May 2nd 2020


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Articles from this issue:

COVER STORY Gearing up to ditch free-trade policy

EDITORIAL Post-covid19, create a national development bank

CANBERRA OBSERVED Keelty water report misses the point on water shortage

ENERGY Pandemic has exposed our overreliance on imports

CARDINAL PELL Locating the golden thread

CARDINAL PELL High Court practically shouts 'not guilty'

FAMILY Dismantling myths around family tax benefits

REFLECTION Covid19 and the Church past, present and future

OBITUARY R.I.P. Bruce Dawe: poet of the people

FOREIGN AFFAIRS Doctors of WHO let the covid19 dogs out

INDUSTRY POLICY The rise and fall of Australian manufacturing and covid19

ASIAN AFFAIRS Politics done by stealth in the UN: China and the WHO

HUMOUR Get them hug-dealers off the streets

MUSIC Farewell to an Aussie jazz legend: Don Burrows

LOCKDOWN TV CLASSIC Unique, unsurpassed: The Avengers

BOOK REVIEW ENTIRE GENERATIONS ALONE

BOOK REVIEW WARNING TO THE WEST

POETRY

LETTERS

NATIONAL AFFAIRS Crucial to get Virgin Australia flying again

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INDUSTRY POLICY
The rise and fall of Australian manufacturing and covid19


by Geoff Crittenden

News Weekly, May 2, 2020

Australia had a long, proud history of manufacturing throughout the 20th century.

With the Federation of Australia in 1901, customs barriers were eliminated between the states so they could more easily trade with another. This prompted the first wave of manufacturing expansion, particularly in Victoria and New South Wales. By 1913, manufacturing employment totalled 328,000 workers and accounted for 13 per cent of GDP.

During World War I, the Australian government quickly realised that our economy was too reliant on imports; it was near impossible to source many products in wartime. As a result, Australia started to manufacture a range of products onshore during the war, from aspirin right through to chlorine.

Our steel industry also experienced enormous growth. BHP opened a steelworks in Newcastle in 1915, which generated huge profits due to the unprecedented demand for steel to build ships, ammunition and artillery.

Australia quickly matured from a rural economy into a substantial manufacturing power.

The 1920s marked the beginning of the car-manufacturing boom in Australia. Both General Motors and Ford established factories here, in Adelaide, Brisbane, Fremantle and Sydney. At the time, it was more cost effective for these American manufacturing giants to assemble their cars using imported components, rather than import complete vehicles. By 1929, 440,000 people were employed in manufacturing, approximately 18 per cent of the total population.

While car manufacturing took off, Australia also faced challenges in 1920s: the Great Depression impacted several of our industries, particularly heavy industrial manufacturing (such as tools and metal parts). To help industry stave off these challenges, the Australian government applied tariffs to some imported goods, encouraging Australians to buy local.

As a result, the Australian metalworks and heavy industrial manufacturing sectors expanded in the 1930s. BHP took over the Port Kembla steelworks. General Motors started building all-steel welded car bodies at its new plant in Melbourne. Rheem started manufacturing water heaters. The Commonwealth Aircraft Corporation opened a plant in Melbourne.

When World War II hit in 1939, Australian manufacturing was poised to play an even greater role than it had during World War I. With imports scarce, local demand was high. Australia also became an important supplier of manufactured goods to Britain and the United States.

Australian manufacturing remained strong in the years immediately after World War II. For instance, Toyota opened up shop in the late 1950s. And, in the 1960s, Alcoa opened its first alumina refineries in Kwinana, Pinjarra and Wagerup.

Throughout the 1950s and ’60s, Australian manufacturing was responsible for about 28 per cent of gross domestic product (GDP) and 28 per cent of all employment.

THE DEMISE OF AUSTRALIAN MANUFACTURING

By the 1970s, however, Australian manufacturing was in decline. Local manufacturers were unable to compete with imported goods. Imports were much cheaper than goods produced in Australia, which meant businesses and governments alike began consistently to take their contracts for products and projects offshore. Manufacturing saw its share of total employment fall from 25 per cent in 1970 to 19 per cent by 1980.

Fast-forward to today and, while manufacturing remains a vital part of the Australian economy, it is responsible for just 5 per cent of GDP, and only 5.4 per cent of total employment.

Arrium collapsed in 2016. Holden and Ford have closed their facilities. Australian manufacturing is dying.

This slow and painful death is due in part to market forces: an extended period of unfavourably high exchange rates; the rapid rise of China as the “world’s factory”; increasing wage costs; a lack of skilled workers; and increases in local energy and other input costs.

But it cannot all be blamed on market forces. Successive state and federal governments continue to take manufacturing work offshore that the local industry is more than equipped to handle.

