Government is committed to manufacturing: Senator Minchinby Senator Nick Minchin, Colin TeeseNews Weekly
, August 25, 2001
I feel compelled to respond to points in your Editorial and in an article by Colin Teese in the July 28 issue of News Weekly
, which suggested that Australia's manufacturing industry may be falling behind in international terms.
Firstly, let me say that one of the most fundamental aims of government is to implement policies which will promote sustainable growth, because this will deliver higher living standards and more, and better-paid, jobs in the economy as a whole. An effective industry policy is core to this objective.
Since coming to office, this Government has worked hard to create an efficient, competitive and stable economic environment that is conducive to business investment. We have promoted sound fiscal and monetary policies and have undertaken a wide range of ongoing microeconomic reforms aimed at ensuring that all sectors of the Australian economy have access to inputs at world competitive prices.
This supportive economic framework has been complemented by a range of programs which focus on enhancing business performance by developing firm capabilities, fostering innovation, facilitating adjustment, developing export markets, and encouraging investment. These programs include broad programs for all sectors (including those which foster innovation, R&D, commercialisation of research, and technology diffusion) as well as sector specific initiatives in shipbuilding, automotive, textiles, clothing and footwear, wood and paper and printing.
This approach has ensured that Australia has enjoyed a very strong economy, and relatively low interest and inflation rates. We have been able to retire Government debt, to develop more efficient product and labour markets, and an internationally competitive tax system. Like governments in other developed economies, we realise that, in an era of increasing globalisation, the key to success is not to insulate industries from change, but to foster the development of a more competitive and outward-oriented economy.
And we have delivered results. Our industry policies have helped make Australia one of the most open and competitive economies in the world.
Over the five years to the end of 2000, the growth in Australia's gross domestic product has been relatively strong at an average of 4.3 per cent a year. Significantly, a recent Organisation for Economic Cooperation and Development (OECD) report noted that Australia was one of only three OECD countries (Australia, Ireland and the Netherlands) which registered markedly strong trend growth of GDP per capita over the past decade compared with the 1980s.
Productivity figures are a good indicator of how the competitiveness of Australian industry has improved. Multifactor productivity has risen from an average of 1.1 per cent a year since 1965 to over 2 per cent a year in the five years to June 2000. Again, Australia was one of only three OECD countries (the others being Finland and Ireland) which registered markedly stronger growth in multifactor productivity between the 1980s and 1990s.
Australia's industrial structure has moved in line with that of other OECD countries. As you have suggested, this means that manufacturing's share of GDP has declined relative to other sectors. However, this does not mean that the manufacturing sector is not growing.
Over the last 20 years, value added in the sector has grown at an average rate of 1.6 per cent. A recent study by the Reserve Bank noted that while the manufacturing sector in Australia is smaller than in most industrialised countries, its share of output and employment have fallen at about the same pace as in other industrialised countries.
While the relative size of the manufacturing sector has declined, the services sector has grown in importance: this shift is expected as economies grow and develop.
The increased significance of the services sector is further compounded by the trend to contract out functions like accounting and computer services, because some activities previously recorded under the manufacturing sector are now recorded under services.
A further influence on the relative sizes of the manufacturing and services sectors has been changing household expenditure patterns.
Because household expenditure is a primary driver of the demand for industry output, changes in expenditure patterns can significantly influence the size and shape of Australia's industrial production.
Over the past four decades, there has been a significant change in the share of household expenditure flowing to goods compared with that flowing to services.
Expenditure on goods has fallen from 62 per cent of household expenditure in 1959-60 to around 44 per cent in 1999-2000, while expenditure on services has increased from 38 per cent to 56 per cent over the period.
However, the manufacturing sector continues to make a solid contribution to Australia's output, employment and growth. Total manufacturing employment stood at 1,123,000 persons in May 2001 and has fluctuated around 1.1 million since the mid-1980s.
Industry-value-added (by volume) increased by 3 per cent in 1999-2000 and was up by 12 per cent over the five year period from 1994-95.
Importantly, too, manufacturing exports (by value) were up by around 15 per cent in the March quarter 2001 compared with a year earlier.
In the automotive industry, for example, exports were up by almost 30 per cent on 1999 figures to a record $4.2 billion in 2000.
Manufacturing investment has also improved. In the 20 years to June 2000, real gross fixed capital expenditure grew at an average annual rate of 4.4 per cent, compared with an average annual rate of 2.8 per cent in the 20 years ending June 1980.
The Australian Government's policy direction has also received the ringing endorsement of global commentators.
In its March 2001 Article IV consultation with Australia, the International Monetary Fund (IMF) noted that prudent economic management had created a dynamic, flexible economy that is well-positioned to withstand external shocks.
The IMF also welcomed our initiatives to support research and education and strengthen higher education, nothing that structural reforms of this kind are vital if Australia is to retain its place among the leaders in productivity growth.
The OECD too has lauded our approach, characterising Australia as one of the "stars of the new economy", and noting that in the past decade only Australia and the United States have experienced both an acceleration of multifactor productivity growth rates, and increased labour utilisation and labour productivity.
Closer to home, the Reserve Bank, in its March Bulletin
, noted that the manufacturing sector has become considerably more efficient and export-oriented and that these factors are expected to contribute to the performance of the sector over the longer run.
I hope these comments address your concerns about the role and importance of manufacturing in the Australian economy.Nick Minchin,
Minister for Industry, Science and Resources,
Canberra, ACTColin Teese replies:Senator Nick Minchin claims that I suggest "Australia's manufacturing industry may be falling behind in international terms". It is not "suggestion" but fact. Our manufacturing industry has suffered the largest decline in output and employment in the OECD.
Senator Minchin maintains that the fall in performance by our manufacturing industry from around the OECD average 20 years ago to around the bottom of the table today can be explained by a corresponding increase in the performance of our services sector.
The trouble is that other OECD countries have been able to record growth in their services sectors without suffering a comparable decline in manufacturing.
The explanation lies in the fervour with which first Labor and later the Coalition has embraced the ideology of free trade.
This has caused our manufacturing industry to contract in both size and scope, has helped erode the tax base, exploded unemployment and the welfare bill, undermined the value of the currency, and hugely enlarged the deficit on our current account.
As for growth, that now seems entirely dependent upon domestic considerations: retail sales, car registrations and new housing starts.
As far as trade is concerned, the picture is very different. Calculated in dollars US - which is the real measure of what we can buy overseas - the value of our exports is about the same as it was two and a half decades ago.
No doubt the Government is committed to sustainable growth. But a healthy manufacturing industry must be part of that commitment, and while ever the Government adheres to the Whitlam/Hawke/Keating-inspired ideology of free trade, our manufacturing sector will continue to decline.
And, as I explained in my article, at least part of this decline will be associated with its inability to attract foreign investment.