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Australian Manufacturing. Is it worth it?

Australian Manufacturing

Australian Manufacturing – If you don’t make it, grow it or dig it up all that’s left is selling coffee and old houses to each other.

Manufacturing is the most important source of innovation in the economy. It supports higher-than-average productivity growth and good jobs. It contributes disproportionately to Australia’s exports.

Australian manufacturing has endured hard times for several years. So long, that Australians could be forgiven for concluding that industrial decline is a “normal” state of affairs. The manufacturing sector has been in broad decline since 2008, and real output has now contracted every single quarter since September 2011. Over 200,000 manufacturing jobs have disappeared since 2008, and the rate of job loss is accelerating: employment fell 6 per cent in 2015 alone.

Announcements of factory closures and redundancies add to the gloom. Perversely, some analysts and economists have tried to justify and even celebrate this industrial carnage. Manufacturing is portrayed as an old, dying industry. Something that Australia shouldn’t worry about. Free market forces will ensure we automatically specialize in other industries, in accordance with our “comparative advantage.” Manufacturing is in decline everywhere; it is argued: the problem isn’t unique to Australia. And at any rate, the government certainly shouldn’t interfere with this natural, inevitable, even beneficial process.

It’s best to let markets do what they will.
This complacent view is wrong on several important grounds:
• Australians are buying more manufactured goods over time, not less. And manufacturing output is growing around the world, not shrinking.
• Manufacturing is not an “old” industry. It is, in fact, the most innovation-intensive sector in the whole economy — and no country can be an innovation leader without the ability to apply innovation in manufacturing.
• Manufactured goods account for over two-thirds of world merchandise trade. A country that cannot successfully export manufactures will be shut out of most trade.
• Many countries around the world (including high-wage industrial countries) are expanding manufacturing output, creating new manufacturing jobs, and boosting manufactured exports. Australia’s experience is not at all representative of the experience of other industrialized countries. Even small remote countries (like Korea, Ireland, New Zealand, and Israel) are growing manufacturing output, and preserving and creating manufacturing jobs — so we can’t blame geographic isolation for the problem.

Instead of tolerating and trying to “explain away” industrial decline, Australia needs Australian Manufacturing to join the global manufacturing resurgence. If not, even more of this high-value work will move to other jurisdictions, and Australia’s status as an advanced industrial economy will be in jeopardy.
Australia’s manufacturing downturn is partly the result of significant policy errors by the government — which accepted too readily the idea that Australia doesn’t need manufacturing. The costs of those errors will be long-lasting and broad (felt not just by displaced manufacturing workers, but by the whole national economy). And in the near term, sadly, things will get worse, not better: with the coming closure of automobile assembly plants, and the continuing crisis in the steel industry. But it is never too late to learn from past mistakes. At this particular moment in history, given the contraction in resource industries and the correction in exchange rates, Australia has a golden opportunity to revitalize its manufacturing capacities. And to prove that it can contribute more to world trade than just extracting unprocessed natural resources.

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