As part of the post-COVID recovery, the Morrison Government has announced a “package” to revive manufacturing. But why does manufacturing need to be revived?
Manufacturing in Australia has been in steady decline for decades. It has more than halved as a percentage of GDP over the last twenty-five years to just under six percent.
During these decades, this relative decline of manufacturing was generally regarded as both inevitable and a good thing, especially by neo-liberal commentators (often roosting on perches like the Productivity Commission, Grattan Institute, university economics faculties or the AFR). These commentators were particularly aggravated by, and sniped constantly at, the subsidies that many areas of manufacturing, especially the auto industry, received. Industry support was only ordained when it was of the “smooth the dying pillow” type for “transition” or re-skilling programs in response to closures.
But COVID has forced a rethink.
The urgent need for face masks, hand sanitiser and respirators (and in the near future, vaccines) forced the realisation that most of these manufactured items had been sourced overseas from countries who would certainly place their own needs first – and caused even the most hardened neo-liberals to rethink the issue.
Now that a capacity to manufacture locally is seen as desirable again, can we simply turn the tap back on and start churning out things we need that others may not want to supply? Hand sanitiser was easy for brewers and food manufacturers while face masks became an over-night cottage industry, but respirators and more complex items are not so easy.
Will the Government’s stimulus package for manufacturing be sufficient and have attitudes really changed?
If you google “why manufacturing is important” you will get multiple responses from a variety of seemingly credible sources making assertions for manufacturing such as:
… manufacturing provides high-wage jobs, is a nation’s largest source of commercial innovation, it’s a key to trade deficit reduction, and interestingly, a disproportionately large contributor to environmental sustainability.
It also tends to be highly unionised, which may explain some of the more extreme hostility from the Right.
As part of the stimulus package, the Government said it was necessary to scale up manufacturing.
Commenting on the announcement on the 1 October edition of the ABC’s 7.30 Report, business journalist Alan Kohler said:
“I think largely what we’re doing here and what the Government is trying to do is recover from the loss of the car industry between 2013 and 2017. That was the key event.
It could have been saved and would have cost a lot less than $1.5 billion. But Tony Abbott and Joe Hockey decided not to do it.
The result was, we lost scale. That was the big scale manufacturing in Australia. A lot of manufacturing hung off it.
But now 90% of Australian manufacturers employ fewer than 20 people. So, basically manufacturing in this country has become a cottage industry. And what the Government’s now trying to do is recover scale. The whole focus of this package today is to develop larger scale in some selected areas. I think that’s fine.
It’s what we ought to do, but what we probably should have done was kept the car industry.”
Kohler now sees the loss of the car industry as indicative of a critical decline in capability, but like many business commentators, his current position was not what he had previously thought.
In 2013, speaking on the Drum, Kohler said:
Do we need a car industry? Well, that is the question, and I really don’t know.
Well now it seems he does know. Kohler – and many others – are living examples of Joni Mitchell’s “you don’t know what you’ve lost ’til it’s gone”.
The Drum interview linked above is worth reading for Kohler’s excellent analysis of the travails facing the Australian car industry in its last decade and the role played in adding to these travails by Government policy settings, especially in relation to Free Trade Agreements (FTAs). He also cites research showing productivity in car manufacturing was 15% higher than in the rest of the economy.
Kohler clearly now sees the loss of auto manufacturing as representing a tipping point in our loss of manufacturing capability, especially manufacturing scale.
One element of this lost capability was raised by members of the Medical Technology Association of Australia (MTAA) at a forum held in Parliament House in 2018, less than a year after the car industry had closed. Many MTAA members were trying to build high technology manufacturing businesses in Australia, reliant in part on componentry and technologies sourced from overseas. They told the forum that they found that without the scale provided by the car industry, many overseas suppliers of key componentry found the Australian market just too small to bother servicing.
A key factor in the loss of the car industry was the distortion of facts used by critics of the industry to justify their antagonistic position. Nowhere was this more marked than in claims that on a per capita basis, Australia had the second highest level of subsidy of the car industry in the world. The claims were based on a 2010 OECD Report which was based on a number of other reports, including a Grattan Report that amongst other flaws, lumped ten years funding into two years. (Referenced in the link below).
In fact, Australian per capita support was the lowest of any car manufacturing country ($17.80, compared with $27 in the UK, $90 in Germany, $147 in France and $264 in the USA – all in US $.) The basis for these numbers and assertions are also in the link. Interestingly, once these numbers gained some acceptance, the critics immediately switched to quoting subsidy per unit produced, which made their case look better.
The key point about an automotive manufacturing industry, as was explained to and accepted by Prime Minister Gillard after she unilaterally axed the Green Car Innovation Fund in 2011, is that if a country wants such an industry, it has to pay for it and support it. This “payment” can be through all kinds of direct and indirect subsidies, but it is a fact for every car manufacturing nation.
But supporting manufacturing requires more action from governments than subsidies. Here’s a tip.
We will know this Government is serious about reviving our manufacturing capability when it also comes up with: a genuine long term, national plan for energy transformation that includes a detailed and agreed process for transitioning electricity generation to renewables, with a reservation policy to keep some of our gas for our own needs; a national plan for reviving skills education, rather than a rorts for mates version of VETFEE HELP revisited; realistic funding for universities and research agencies plus an R&D Tax Incentive that doesn’t penalise firms that actually manufacture in Australia; a serious attempt to divert some of the billions of Government procurement to local manufacturers, especially in Defence; and finally, re-regulation (yes, red tape creation) where compliance activity has been so compromised by out-sourcing (as in construction) that legitimate firms are forced into a race to the bottom with shonks. And a plan to return some capability to the public service would also help.