September 3rd 2011

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Articles from this issue:

COVER STORY: Canberra rally: "Don't meddle with marriage"

CANBERRA OBSERVED: Labor same-sex marriage bid out of step with voters

EDITORIAL: Behind the manufacturing industry crisis

SOCIETY: The UK school that beat the rioters


CLEAN ENERGY: Confiscation under a cloak of scientific respectability

ENVIRONMENTALISM: Why so much heat in the climate change debate?

INTELLIGENCE BRIEFS: Three important issues and what they portend

GLOBAL FINANCIAL CRISIS: Economic illusions have misled world leaders

SAME-SEX MARRIAGE: Should same-sex couples be allowed to adopt children?

UNITED STATES: Pro-life, pro-woman laws enacted in Louisiana

RUSSIA: Gorbachev denounces Putin for "castrating" democracy

HISTORY: Understanding the origins of the Great War


BOOK REVIEW Seven myths about the Mafia

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Behind the manufacturing industry crisis

by Peter Westmore

News Weekly, September 3, 2011

It is a measure of the gravity of the threat currently facing Australian industry that one of Julia Gillard’s strongest supporters, Australian Workers Union (AWU) secretary Paul Howes, should have stated that Australia is entering “one of the worst periods that Australian manufacturing has gone through since the Great Depression”.

Speaking on Sky News, Mr Howes said: “We are now facing a major crisis in Australian manufacturing. The next couple of weeks are going to see huge amounts of jobs in the manufacturing sector go.”

Within a day of this comment, one of Australia’s largest steel-makers, BlueScope Steel, announced the closure of its hot strip mill at Hastings, Victoria, and one of its two blast furnace at Port Kembla, near Wollongong, NSW, with a direct loss of 1,000 jobs and many more from BlueScope’s suppliers, contractors and customers.

These cuts followed an announcement by Australia’s other major steel-maker, OneSteel, of a reduction of 400 jobs, Qantas cutting 1,000 jobs as it relocates to Asia, and smaller losses from Coca Cola Amatil, the GWA Construction Group and Westpac.

Howes reiterated that “we are seeing a once-in-a-generation, or once-in-a-lifetime, shift in the Australian economy at the moment”.

Despite appearances, this crisis has not emerged suddenly. Rather, it is the result of government policiespursued over many years, together with the failure of unions — including Howes’ own AWU — to stand up for their members, instead supporting the policies of successive governments which have led to this situation.

The underlying causes go back to the deregulation of the financial system in the 1980s, under the Hawke and Keating Labor governments, which allowed the value of the Australian dollar to be set by the financial markets, rather than by the Reserve Bank of Australia.

This was accompanied by radical “free trade” policies of the World Trade Organisation, enthusiastically embraced by the federal Treasury, the Hawke, Keating and Howard governments, then by Kevin Rudd and Julia Gillard.

These policies have been in place for nearly 30 years.

It may be that no government could have resisted the domestic and international pressures to adopt policies which delivered an unprecedented liberalisation of world trade. In turn, this drove the demand for Australian commodity exports, particularly minerals, gas and petroleum.

The mining boom has been the major contributor to the prosperity of Australia over this period, particularly in Queensland and Western Australia, and from there throughout Australia.

This enabled Australia to flourish despite the collapse of the Asian financial bubble in 1998, the end of the dot-com boom in 2000, and other disturbances in the international financial system.

Domestically, free-trade policies contributed to cheap consumer goods from China and other low-cost economies which helped to hold down inflation in Australia over a period of 25 years, and created the appearance of prosperity as cheap imported consumer goods flooded the country.

But there was a downside. Internationally, financial deregulation created massive trade imbalances and huge capital flows which fed into the global financial system, creating new and unprecedented opportunities for financial speculation on a grand scale.

What began with the collapse of a speculative binge in the American housing market in 2007, was followed by the collapse of several of the leading banking houses in the United States, Britain and Western Europe, inaugurating the global financial crisis (GFC).

Governments stepped in to rescue insolvent banks and to prop up their financial systems, in the course of which they incurred debts which now threaten the solvency of several West European economies.

For Australia, the consequences were less severe, but nevertheless profound. Australian agriculture, for generations the mainstay of the national economy, faced an unprecedented price squeeze, as low commodity prices, combined with drought, soaring water prices and increased import competition, forced many farmers off the land.

Australian manufacturing industry, long the victim of cheap import competition, is now below nine per cent of the economy, experiencing the sharpest decline of any Western nation. Manufacturers have shifted to importing, or switching production offshore to cut costs.

The latest nail in the coffin has been the rise in the Australian dollar, further damaging Australian manufacturing, encouraging even more imports, and exporting more jobs overseas.

If Australia is to address this crisis, it needs to address the underlying causes, not the symptoms.

Despite its totalitarian political rule, China runs a successful economic system which has some lessons for countries like Australia. It does not allow its currency to be traded on world markets, and it pursues policies which actively encourage the growth of its domestic manufacturing and agricultural industries.

Peter Westmore is national president of the National Civic Council. 

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