EDITORIAL: by Peter WestmoreNews Weekly
The decline of Australian manufacturing
, March 30, 2013
The recent closure of a number of iconic Australian food manufacturers highlights the parlous state of manufacturing in Australia, the extent of Australia’s growing dependence on imports, and the complacency of governments — state and federal — to this threat to Australia’s way of life.
Over the past six months, we have seen the end of the Rosella brand, which first began production in Australia almost 150 years ago. Gourmet Food Holdings, which owns Rosella, has finally closed its doors.
This has followed the end of local manufacturing by G.J. Heinz, Golden Circle and Australia’s largest tomato-grower, SP Exports.
Last September, Premium Fresh, one of Tasmania’s largest vegetable-growing operations, entered into voluntary administration, and it was followed by the closure of Windsor Farm in Cowra, New South Wales, the last wholly Australian-owned cannery, and a number of other local manufacturers. In 2010, the Port Lincoln tuna cannery closed its doors.
The food-processing industry is important to Australia. Until recently, it was among the largest manufacturing sectors in Australia, supplying principally the Australian market.
It also provided the downstream processing of sugar, grains, fruit and vegetables for Australian primary industry, keeping important sections of Australia’s agricultural and horticultural industries viable, and employing tens of thousands of people on farms, in provincial towns and cities, and in local industry.
This is in the process of collapsing.
In the 1960s, Australia had a robust and competitive manufacturing sector which produced about 25 per cent of Australia’s gross domestic product (GDP).
With the dismantling of local tariffs and import quotas from the 1970s onwards, manufacturing shrank sharply to about 13 per cent of GDP in 2001-02, to 10.5 per cent by 2005-06, and is below 10 per cent today.
Manufacturing has declined across the board, from food-processing to metal fabrication and manufacture, textile, clothing and footwear, as well as motor vehicle manufacturing — all as a result of government policies which encourage cheaper imports, on the basis that this depresses consumer prices and keeps inflation low.
The impact of the decline in manufacturing has been partly offset by the rise of the mining industry which not only maintains local manufacturing, but, equally importantly, produces the export income needed to sustain Australia’s insatiable desire for imported goods.
Despite paying lip-service to the importance of maintaining viable local manufacturing, governments on the whole have sat on their hands. The one exception is the local car manufacturing industry, dominated by several large international players including Ford, GMH and Toyota.
Because of the political importance of car manufacturing in South Australia and Victoria, the export income earned by Holden and Toyota, and the importance of motor vehicle manufacturing in supporting a multiplicity of smaller component manufacturers, governments have subsidised the local car industry for many years. Without that support, the local industry would undoubtedly have shut down and the technology used in motor manufacturing would have been lost to Australia.
Despite this, the local industry is in decline, and there are real doubts as to whether the local car industry will survive in the long-term.
While this has been happening, there has been a massive switch towards service industries such as education and finance, retailing and hospitality.
One problem with this is that without a viable manufacturing industry, Australia has become a supplier of low-cost raw materials to the world and an importer of high-cost manufactured goods. As a result, Australia runs recurrent trade deficits which have contributed to the growth of Australia’s national debt.
An additional problem is that, without manufacturing, the economy is unbalanced, being excessively dependent on a few export commodities to global markets where prices fluctuate violently. It is generally acknowledged that Australia’s mining boom is coming to an end, and, when it does, the local economy could be in real trouble.
It is instructive to compare the experience of Australia with that of the world’s most successful economies, Germany, China, South Korea, Taiwan and Japan.
In all of these countries, government policy is directed to the maintenance of a broad range of viable local manufacturing industries, from food-processing to heavy engineering. To support these industries, and to encourage constant innovation and the introduction of new technologies, governments of these countries have established financial services and educational institutions, from technical schools to universities.
Additionally, government policies have encouraged consumption of locally manufactured goods, through a range of incentives and tax concessions which comply with the international trade rules established and maintained by the World Trade Organisation.
Australia needs to learn from their experience.
Peter Westmore is national president of the National Civic Council.