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Manufacturing: What to Do

August 31, 2011

The question “What to do?” should be applied to the anguish over manufacturing.

In the mid 70s we used to apply a tariff of 57 percent to every vehicle entering the country. When the imports still came, because people preferred better cars from overseas, the government introduced quantitative restrictions. Just banned further imports. The result was an old, rusting and environmentally-inefficient car fleet and a disproportionate share of a family’s income sunk into purchasing the vehicle they needed.

All to prop up a few jobs in decrepit factories at Pagewood (GMH) and Alexandria (Leyland). I’m writing about Sydney. Making cars that Australians preferred not to buy.

Yes, our manufacturing is contacting because of the high Australian dollar and the full-throttle industrialisation of China which will be followed by the full-throttle industrialisation of Indonesia and Vietnam and, in turn, the full-throttle industrialisation of Sub-Saharan Africa.

When I was at school the textbook told us that 27 percent of the Australian workforce worked in manufacturing. As a kid I would cycle on my push bike around the factories of the Botany industrial zone and dream of the day we had even more of them. That was an illusion. Our workforce is better paid in an economy where only 8.6 percent is employed in manufacturing.

What would an inquiry into manufacturing do? In 1975 there was a Jackson Inquiry into the future of Australian manufacturing. It was quality work, but the premises were all wrong. Australian manufacturing was only going to become internationally competitive with the lifting of tariff barriers. They were lifted and it did. No other nostrum was remotely relevant. But in the end without a low dollar it was not able to compete with China.

The question: what to do? Locking out imports makes everybody pay.

Unemployment is half what it was when we had high protection.

5 Comments
  1. Sam K permalink
    August 31, 2011 2:47 pm

    Surely the argument must be made that if Australia could have a cutting edge manufacturing sector that produces high quality goods that are able to support our higher labour costs like Germany, we would have a unique opportunity to be the high-tech, high quality manufacturer in the SE Asia region.

    I suppose what I’m saying, is that if a company like Holden produced cars more like BMW’s and less like Chevrolet’s, we’d have a manufacturing sector that could really tap into the increasingly affluent SE Asia region.

    Just a thought

  2. Christopher Brown permalink
    August 31, 2011 3:49 pm

    Well said Bob! Someone with the courage to stare down this unholy alliance of unions and business leaders who are chasing a fading dream – with our money!

    We should start by throwing off the ideological blinkers of the past and properly embrace the services sector – instead of sitting around the steel mill dreaming of yesteryear and marching off to Treasury with the AIG and AWU in lockstep for more subsidies, more protection, more intervention.

    We should ‘get real’, accept that we will no longer be in the dumb old game of fabrication. Steel is goping the way of the 1970’s TV sets that are lo longer made here as they were cheaper and better made elsewhere. Cars should, and willm, be next. Australia’s future is in smart manufacturing only (medical equipment, componetry, computer software and games, etc) and not in low-value, high-subsidy, minimal-innovation, limited-future production line work.

    Even the aluminium we make is only possible because the government provides a subsidy of $76,000 per job in the local industry. For god’s sake – that much worse even than the political voodoo that sees Vic and SA car industries propped up, defense contractors making expensive local submarines that dont work or the magnificent old growth forests of Tasmania ripped down for a few old loggers’ jobs.

    The AWU covers workers in the Woolongong steel mills and the island resorts of North Qld – but I dont see them marching on Canberra in defense of the tourism jobs. Nor do I see the leading business groups joining in this ridiculous and antiquated push for protection for economic areas outside the holy grail of manufacturing. It has become our political cargo cult and it’s out of control.

    We need informed public debate about how we can back (not subsidise or protect) our tertiary sector to ensure education, tourism, property, professional services exports can lead the world – and not emotive rubbish about being a country that “makes stuff”. We need research, inovation, and importantly, consolidation in our agricultural sector to ensure we can sustainably feed and clothe Asia for the next 100 years.

    What we don’t need is more bleating about how the factories are closing down and that something has to be done to hold back the tide of inevitablity and economic certainty. It’s a big tough world out there people and the rest of the world makes steel (and a lot of other products) generally cheaper and better than we do. Toughen up Princesses.

    cb

  3. Bob Manton permalink
    August 31, 2011 5:53 pm

    This is all very well but totally disregards peak oil, which will start to affect us more each year.
    The day will come when it is not possible to import “stuff” from all over the world, due to the high coat of transport and we will have no manufacturing base to produce our own “stuff”.
    Sorry but Globalization is on the way out,

  4. Ralf Kluin permalink
    September 1, 2011 8:43 pm

    During the 1980s, attending various meetings, I would ask people to read the works of Adam Smith, Friedrich List, Karl Marx and John Maynard Keynes. I also asked them to read the works of Joseph Schumpeter, Friedrich von Hayek, Milton Friedman. I then would suggest they examine manufacturing in the United Kingdom, USA, Germany, Japan, China and of course Australia. Somehow the discussions always reverted back to “level playing field’s”. It’s strange how social democrats in practice love capitalism free trade deregulation whilst telling anyone, vote for us, we believe in the level playing field.

  5. September 5, 2011 5:22 pm

    What is to be done? The perfect elegant Labor policy would be to promote (overtly and covertly) labour rights in China. Like many good policies this is both selfish and altruistic. Australian manufacturing would become more competitive, and Chinese workers would have their conditions improved.

    Remember that ultimately Australian manufacturing is not competitive because it is competing with manufacturing that employs labourers who are oppressed by a totalitarian government.

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