Transcript: Rod Eddington speaks on Murdoch, airlines, culture and China

This is a full transcript of Steve Bartholomeusz' The Big Interview with Rod Eddington as he discusses his early days, a career in aviation and why he now focusses on family companies owned by some of the wealthiest and most powerful names on the planet.

SB: Rod, thanks for joining us and helping us launch this series of business interviews with The Age and The Sydney Morning Herald.

RE: Thanks, Steve.

SB: Could we start - can you explain how a boy from the Western Australian bush ended up having the remarkable career that you've had? Can you explain how you got from the Western Australian bush to, let's say, CEO of Cathay Pacific?

RE: It was really, for me, bush to Perth and to school and university and then to Oxford.

SB: As a Rhodes scholar?

RE: As a Rhodes scholar. I think the opportunity to go to Oxford to do some post graduate work there and to live in Oxford and in England for five years was a terrific thing for me. It taught me so much and that really was the thing that transformed my life. Going overseas, studying overseas, living overseas. Finding out about the world, outside Western Australia.

Rod Eddington has worked for some of the world's biggest private companies.Credit: Justin McManus

SB: You were a lecturer for a while at Oxford?

RE: Very briefly. When I finished my doctorate at Oxford I had the chance to stay on and do some research and to do some teaching in a junior academic capacity. I loved every minute of that and it kept me in Oxford a couple of years longer.

SB: But you didn't stay there?

RE: No, I wanted to come back to this part of the world. As much as I loved England and as much as I loved Oxford and loved what I did, I'd always wanted to come back to this part of the world. Of course, I didn't get back to Australia initially, I went to Hong Kong and worked in Asia for nearly 20 years, but I wanted to be back in this region.

SB: So you went from lecturing at Oxford to working at Swire Group in Hong Kong.

RE: Yes, I joined the Swire Group who, amongst other things, had a controlling stake in Cathay Pacific, so they seconded me to Cathay and, again, I loved every minute of it. I worked for them in Korea, I worked for them in Japan and Hong Kong, of course, which still is the headquarters for Cathay Pacific.

SB: At the time did you know anything about aviation?

RE: Well I'd grown up as an engineering student. My father had been in the air force and I'd been in the air force reserves, so I was not unfamiliar with aviation. But growing up in the bush in Western Australia, you didn't get to fly very often. To that extent it was new, but I did know something about the industry. Not very much, I hasten to add and that's what I really learnt at Cathay Pacific. I learnt a lot about the industry and a lot about Asia and working with people.

Lion chief executive Stuart Irvine and Lion Chairman Sir Rod Eddington in 2015Credit: David Mariuz

SB: You're credited with having done a pretty good job at Cathay, turning it around.

RE: Well Cathay, for me, was always a good company, Steve. It had never been government owned, it had always been private sector. Swire's were terrific owners and investors and growers of the business and of course being based in Asia at a time when Asia began to grow very quickly in economic terms meant that we were in the right place at the right time. Of course, Hong Kong, part of China - it wasn't then, in a sense, it was a British territory, but geographically it was part of China and it became part of the China story. Not just the mainland China, but greater Asia, so it was in the right place at the right time.

It had always been well run, but like all airlines it had had its ups and downs through the cycle, but it had always been a well-run business.

SB: I think I first met you when you came back to Australia to run - I think the title was chairman of -- Ansett Australia…

RE: Yes.

SB: …when it was a joint venture between News and TNT. You left it in okay shape, but two years later it crashed, what happened?

RE: Well I think - I left at the beginning of 2000 and Ansett very sadly collapsed after 9/11, in September 2001. I wasn't there through those nearly two years, so I'm not across the detail. But what was very clear to me is that Ansett had some ground to make up when I arrived and still had some ground to make up when I left. You'll remember that I described Ansett as a great airline but a poor business. A great airline in the sense that it was very good operationally and the people who ran the business, who were terrific, cared about the customer. They knew they were in the customer service business.

