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Read the whole thing

October 19th, 2004

Today’s Fin (subscription required) has the first in a series of articles on Australian manufacturing, by Peter Roberts. There’s an odd disconnect between the front page (and the editorial referring to it) and the body of the article. The opening includes the optimistic declaration

The Australian manufacturing sector is now made up, not of survivors, but successful competitors in home and export markets

But the main body of the article is rather less positive. It’s not surprising to learn that manufacturing has shrunk from about 20 per cent of GDP and employment in 1975 to 12 per cent today. But those who haven’t been following the news may be surprised to learn that manufactured exports are declining in nominal terms, and that as the article notes

there has been a seemingly inexorable rise in the manufacturing trade deficit … concentrated in areas such as chemicals, IT and telecommunications … From a high of $37.6 billion in 2000-01, manufacturing exports slumped to $32.9 billion in 2003-04

That’s a decline of about 15 per cent in nominal terms, more than 20 per cent in real terms and more than 30 per cent relative to GDP. Meanwhile imports have risen above $100 billion. I’ve previously looked at the stagnant export performance of the “elaborately transformed manufactures” sector, much-touted under Hawke and Keating, but this is worse than I had realised.

An economic rationalist might respond by saying that if manufacturing is declining, that must be a reflection of market forces and comparative advantage and therefore desirable. This at least a consistent position, though one with which I have some significant disagreements. But it seems silly to me to pretend that things are going well in manufacturing when the numbers clearly point to a rapid decline in all sectors exposed to competition.

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  1. Paul Norton
    October 19th, 2004 at 16:27 | #1

    I recall Bob Brown highlighting an important aspect of this problem at the Greens’ Queensland campaign launch in late September, namely the way in which other countries have raced past Australia in the last 15 years in the quest for a share in the growing world market in renewable energy and energy efficiency technologies, i.e. ETMs in which Australia was once a leader in research and should have become a leader in development, production and export.

  2. oddbod
    October 19th, 2004 at 16:46 | #2

    So what answers are you offering to this ‘problem’?

  3. October 19th, 2004 at 16:50 | #3

    Expect the same disconnect when the NATSEM report on lower income families is “analysed”

  4. October 19th, 2004 at 17:48 | #4

    But I always thought that manufacturing was always a struggle in Australia ever since the economies of Asia have taken up competing in this field.

    The example is the Pelaco Shirt factory in Fitzroy where it tried to hold out as much as it could but had to shift its operation to China to compete.

    I am no economist, but I guess this is the trend in consumer goods that the affluent suburban Australians are buying.

    My understanding is that Australia is naturally disadvantaged in manufacturing, because of its low population and therefore market, being close to areas where labor costs are very low, and not being part of an economic grouping such as the EU.

  5. October 19th, 2004 at 17:59 | #5

    At one time, clothing made in Australia is regarded as an “aspirational good” and commands a simialr price tag. What’s happened? Is it due to the lack of marketing? Or is it that other name-brands have moved to China therefore rendering where it is made a non-issue?

  6. John Quiggin
    October 19th, 2004 at 18:49 | #6

    Oddbod, I think it’s relevant that the decline in manufactured exports occurred not long after the cuts to capital gains tax, an obvious incentive to speculative rather than productive investment. So my first step would be to reverse this.

  7. Nicholas Gruen
    October 19th, 2004 at 23:44 | #7

    Reverse the CGT concessions. Good start. But an easy one. What next?

  8. Martin Pike
    October 20th, 2004 at 09:45 | #8

    Well timed John, as I (a non-economist) am presently writing an essay for political economy on protectionism.

    For manufacturers like Ford and Holden there is a lot of carry over from people’s historic attachment to the vehicles, and this has probably prevented further collapses among car manufacturers. Much of their range is now imported, and my understanding is that a couple of hard jolts and we’d lose most of the remainder.

    Friedmanesque economists might not give a rats but the collapse of Ford would decimate stuggling towns and suburbs in Victoria like Geelong, Colac and Broadmeadows.

    And what do we go to? Do we have a comparative advantage in anything, aside from natural resources? We are one of the most urban countries in the world, people don’t want to go and pick prickly pears in the desert, or descend into the mine pits.

    The nation’s economists (yourself aside John!) should be dropped onto a prawn boat, or dragged out back of Burke to clean fly-blown sheep for a year, and we’ll see what they think of following so-called comparative advantage…

  9. gordon
    October 20th, 2004 at 09:49 | #9

    A useful early step would be to read (or re-read) Porter’s “Competitive Advantage of Nations” (Macmillan, 1990).

  10. wilful
    October 20th, 2004 at 14:03 | #10

    ETMs require approriately trained employees and investments in R&D. Support for these not have been strong components of the Howard Way.

  11. Jeff Harvey
    October 20th, 2004 at 16:10 | #11

    What`s forgotten amidst all of this banter is that the Labour party in Britain is now idealogically almost a clone of the Conservative Party. Blair has prostituted Labour to big business in a big way and has swung the party far to the right. Now the Conservatives have been forced to either move farther to the right to create some breathing space or else face redundancy (which is where they are headed). Most importantly, as author Mark Curtis makes very clear in his excellent book, `Web of Deceit`, voters in much of the so-called free world are getting less and less of a choice when they enter the ballot box. In lieu of party`s with a real difference, they are faced with tweedle dee and tweedle dum; a dime`s worth of difference, to coin the title of a book by Jeffrey St. Clair and Alexander Cockburn at Counterpunch, in describing differences between the policies of Bush and Kerry. Ultimately, what we are faced with is establishment candidates whose main difference is in personality and style, but not on policy. Similarly, when discussing the farcical democracy that Bush, Blair and Howard now use as the prima facie reason for their adventures in Iraq and Afghanistan, the media laps it up, failing to recognize that most of the recycled Republicans in the White House are political refugees from the Reagan administration, who oversaw the transparent bringing of democracy to several countries in Latin America. So what countries are their models for democracy? El Salvador; Honduras; Nicaragua; Guatemala, and others, where several pro-U.S., corporate friendly candidates are shoved before the electorate every five years or so. Ultimately, these countries are democracies in name only, as they are ostensibly ruled by an iron fist by military juntas. I suggest a read of Sheldon Rampton and John Stauber`s excellent `Banana Republicans`, and Greg Palast`s `The Best Democracy Money Can Buy`, which provide some insight into how our so-called democracies are slowly becoming one party states, governed by elites on the political right.

