companies that dominate our stock exchange, but rather financial services.

So we are well placed to respond to the huge demand for our services from the rising Asian middle class.

To put that demand in perspective, within this decade we will see as many Asian middle class consumers as there are in Europe and North America combined.

By 2030, China and India alone will be home to over 2 billion middle class consumers, with another 220 million in Indonesia.

And these markets have money.

China has the second largest number of millionaire households in the world, surpassed only by the United States.

So our free trade agreements are being designed to position ourselves in these markets.

For example, China has committed to deliver new or improved market access to Australian financial service providers in the banking, insurance, funds management, securities and futures sectors.

China has also guaranteed that Australian service suppliers will be able to construct, renovate and operate wholly Australian-owned hotels and restaurants in China.

And Australian travel agencies and tour operators will be able to establish wholly Australian-owned subsidiaries in China for tours within China for both domestic and foreign travellers.

Moreover, our Free Trade Agreement reduces red tape for Australian medical service suppliers, which will be able to establish wholly Australian-owned hospitals and aged care institutions for the first time.

This is a potentially significant opportunity as the Chinese population ages.

As I said at the beginning, reduce red tape, reduce protectionism, and you will prosper.


The demand from Asia goes beyond commodities and services. This stellar growth has resulted in a greater need for essential infrastructure.

With rising incomes come rising expectations. The demand for clean water, reliable energy supply, and reduced congestion on roads will continue to rise.

More airports, more shipping ports, and more rail will also be required to move the products between markets.

The Asian Development Bank estimated that over this decade, there will be an $8 trillion infrastructure gap in the Asian region. That’s $8 trillion of unmet demand.

As President of the G20 last year, Australia put infrastructure at the centre of the agenda.

Australia secured the agreement of all G20 members to establish the Global Infrastructure Hub which is based in Sydney.

The Hub will work internationally to help countries improve investment settings, reduce barriers to investment, grow their project pipelines and help match investors with projects.

There is a significant amount of patient global capital waiting for the opportunity to invest in new infrastructure.

Internationally, pension funds - which intuitively are well suited to long term investments - invest only 3 per cent of their assets in infrastructure.

The Global Infrastructure Hub will leverage private sector interest and lift investment well above business as usual.

In truth, and particularly after the financial crisis, only private sector investment can get growth back on track.

The Chinese Government realises this and wants to address the massive infrastructure gap.

As such, they have taken steps to establish the Asian Infrastructure Investment Bank, known as the AIIB.

The AIIB is not a development bank. It has a different mandate to the World Bank, which is designed to focus on poverty alleviation.

The AIIB will be a bank designed to partner with the private sector to deliver infrastructure with a positive rate of return.

Australia has indicated that it will join the AIIB, along with over 50 other countries, such as the United Kingdom, Germany and Korea.

Yes the governance arrangements must reflect world’s best practice and the investment decisions must be made on commercial grounds.

But we are sitting at the table with China, and we are confident that a world class institution can be achieved.

This is good for Australia, as it will lift economic growth in the region, as well as provide direct opportunities for Australian firms to sell and market their world leading infrastructure expertise.

A new pipeline built in Indonesia may well carry Australian LNG.

A new railway built in Vietnam may well transport Australian agriculture.

A new port built in India may well accept iron ore shipments.

Better infrastructure in Asia is a massive win for Australia.


Finally, I want to talk about the opportunities technology presents.

The one thing everyone knows about Australia, is that it is a long way from here.

And while you might see our proximity as being in the Asia region, you might be surprised to know that Berlin is closer to Beijing, than Sydney is to Beijing.

But new technology is our best friend.

Technology is removing the tyranny of distance.

Technology helps with communications and sharing of information at instantaneous speeds.

Technology allows transactions and payments to all occur without ever meeting the customer.

In Australia, three quarters of our 26,000 commercial e-bay sellers are exporting their goods to countless destinations. When I was elected to Parliament in 1996, there was just no way that a small business with a turnover of $20,000 could achieve such market access.

It is not only of great benefit for Australia, but for many dynamic and emerging markets as well.

The spread and adoption of new technology is allowing many emerging markets to grow and modernise at a rate not seen before.

Through the use of modern technology, every business and every consumer is playing ‘catch up’ with the global economy.

Alibaba is a good example. 

As this audience would know, last year’s Alibaba initial public offering was the largest global IPO, ever. 


Because in a single day last year, Alibaba generated 165 million orders, with their payments service handling 38,000 transactions a second at its peak.

But their place is not guaranteed. There are competitor websites to Alibaba opening every single day in China.

We live in an age of empowerment.

Empowered consumers and newly empowered small businesses.

As such, businesses need to adapt to these changing global forces.

And governments need to resist protecting industries.

In 2004, Blockbuster Inc. was one of the biggest movie and game rental businesses, turning over $6 billion globally. In 2010, it filed for bankruptcy.

The speed of disruption, even for the disruptors, is confronting. 

Government must remove the entry barriers for new start-ups.  We must facilitate change and not try to hold it back.  In doing so, governments face new challenges. This is especially so in the area of taxation.

Our commercial world has changed rapidly in the past few years.

Facebook is now the biggest media company in the world and doesn’t employ a journalist.

Uber is the biggest taxi company in the world and doesn’t own one taxi.

AirBnB is the largest hotel chain in the world and doesn’t own one hotel room.

And Alibaba is the most diverse retailer in the world and doesn’t have one traditional shopfront. The new disruptors are restructuring our economies – whether we like it or not.

Governments should not encumber this process. Flexible adaptive economies nurture new business.


Because new firms create new jobs. 

Now more than ever, no government can regulate to preserve the status quo.


Just as we will never be able to tax our way to prosperity, governments will no longer be able to regulate an economy to delay change. 

Consumers are on the march. Disregarding tradition and redefining the norm.

If governments act today, we will be very well placed to take advantage of these opportunities. 

It will take reform and it will take political courage and collective resolve.

Whilst consumers readily embrace new technology and globalisation, they are reluctant to see their governments legislate change.

For example, the consumer may want to shop 24/7 over the internet, but they are reluctant to support changes to retail shopping hours at their local shopping mall, or to penalty rates for working on weekends. 

The challenge now is for business and community leaders to back the reform agenda, be it in Australia or around the world.

This is the message that I will take to my G20 colleagues in Washington this week.

If we have political resolve and courage, and we are willing to engage the public and business in the conversation about reform, then we can create jobs and build prosperity. This will ensure a better quality of life into the future.

But it will require an increase in effort.

Time is no longer on our side.

In the modern world there is no finishing line for reform.

So let’s get on with the job.

Australia is well prepared to show the way.

Thank you.