But it was a poor business because it had far too many different aeroplane types and it had invested in lots of businesses around aviation. It was an investor in a credit card business, in an insurance business, in a trucking

The September 11 attacks in America sent shockwaves through the aviation industry.Credit: Allsport

business and those things distract capital and management. One of the things I did in my nearly three years there was to work hard at trying to concentrate our focus on making it a better business. Although we'd made real progress when I left, airlines are always subject to external forces and after 9/11 Ansett just didn't make it.

SB: You then move on to British Airways, which was another - maybe not a great airline and certainly not a great business.

RE: Mm-hm.

SB: Not long after you arrived there, September 11 occurred.

RE: Mm-hm.

The business was losing £2 million a week, did you panic?

Stephen Bartholomeusz

SB: The business was losing £2 million a week, did you panic?

RE: Steve, it was losing £2 million a day because we had 50 flights a day across the Atlantic to North America, to the US primarily, but to Canada as well and after 9/11 that business pretty much dried up and it was the most profitable part of the BA network. Again, it was a real challenge for the business, but the people inside British Airways had a great sense of the industry and were prepared to do the tough things necessary to rebuild the business. So we invested in new products, put flat beds in business, introduced a premium economy, invested in the training of our people.

It was a very important time, but the people responded pretty quickly. It was a tough time for everyone in the industry. A particularly tough time for British Airways because of the importance of the transatlantic operation to our company profitability.

SB: I can remember coming to Waterside (BA’s headquarters at Heathrow) to see you in, I think it was 2000, and was struck by how informal you and your office were. Who got the biggest shock - the culture shock - you or the people at BA?

British Airways turned around.Credit: Jim Rice

RE: I suspect - aviation people are pretty savvy, so I suspect they'd done their homework on me before I arrived, Steve. They certainly made me feel welcome straight away. I never felt an outsider. I'd been in the industry in Asia, I'd been in the industry here in Australia and one of the things that strikes me about airlines is, wherever they are in the world they have a lot in common. It's the same industry, after all, but people are very focused on similar sorts of things. I felt welcome there straight away. Perhaps they had to get used to some slightly different vocabulary, but that happened very easily.

As you know, my whole modus operandi is to focus on the issues and the people, on where we are, where we needed to go, how we're going to get there and then to try and create a collective sense of that journey and that's pretty much what we did at British Airways. Although it was a tough time, particularly after 9/11, although we had to deal with a Concorde crash before that and then after 9/11 we had SARS and the Gulf War, a whole range of things. I think I said to the BA people when I left - and I loved every minute of my time there - I said I've had a lot of luck here with you at BA, all of it bad.

But we collectively came through it and that speaks to the resilience of the people and the company, actually. That's not just about one person, that's about the collective focus and that was one of the many things I admired about British Airways, still do.

SB: You said a moment ago that in aviation airways have a lot of things in common. One of the things they have in common is they tend to lose money.

RE: Mm-hm.

SB: You've spent most of your executive career in that sector. Why does that happen? Why is it that, as a sector, they can't sustainably make money?

RE: I think one of the problems for aviation is that there's a lot of government economic involvement. Most of the big airlines in many parts of the world - Europe, Asia, are or have been at some time government owned. When government owns businesses, it doesn't have what you and I would consider to be a conventional, commercial agenda. Airlines are asked to do things that mightn't make any sense from a P&L viewpoint, but may be seen to be in the national interests. I think that's one of the things that have always made life difficult for the truly commercial airlines.

Remember, I learnt the industry in one of the most commercial airlines, Cathay Pacific. The other thing, I think, is that aviation has always been very susceptible to external shocks. The price of fuel, recession, all of these things hit hard. Terrorism always has a debilitating effect on aviation and airlines, so many of the things that aren't in your control can drive your profitability up or down and you have to live with that.

