Pearls and Irritations

Ian McAuley argues that it has not been globalisation and trade that has been the biggest factor displacing jobs in manufacturing. It has been automation.

“I would like to see Australia more like it was in the past”.

A recent Essential Poll found 52 per cent of Australians agreeing with that statement, with only 32 per cent disagreeing.  Coalition and “other” voters were much more likely to agree than were Labor and Green voters.

The same poll found 83 per cent of respondents agreeing that “the government should bring back manufacturing jobs to Australia”, with little variation according to political affiliation.

After the shock of Brexit and the election of Donald Trump, these results are hardly surprising. And in times of uncertainty we tend to look back to the past, with a bias towards what we found positive.

Older Australians may look back to the postwar years when a rapid expansion of manufacturing went along with a growth in prosperity. The photo of Prime Minister Chifley at the 1948 launch of the FX Holden symbolised a coming of age for our country. We could hold our heads up high as a member of the exclusive club of “industrialised” countries.

A common myth is that from then on manufacturing went from strength to strength until the Hawke-Keating Government, betraying Labor’s tradition of protecting working-class jobs in  manufacturing, embarked on a program of tariff reduction and economic liberalisation. The myth fits neatly with the resurgent view that “globalisation” has been the dominant cause of the world’s economic woes.

The reality is different: 1948 was when manufacturing in Australia peaked at 30 per cent of the employed workforce. Although in absolute terms it continued to grow for some years, as a proportion of employment it has been on a fairly steady decline for almost 70 years. By now manufacturing, as defined by the ABS, accounts for only 7 per cent of employment, and an even lower share of GDP.  (These figures slightly overstate the decline because many functions once performed “in house” by manufacturing firms, such as payroll administration, have been contracted to other industries and are classified as non-manufacturing.) Australia has been experiencing the typical pattern of economic development as service sectors take over from agriculture and manufacturing.

This decline was well in train before 1973 when the Whitlam Government cut tariffs by 25 per cent (a one-off event). By 1984, when the Hawke-Keating Government began its thorough and systematic review of tariffs, manufacturing had already fallen to 17 per cent of the workforce.

Tariff reductions may have accelerated this decline, but there were other much more powerful factors at work. One was opportunistic government policy, particularly in relation to the auto industry. Nothing was more appealing to the Menzies Government than the opening of a new car factory. Chifley wasn’t going to be allowed to take all the credit, and Ford and Chrysler were quick to come in behind the made-to-measure protective tariff. Any idea that we could have had one producer exploiting scale economies and developing a global market was gone. As Gideon Haigh points out, at the auto industry’s peak we had five manufacturers building thirteen models in fifteen factories, in a domestic market not much bigger than a million cars a year.

Protection gave the economy a series of sugar hits, but in doing so it developed an industrial structure of labour-intensive manufacturing, producing high-cost and often poor-quality goods, in firms slow to adopt process and product innovations.

The immediate cost of this policy was borne by Australian consumers. In 1964, for example, a basic EH Holden cost £1055, or 70 weeks of the basic wage of £15 a week. Now the cheapest new car on the Australian market (the Mitsubishi Mirage) sells for $12 000 – about 20 weeks of the minimum wage.

The same problems applied to other industries. On graduation in the late 1960s I worked as an engineer in a domestic appliance factory, and it was a constant frustration that we could never achieve the volume to invest in cost-saving and quality-improving machinery, there being too many manufacturers in a small market.

Governments of the time piously urged our manufacturers to export, but many of our manufacturers were burdened by “franchise restrictions”, meaning their foreign headquarters or licence holders prohibited the Australian subsidiaries or licensees from exporting. Such was the cost of our cargo-cult dependence on foreign investment in preference to the slower but more secure path of mobilising our own savings.

And as with cars the tariff levels required to support this industry structure made everyday goods – appliances, clothes, electronic goods – prohibitively expensive and often of poor quality. Those Australians fortunate enough to travel would leave with only the clothes they were wearing and return with suitcases brimming with new clothes. (Customs, with a single-minded obsession, would rummage through the brand new clothes looking for contraband cameras and radios.) Those who couldn’t afford to travel paid grossly inflated prices.

The biggest factor displacing jobs in manufacturing has been automation. Manually-fed presses gave way to machine-fed presses. Numerically-controlled machine tools reduced the need for machinists. Then robotics came along to take the place of assembly operations. All with lower unit cost, improved safety and improved quality. It’s only a matter of time before machines take over some of the last labour-intensive industries such as clothing and footwear.

Because of automation, even in the unlikely event that tariff protection were to bring manufacturing back to “developed” countries, few jobs would come back. The immediate benefits, if any, would almost certainly accrue to managers and owners – in many cases foreign owners.

This cold analysis, however, overlooks Australians’ obvious attachment to manufacturing. Kevin Rudd captured the sentiment when he said “I want us to be a country that continues to make things”.

I don’t believe that Rudd or the respondents to the Essential survey are really calling for a return to the manufacturing jobs of past years. While there was some employment of skilled labour, such as pattern-makers and fitters and turners, many manufacturing jobs were deadly. I remember in that same appliance factory a row of four presses, where each operator in isolation worked on a 5 to 6 second cycle, punching out 4000 – 5000 laminations a day, day after day. Much of the time the operators passed the day zonked on marijuana or prescription anti-depressants. Many front-line supervisors – leading hands and foremen – were bullies, brutally disrespectful of the people under their control, particularly immigrant women.

But there was a pride in achievement – in seeing a car or a washing machine go out of the factory door. When people were employed “in house” in firms with high vertical integration, there was a sense of communal achievement. Even the cleaners, who worked for the manufacturing firm rather than a labour-hire contractor, could identify with the product.

And there was a sense of community. It’s easy to forget that multiculturalism developed not in the coffee shops of Balmain and Carlton, but rather was forged in working-class suburbs in our manufacturing regions.

Also, and perhaps most importantly, large manufacturing establishments allowed unionism to thrive. The decline in manufacturing has been behind the decline in union membership, which now stands at only 12 per cent in the private sector. It’s hardly surprising that our economy is languishing as a result of low wage growth.

Turning our backs on the world and raising tariffs won’t bring back the manufacturing jobs of yesterday, but there is no reason why other sectors cannot provide the positive qualities that people associate with manufacturing. Corporations and government agencies could bring back more operations in house, allowing for the development of more loyal and committed workforces. The Commonwealth Government could turn its attention to strengthening unions, and to developing better protection and collective bargaining mechanisms for those loosely attached to the labour market.

Economists may baulk at the anti-competitive nature of such proposals, but economists are apt to forget that competition is merely a means to an end, not an end in itself, and that it imposes its own costs on those affected by the disruptions of competition. Also they too easily overlook the value of the accumulated social capital in a workplace – capital that does not appear on any balance sheet but that is just as important for long-term productivity as plant and equipment.

More basically, if we cannot restore some sanity to our economic arrangements the reaction is likely to be the economics of populism and isolationism.

We have been warned.

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