Australian manufacturing must be rebuilt to have a healthy economy and society

Contributed by Joe Montero

During the late 1980’s, manufacturing employed 16.5 percent of Australia’s workforce.  This is now down to 6.4 percent. It is a huge decline. This however, began even before 1980’s.

In the late 1950s and into the 60s, manufacturing account for just shy of 30 percent of Gross Domestic Product (GDP). hat’s when it began the decline, and it is now merely 5.5 percent. The graph below makes it very clear there has been a continuous fall for almost 60 years.

Australia sits at the bottom among the developed OECD countries.

Ever since the rise of sheep in the early nineteenth century, Australia has been characterised by a high level of dependency on the export of primary produce.

The decline in manufacturing over more than half a century, has underwritten Australia’s continuing dependency on primary exports. The structural shift is that this has moved from sheep to what is extracted from the ground.

This dependency has been coupled with just as high a dependency on the import of investment capital manufactured goods, especially at the high tech end.

Together, these are characteristics typical of a developing economy and not a developed one. Australia happens to be one of those rare examples having these backward characteristics, yet still managing to be a developed economy. Inevitably, this contradiction must hold back the even and balanced development necessary for long term economic health.

Herein lies the danger. A lack of manufacturing increases dependency on others and vulnerability to global shocks. It reduces capacity for self-determination. The truism that hew who plays the pipe calls the tune applies.

Behind misleading statistics, real economic health, prosperity, and growth are much less than are generally assumed. To do better, dependency must be reduced. Only this will provide the conditions to restructure the economy on a more solid foundation.

If performance is measured by the real increase in value created, as it should be, the situation is easier to see. A proper definition of new value, is the measure of what is newly created and useful to those within the society, minus the costs it imposes on society.

Another way of putting it is, the value of the added effort (labour) put into combining what is already assistance and transforming it into more than was originally there, is the best measure of performance.

The key to the creation of value is manufacturing. Without this creation, there is no profit, nor the possibility of continuing to increase the standard of living of the population in the long run.

Restructuring the economy away from dependence and assuming control over the creation of value, will not be easily achieved. Powerful interests benefiting from the way things are will do everything to block it.

If the working population, those who labour to create the value, are to become conscious agents of the transformation, the economy must be democratised. It is not enough to leave this in the hands of politicians. This must be a collective effort involving the whole of society.

Contrary to the illusion, the answer does not come through the rise of oversized financial and service industries. They may be necessary. But they are in the business of moving around what already exists.

They do not create new Value. When they become too big for the needs of the economy, they eat into it. This is what lies behind the present credit crisis. It is borrowing on the hope of a future surge in the creation of new value, which does not materialise.

An excessive dependency on the export of what is dug out of the ground is no answer either. It does create some value. The problems are that it holds back growth in other areas by misdirecting investment, and much of the potential value is exported overseas, where Australia’s exports are processed and used to create value . Then, there is the cost of environmental damage.

 

These are the reasons why the rebuilding of Australia’s manufacturing industry is so important to the future health of the national economy and society.

Analysis by the Australia Institute’s Centre for Future Work shows that other developed countries have manufacturing sectors that are at least big enough to, more or less, meet their domestic demands.

Australia produces only two thirds of what is consumed. This is significant.

The argument often used is that wages are too high in Australia. This is just not true. To use pay rates as a comparison is highly misleading. Australia’s is a highly capital intensive economy. The average labour cost is relatively low in aggregate. The major cost is the capital invested.

Labour productivity has been stagnant in more recent times. This is because of the failure to make enough headway in high tech applications, the decline of manufacturing in general, and the rise of a less capital intensive services industry.

But this is not generated by high wages. It is the result of a failure of investment, which in turn means, a failure of the market.

According to the Centre for Future Work, increasing Australia’s manufacturing self-sufficiency to 100 per cent could add another $180 billion a year in new manufacturing output, boost GDP by $50 billion a year and add more than 650,000 direct and indirect jobs.

This is worth going for. It won’t happen until there is a national industrialisation plan. We must ask. Why don’t we have one?