Rod Eddington.Credit: Justin McManus

SB: Last aviation-related question. One of the remarkable developments over the last decade and a half in that sector has been the emergence of the Middle Eastern carriers. We've now seen ultra-long-haul aircraft being deployed around the world, including plans by Qantas to run some of the world's longest flights, what does that mean for those Middle Eastern hubs?

RE: Well I think hubs are still really important, but the bottom line is that the long-haul aeroplanes, particularly the big twins which now tend to dominate the sales of the long-haul aeroplane routes - so aeroplanes like the 787, the 777, the A350, the A330 -- these are big, twin-engine aeroplanes. They can fly a very long way, they're much more efficient than the aeroplanes they replaced and you can use that efficiency in a number of ways. You can use it to drive your costs down, flying between two points, but you can also use it to fly between points that are further and further away.

It does mean that some hubs can be bypassed quite easily, but that doesn't mean to say that hubs, per se, are necessarily dead. It allows new hubs to set up. You could argue, for instance, that the three hubs that have established in the Middle East, one in Qatar, Doha, one in Abu Dhabi and one in Dubai are global hubs in part because aeroplanes can fly much further. You can now fly non-stop from here to those hubs in a way which you couldn't 20 years ago, when an airline like Emirates first started flying to Australia. Remember it used to go from here to Dubai via Singapore? Now it can go non-stop. Yes, these aeroplanes have transformed the nature of global aviation in some very important ways and they have meant that some hubs have effectively been eliminated, but hubs are still important.

SB: One of the things that is fascinating about the way your non-executive career has developed - early on there were boards like Rio Tinto and ANZ, more recently it appears that your portfolio, and it's quite a big one, is dominated by family dominated companies.

The processing plant at Rio Tinto's West Angeles mine.

IRE: Mm-hm.

SB: Whether it's News Corp and the Murdochs, the Pratt family recently, China Light and Power. Why is that? Do you have an aversion to an open register and a listed company?

RE: Well I've served on boards as an executive and as a non-executive that have conventional registers. British Airways, of course, had a conventional register and I was on the Rio Tinto board for six years, that had a conventional register too and I enjoyed both of those. I think, for me, the thing about companies, including publicly listed companies which have a core shareholder, is that they often take a long term view of the business they're in. Whether it's the Murdochs at 21st Century Fox and News before that, whether it's China Light and Power and the Kadoories, whether it's the Swire Group and Cathay Pacific.

News Corp. executive chairman Rupert Murdoch, center, and his sons, Lachlan, left, and James Murdoch .Credit: AP

These are publicly listed companies that have a strong, core shareholder, who never forgets that the company is publicly listed but is able, I think, to take a longer term view more naturally and more easily. It doesn't mean to say that there aren't plenty of conventional companies that are well run and do take a long term view, I just think it's easier if you have a large, core shareholder.

SB: A lot of Australian non-executive directors complain that much of their boardroom discussions is dominated by box-ticking, if you like - checking off the corporate governance checklists. Having been in both companies with open registers and those that are family dominated, is there a different environment? Is there a different mindset inside a boardroom?

RE: Well I think there is. I think, to your first question, I think good corporate governance is about conformance and performance. The first is ensuring that the rules and laws of the jurisdictions in which you operate are met, both in practice and in sentiment. The second is the performance of the business - how is it going? What does it look like operationally? What does it look like financially? What do your customers think? What do your frontline staff think? What do all of your staff think? What sort of return do you give to your shareholders? These are all important matters.

But I think if you talk to directors in Australia today, many of them will tell you that the conformance burden has grown and grown substantially over the last two decades and that sometimes means that boards aren't spending enough time focusing on the performance of the business. I think that is a challenge for public listed companies of all descriptions, whether they have a core shareholder or not. Because if you have a large core shareholder, that shareholder, like all shareholders, has to think about its obligations in a conformance as well as a performance sense.