  12. paul2
    October 20th, 2004 at 17:57 | #12

    Evan Jones the pol economist from Uni of Sydney had a spray about the neglect of ETMs in the Sydney Morning Herald recently.

    He blames a lot on the dominance of The Treasury Line(anti-dirigiste, not ‘picking winners’) in national economic policy since 1950.

    It seems to me you ought to be able to fund applied R&D without being seen to pick winners. And you can do it with direct government funding, rather than by setting up rules for the direction of private investment.

  13. oddbod
    October 21st, 2004 at 12:12 | #13

    To Martin Pike :

    Your economically illiterate comments are dumb and typical of the anti-intellectualism, anti-academic stance that is rife in the Australian community. Your attitude clearly underpins why the Great Australian Brain Drain is alive and thriving.

    How much of my taxes do you want to throw at these large multinationals like Ford and Mitsubishi etc. as part of your great job creation scheme? And how long for? Hasn’t chucking money at Kodak taught you anything?

  14. paul2
    October 21st, 2004 at 14:13 | #14

    Oddbod, I think Martin has a point re the social dislocation pending on any withdrawal of support for Ford etc. It would have to be managed constructively and sold carefully, with a lot of attention to how compensation funding is to be spent regionally, and what sort of retraining is going to be funded.

    But I see your point about throwing money at multinationals. It has echoes of the 1920s when the fact that a lot of the protected industries were British-owned, muddied the water for the anti protectionists most of whom were Anglophiles.

  15. Michael Burgess
    October 21st, 2004 at 15:48 | #15

    Australia has thrown large sums of money at the Motor and textiles industries which generate few jobs and, in most areas, don’t appear to add much value. Both Australia and the UK (under the so-called terrible Tony) are also doing pretty economically relative to most of the more protectionist European economies. So the key issue would appear to be not manufacturing (although I agree that economic rationalists are too rigid in this area) but far greater effort to ensure that income is more equitably distributed. Both the well off and non-PAYE taxpayers should pay a much greater proportion of taxation.

  16. oddbod
    October 21st, 2004 at 15:59 | #16

    Michael :

    Have you read Neil Warren’s eminently sensible comments on the need for tax reform in the Australian today?

    http://www.theaustralian.news.com.au/common/story_page/0,5744,11131732%255E7583,00.html

    We already have very high marginal tax rates that cut in very early. Who do you mean by the “well off”?

  17. Michael Burgess
    October 21st, 2004 at 16:45 | #17

    Oddbod,
    I have nothing particularly sensible to add on what the high marginal tax rate should be. However, I do know that anyone earning 70, 000 a year or more (which is some who is well off) appears to have access to all kinds of tax avoidance schemes not open to PAYE earners (who can’t even claim travel to work or the tie they have to wear). Moreover, self employed people (who constantly whinge about how hard done by they are) at all income levels have some nice rorts open to them when it comes to avoiding tax. A close relative of mine has 4 (it used to be 6) business class season tickets to Manchester United which are paid for by the firm.

  18. Spiros
    October 21st, 2004 at 16:57 | #18

    Michael,
    I agree with you. Tax avoiders, and the tax lawyers who devise these schemes, deserve our full condemnation.

  19. oddbod
    October 21st, 2004 at 17:26 | #19

    Michael :

    I don’t think you’d find too many people who earned $70,000 a year thinking they were ‘well off’ or ‘rich’!!! Particularly those who live in Sydney or Melbourne (and increasingly Brisbane)!

    I agree that the game seems to be ‘find the loophole, but that is largely to do with the tax system creating all the wrong incentives, particularly to shove income into all kinds of capital schemes and trusts. It is clearly a massive problem that the tax system is so incredibly inefficient and complex – of course the switch to a broad based consumption tax, the much loved GST (!!!) is a way to overcome some of these problems as consumption is then taxed and we know this has raised massive amounts of revenue for the States!

  20. Michael Burgess
    October 21st, 2004 at 21:00 | #20

    Oddbod,
    I agreed with the GST but builders etc are offering non-GST quotes and driving those who try to do the right thing out of business. As for those earning 70,000 not being well off well to get that as a public servant one has to be EL1. In Canberra that might be the standard (after one has kissed ass for a couple of years -the best way to get ahead still) but elsewhere only a very small minority reach this level and, unlike Canberra, find themselves in charge of large numbers of staff.

  21. October 22nd, 2004 at 21:47 | #21

    It seems to me if one considers clothing that the move to china has resulted in this result.
    Clothing is manufactured cheaply in china,then sold at huge mark ups in australia in westfield type shopping malls.The markup is necessary because of huge rents and charges imposed by the mall magnates.
    Ask any retailer under the thumb in a mall.
    This has meant loss of manufacturing in australia and huge profits for the mall operators.
    Not a good result for us.

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