Take, for example, rail industry projects. As recently as 10 years ago, most rail vehicles were designed and manufactured here in Australia. Not anymore. The $2.43 billion contract for the new Intercity train fleet was sent offshore by the NSW Government. Sydney’s Waratah trains have only 20 per cent local content. Queensland’s new trains were fabricated in India (these failed to meet Australian standards for accessibility, and are now undergoing significant rework). And, while Victoria’s Metro Trains are manufactured locally, all the fabrication work is completed in China.

And let’s not forget the big corporates. Most of the major mining companies have their fabrication work done offshore. Not long ago BHP awarded more than 20,000 tonnes of structural steel work for its $4.7 billion South Flank project to an offshore manufacturer.

The $150 billion investment by the Federal Government in the defence industry has revitalised many small-to-medium enterprises within the Australian manufacturing supply chain, and brought in new investment from overseas. However, this is just a drop in the bucket; we need a much larger proportion of government spending to remain in Australia.

A GLOBAL COMPARISON

Let’s compare Australia with the rest of the world. Manufacturing employs about 16 per cent of the workforce in Germany, Japan, and Switzerland. Canada, whose economy otherwise is similar to ours, has 1.7 million manufacturing workers, compared to our 47,500. In Israel and Sweden, with far smaller populations, advanced manufacturing is thriving.

South Korea – the fifth largest export economy in the world and the sixth most complex economy according to the Economic Complexity Index (ECI) – had a positive trade balance of $124 billion in 2017.

In comparison, Australia is the 20th largest export economy in the world and, embarrassingly, the 93rd most complex economy. In 2017, Australia had a positive trade balance of just $44 billion – just a third of that of South Korea’s.

It is a matter of national pride to South Koreans to buy South Korean-made goods, from trains to cars to telephones. Imports and sales of products such as German-made cars and iPhones are some of the lowest in the world in South Korea.

Why? Because every element of government and the South Korean people work together to support their local manufacturing industry. There is a real cultural and governmental focus on protecting their local economy and developing their own strengths.

THE IMPACT OF COVID19

In the wake of the covid19 pandemic, it is becoming ever more obvious that the complete lack of support from state and federal governments and industry at all levels has had a possibly terminal impact on Australian manufacturing.

This lack of support has weakened our ability to compete internationally and reduced our industry to the lowest common denominator: cost. This economic rationalist way of living, which delivers short-term savings, will not secure the future of our economy or of our manufacturing industry long term.

While hundreds of thousands of people are expected to lose their jobs as a result of the economic effect of covid19, the manufacturing industry continues to operate – quietly, under the radar – and to employ 10 per cent of the population.

The Federal Government has pledged $320 billion, representing 16.4 per cent of annual GDP, to economic stimulus packages designed to bolster the economy in the wake of the covid19 pandemic.

What if just a fraction of this $320 billion had been invested into the manufacturing industry over the last 10 or 20 years? What if the Federal Government had invested in local manufacturing industries, instead of sending work offshore – effectively investing in international economies?

Before it collapsed, the car industry wanted just $300 million a year in government assistance – just 0.09 per cent of the covid19 stimulus package. This funding would have been shared among 120 tier-one manufacturers and suppliers to keep their factories running and to keep thousands of Australians in jobs. In return, each manufacturer would have invested three dollars for every one taxpayer dollar.

If Federal Government had invested in Australian jobs, companies, and the manufacturing industry as a whole, our economy would be much better positioned to weather the impacts of covid19.

WHAT IS THE SOLUTION?

Clearly, the covid19 pandemic is a disaster. But, let’s hope it offers a silver lining for manufacturing. Let’s hope it opens our politicians’ eyes to the need to invest in the local economy.

We need a commitment from state and federal governments to increased levels of local content for all procurement decisions. We need the big corporates, like BHP, to award local contracts to local companies.

The strength of the sovereign capability of Australia depends on Australians investing in Australia. It might be cheaper in the short term to buy from Thailand, China, or South Korea, but all this does is weaken our economy.

If Australia is ever going to repay the $320 billion stimulus package, we need to invest in our economy. We need to bring home the manufacture of goods such as cars, rail infrastructure, and solar power equipment.

If we do this, local companies will then be in a position to invest in their own businesses, and to strengthen our manufacturing industry from within. Business innovation encourages the creation of strong and lasting new businesses and the creation of new and better jobs, which together support a move to higher living standards. Innovation investment by business is crucial to our ongoing prosperity.

To secure the future of Australian manufacturing and repay the debt that covid19 will leave in its wake, we need determined action from our governments, industry leaders, and the general public to put Australia first. We need to foster a sense of social responsibility.

We need Australians to support Australia.

Geoff Crittenden is chief executive of Weld Australia. Weld Australia’s members are made up of individual welding professionals and companies of all sizes. For more information, visit: www.weldaustralia.com.au




























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