If you talk to directors in Australia today, many of them will tell you that the conformance burden has grown and grown substantially over the last two decades

Rod Eddington

I just think companies with a strong family shareholding have that capacity to look over the horizon on a regular basis and there's no doubt in my mind that that helps them be successful in the long term.

SBr: I'm presuming you look at risk and reward differently. You've been on Rupert Murdoch's board since, I think, 1999?

RE: Yes.

SB: You've seen the development of that business, particularly the business in the states - the one he's just sold a bit of for $71 billion. Could that have been done by a conventional, open-register, listed company?

RE: Perhaps it could. One of Rupert Murdoch's many strengths is his capacity to find and keep good executives around him. When you look at the management capacity of that organisation - and I look at it over a long period of time and some of the key business leaders who have worked with Rupert through that period have retired from the business, people like Peter Chernin, Dave DeVoe, Chase Carey. These are all extremely successful business leaders who have been successful outside News and 21st Century Fox as well as in it.

Rupert Murdoch had quality executives like Chase Carey.

One of Rupert's many strengths is the capacity to build a good management team and work with them to have a vision about where the industry needs to go. It's possible to do all of those things in a conventional, publicly listed company. But, again, I think he's been particularly good at it, just as the Swire family have been terrific at it in the Swire Group and the Kadoorie family have done a first-class job in Hong Kong, whether it's in China Light and Power or Hong Kong and Shanghai hotels. I just think families that are committed to the business, understand their role, understand the importance of small shareholders as well as large shareholders, have an advantage.

SB: You've sat there as lead independent director on the 21st Century Fox board through this process where initially you tried to buy Time-Warner and, having failed to do that, decided to sell the Fox film and television business. How difficult was that?

RE: I think you have to separate in your mind your passion for the business and if you think about the business you've just described : that's a business that Rupert Murdoch, more than anybody, and of course more recently Lachlan and James have been key participants in that, and the rest of the management team have built that business from, effectively, over 60 years, from a single newspaper in Adelaide to a global media business. If you invest so much of your effort and your passion and your energy in doing that, there's a natural attachment to those assets. But, at the end of the day, the opportunity to buy Time-Warner passed because, to be frank, the price was too high.

I think there are a lot of people who thought that Rupert Murdoch would wish to acquire that business whatever the price. He's much more disciplined than that, as the rest of his team was. Then when the Disney opportunity came along, I think that's a terrific deal for 21st Century Fox and its shareholders large and small. I think it's a terrific deal for Disney, because they are a terrific company and, in my view, will make great use of those assets and the people who come with it. So there's a certain amount of attachment to the business, but at the end of the day you have to act in the best interests of your shareholders, first and foremost, and it's a terrific deal for shareholders. Whether you own one share or a million shares, it's a terrific deal.

SB: There are some Fox assets that won't go to Disney - television and sports and access to Fox News, obviously.

RE: Yes.

SB: Also, separately, there's News Corporation. Is it inevitable that they get brought together at some point?

RE: I don't think it's inevitable, no. At the end of the day it will be a matter for the boards of the two new companies because, of course, the Disney transaction, although it's been agreed by both sets of shareholders, hasn't yet received regulatory approval and until that happens the deal isn't actually finalised. But let's assume that happens, and one should never take regulators for granted in any jurisdiction, particularly in a situation like this. But let's assume that it's happened, there will be New Fox, as we're calling it -- we need to find a name obviously -- and that's primarily around Fox Sports and Fox News and there will be the assets that are part of what is today called News Corp.

But those sets of assets are different in some important ways and if you go back several years, it was the reason why the business was split into two. It was recognised that the print media had a very different set of challenges from the electronic media, the New Age media if you can call it that, and therefore we needed management teams absolutely focused on their individual parts of the business. It will be up to the two boards, when they sit down, to think about what their future looks like. I don't think it's inevitable that the two businesses come together, no.

SB: When you finished at British Airways, the British government commissioned you to do a blueprint, if you like, for transport in the UK. How did that come about and did they actually listen to what you recommended?

RE: Well I was asked to do it by the then secretary of state for transport, Alistair Darling and the then Chancellor of the Exchequer, Gordon Brown. Tony Blair was the prime minister and he took an active interest in what we did. But they really gave me carte blanche. They didn't, in any way, try to steer the work that I did over what was the better part of a year and a half after I retired from British Airways, to try and basically make the economic case for transport infrastructure. I think they did take real notice of what we had to say.

But it's a difficult issue, as it is here in Australia, building particularly new infrastructure projects - road, rail, ports, airports and electricity and water networks, sewage networks - building them is expensive and difficult, particularly when you're trying to retrofit them to successful cities. Some of the challenges Britain faced, based on the observations I made, are true here in Australia as well.

Victorian State Premier Daniel Andrews has overseen infrastructure building including new rail projects.Credit: Paul Jeffers

SB: When you came back to Australia you actually set up and chaired Infrastructure Australia. I remember you used to rail that not enough was being done. We're now seeing a flurry of very, very big projects, in the eastern states, particularly. Are we doing enough and are we doing the right stuff?

RE: It's a very good question and it's a challenge I think you should always put to any project before it's approved. What is the evidence that suggests we should be doing this? Whatever it might be, building a road, a rail, building a port or an airport, building an extension to the electricity grid. Why are we doing it? What's the evidence to support it? The worst thing you can do is build bridges over puddles and roads to nowhere in marginal electorates. There's always that question to be asked. But the next question is, if you're going to spend $5 billion, $10 billion or more on this project, is that the best place to spend that money?

Because, as you said a few moments ago, if you don't do very much for a long period of time you always end up with a list of projects, all of which require doing, in inverted commas, some more so than others. It's not only important that you evaluate projects properly, but that you prioritise them appropriately. You start with the projects that matter most and that will give you the best outcomes, because that will give you the confidence to go on and do more.

SB: At the moment, particularly in Melbourne, we've got a lot of big projects being undertaken at the same time. Is that ideal?

RE: Well if you could go back 40 years, you would have started some of this 40 years ago, but given that didn't happen I think the government of the day will always try and manage what it can. I think, actually, some of the really big projects that are being pursued now, like the beginning of an urban rail network - the metro as it's called here in Melbourne -- which usually means going underground, this is a huge project and it will go on for many, many years because good, urban rail networks, metro systems, they're never about one line, they're a number of lines and it's going to be disruptive while we build it.

I lived in Hong Kong while they built the underground rail network there, it's called the MTR. I saw the MRT being built in Singapore. These things are always disruptive but the benefits are enormous and will be with us for a century or more. I think we just need to be getting on with it, yes, and that's really what the government is doing here in Victoria and in New South Wales, too.

SB: Back when Kevin Rudd was Opposition leader you took on the role as a business advisor to the Labour Party, but more, I think a conduit between business and the Labour Party, which at the time had a poisonous relationship.

RE: Mm-hm.

SB: Today it appears that the community's trust and certainly the political parties’ relationships with business have broken down completely. Business is really on the nose. Is that fair, given what we've heard at the Royal Commission of the banking sector, and what can we do about it?

RE: Well it's pretty clear through the Royal Commission into the banking industry that there were some mistakes made and some of those mistakes were quietly pushed aside rather than addressed. You just have to rebuild trust. I think it's really important that there's a good relationship between bi-partisan political leadership and business. My view as a business person was always focus on policy. Leave politics to the politicians, but focus on policy and be free to speak with vigour on policy issues. After all, that's what Infrastructure Australia did.

We spoke about infrastructure policy and why we thought it was important to embrace certain projects and certain lines of thinking and I think it's important that business does that - sticks to the policy debate and leaves the politics to the politicians. But as to businesses' current challenges, you can rebuild trust. You have to rebuild trust with the community and your customers first and I think if you can do that then the relationship between business and political leadership will naturally strengthen. At the end of the day, political leadership just reflects some of the thinking in the broader community.

You've got to constantly demonstrate to your customers, to your staff, to governments that you do the right thing.

Rod Eddington

I think if you focus on your customers and your own staff and build strong relationships with those two groups then your standing in the community goes up you'll find you get a better hearing from the political leadership, as well.

SB: At a more macro level, does business need to re-explain the role that business plays in a market economy?

RE: I think that's a constant challenge, Steve. I don't think you can ever take it for granted. You can never take for granted the fact that the community embraces business wholeheartedly. I happen to think business is really important to an economy. I think quite strongly that business has to constantly earn the right to operate inside any entity, particularly in a democracy - in a liberal democracy -- and that's what we live in. You've got to constantly demonstrate to your customers, to your staff, to governments that you do the right thing. By the way, you've got to demonstrate that to your shareholders as well. I think in all of the conversation about the role of business, we have to remember that unless business makes money and delivers a sensible return to its shareholders it simply won't exist.

You've got to deliver to your shareholders, you've got to deliver to your customers and your staff. You've got to be welcomed by the communities you serve and you've got to constantly work at that and most businesses I think do work pretty hard at that. I actually think there are a lot of good men and women in corporate Australia, at all levels, from the front line through to the corporate offices. The vast majority of those people understand that they need to win the confidence of the different groups, understand that at the moment they've got some challenges. I'm an optimist though, I think we'll work our way out of this.

SB: Rod, you've spent a large part of your life working in Asia and travelling throughout Asia. You've worked in Hong Kong, Seoul, Tokyo. I think you were on the Australia-Japan Society board.

RE: Yes.

SB: At the moment there's a huge amount of tension developing between - I won't say the West -- I'll say the US and particularly China, which flows all of the way through the region. How do you read that and how do you think it gets resolved?

Chinese President Xi Jinping, right, with Japanese Prime Minister Shinzo Abe, representing two of Australia's most important trading partners.Credit: Xinhua

RE: Well there's no doubt that these are uncertain times. Australia's three major trading partners are China, Japan and South Korea, in that order. They're all really important to us. They're natural trading partners. They want the sort of things that we do and do well, our resources, our agriculture. Increasingly they're an important tourist destination for Australia, and also, of course, young and not-so-young Asians come down here to study at school and university. We're a natural fit for the North Asian economies, particularly. It's really important.

China is our biggest trading partner. The United States of America is our biggest strategic partner, has been since the Second World War, and when those two partners of ours are facing off against one another in the way in which they are in the tariff space at the moment, in the trade space, Australia needs to be pretty focused. We need to do what we can to try and help both sides, to the extent that we can, reach some sort of sensible agreement and we need to take an active interest in how that plays out.

These are uncertain times. I think the good news is that our trading relationships with Japan have never been stronger - extremely strong. Japan is a major investor in Australia, owns many businesses here and invests in those businesses and the people who are in them on a regular basis. It's been a wonderful economic and now strategic partner and we have good relationships with Korea as well. So I think we're well placed. What we have to work on is our relationship with China. They're too big and too important to us for us not to have a good working relationship with them, but that would be much easier if America and China were able to find a modus operandi that works for both.

SB: Can you see an MO that could work for both?

They're too big and too important to us for us not to have a good working relationship with them.

Rod Eddington

RE: It's a good question and it's sometimes difficult to see a solution. But if we had have been having this conversation a month ago, Steve, we would have looked at what's happened with NAFTA. NAFTA was effectively dissolved by the US president, president Trump. A bilateral agreement had been struck with Mexico but there was no sign that any agreement was going to be reached with Canada and a week or so ago an agreement with Canada was reached that was acceptable to both sides, that both sides feel comfortable with. That should give us and others the confidence that agreements can be reached, even if they look to be some way off at some stage.

SB: Yes, the NAFTA one is interesting though, isn't it? Because fundamentally NAFTA has just been rebadged…

RE: It has.

SB: …with a couple of minor changes. But fundamentally it's the same set of relationships.

RE: Well the relationships are so important to the three players in NAFTA, Mexico, the United States and Canada. If you think about it, really, they had to reach some sort of agreement. It's called a different entity now, I can't quite get my tongue around it. By the way, some of the important clauses in the agreement that the Americans struck with Canada as part of this were straight out of the Trans-Pacific Partnership discussions which Australia has been a key player in and America has walked away from.

There is a sense, I think, that agreement will be reached between the Americans and the Chinese. What it's going to look like and when it's going to be reached, I don't know. But it's pretty clear to me that the Chinese would like to see an agreement reached. Perhaps now that the Americans have resolved the issues around NAFTA they'll be able to turn all of their attention to the China bi-lateral and hopefully reach an agreement.

SB: The tensions with the US and the tariffs from the US are occurring at a moment where China was trying to orchestrate a quite complicated and quite delicate rebalancing of its financial system - the leveraging of the financial system -- and quite a lot of industry restructuring, both for economic reasons and because of air-quality reasons. Is there potential for something unpleasant to happen within the Chinese economy? Because clearly, we've got a huge interest in them continuing to grow at six-and-a-half, seven per cent.

RE: Well, China really matters to us. They matter to us as a customer and are also increasingly important as an investor. You only need to walk around the streets of Melbourne and look at the Chinese tourists who are so important to the economy here to realise how important they are in other ways, as well. The thing about a tariff war, if you can call it that, is that it is an impost on the economy. What often happens is that economies that are struggling under a burden or two of a particular nature are suddenly destabilised by something that comes completely out of left field.

You want your economies to be strong and resilient so they can withstand the natural buffets that take place in the global economy from time to time, whether it's a recession, whether it's a natural disaster or whatever. The thing that would worry me about China at the moment is, they've got some internal challenges that they're looking to address on the economic side and it's clear that they're moving to address them. Having to also deal with a tariff war with the United States of America can only reduce their resilience.

Having said that, Steve, it's been a long time since anyone made money betting against China. I'm not going to be one of them.

SB: The last one. Given we're talking about economies... You spent a lot of time in the States. The US was growing at quite a healthy rate when the Trump administration came into office. Since then we've seen massive tax cuts and a massive increase in spending, all debt-funded, but a massive dose of stimulus has gone into the US economy. The last quarter I think it was running at above four per cent. Is this going to end in tears?

RE: Well I think the thing that's always impressed me about the US is its resilience and also its focus on productivity improvement. We've lost our way in Australia over the last decade on the productivity front. We haven't really seen much in the way of productivity improvement over the decade and for me that's one of the main reasons why salaries haven't risen very quickly here, across the board. If there's no increase in productivity of any consequence then it's difficult to push salaries up in the way in which happens when productivity improvements are real and sustained.

America is very focused on productivity improvements. The use of new technology, the way in which that technology is applied, a desire to embrace new industries. If I had have said to you 30 years ago, name me the top companies in the US economy you would have probably said Ford, General Motors, GE -- the big, long-term players. You wouldn't have talked about Microsoft, Google, Amazon, Facebook. So if you look at the US economy today and you look at the big dozen companies, many of them either didn't exist two decades ago or they were tiny. Today they're all powerhouses in so many different ways.

The US economy has this capacity to reinvent itself and to invest in things that improve productivity and that gives it a real resilience. If your productivity improvements are real and sustained that will ultimately feed through to the people who work at the shop floor. Unemployment is lower than I can remember it, in the US at the moment. We're beginning to see, finally, some salary increases which are welcome and perhaps overdue. Again, I wouldn't bet against the US economy. I think it has had some real advantage from the tax cuts, in particular, but there are other things that underpin economic growth which are sustainable and sound.

SB: Thanks again Rod.

RE: Thanks.