As the economic fallout from the COVID-19 pandemic continues, Ian Verrender* examines the possibility of Australia returning to large-scale manufacturing.
Everything old is new again.
As the world plans a recovery from the economic devastation caused by the Coronavirus, long discarded and previously discredited ideas and ideologies are getting a fresh airing.
For a start, there’s been a complete reversal in thinking when it comes to the role of Government in managing the economy.
Social welfare and safety nets, temporary although they may be, are not the strategies most closely associated with Coalition Governments.
That’s not all.
There’s now a push to wind back some of the hard fought ‘advances’ foisted upon nations by the free market philosophy that has prevailed in the West.
For decades, free trade has ruled.
Instead of producing everything, there’s been a consensus that nations should produce the things they’re good at.
You sell that offshore and buy in the stuff you need.
Then in February China suddenly shut down, and the world couldn’t buy what it needed — everything from pharmaceuticals to electronic components and packaging.
A grassroots push to be more self-reliant gripped the globe.
The National COVID-19 Coordination Commission, in a move reminiscent of post-war command economies, wants to reboot Australian heavy manufacturing powered by cheap and abundant gas.
Can it be done?
The answer to that is a resounding yes, but it would come at enormous cost — if not to the taxpayer, then consumers.
For more than 50 years, we’ve watched our manufacturing sector wither on the vine.
It hasn’t been an accident.
In the post-war era, our flourishing manufacturing base was built upon protection.
Tariffs, subsidies and import quotas cushioned our industries from the winds of change blowing through the global economy.
The Whitlam Government was the first to move and took an axe to the cosy protectionism that shielded big business and unions from global competition and innovation, slashing tariffs 25 per cent in one hit.
From then on, protection levels systematically were cut until the late 1990’s when they were virtually non-existent.
It wasn’t the removal of protection that ran a bulldozer over our manufacturing base. It was the dollar, or more specifically, the mining boom.
Way back in the mid-1970’s, Australian National University economist, Bob Gregory put forth the idea that a boom in the resource sector could effectively squeeze out other sectors of the economy.
From 2000 on, Professor Gregory’s thesis turned from textbook to real world playbook.
As China transformed itself and built cities on a scale previously unknown, its insatiable demand for raw materials sparked an unprecedented Australian resources boom.
As billions of dollars in new investment poured into building new mines, our dollar soared through parity with the greenback, eventually peaking at around $US1.10.
That made our exports expensive on the global stage while imports were amazingly cheap.
Try competing against that as a local manufacturer.
For all the complaints from business leaders about overpaid Australian workers, it was the soaring currency and the vast lift in real estate values that priced us out of the global manufacturing ballpark.
When General Motors, Ford and Toyota all decided to quit the country, it was primarily because the local currency had priced the domestic industry out of business.
It wasn’t just cars.
Manufacturing employed 1.1 million people in 2000. By 2016, there were just 860,000.
Perhaps Australia’s manufacturing solution relies on a more hi-tech future.
Some of our more successful companies, such as CSL and Cochlear, have developed world-beating medical technologies that are now sold around the globe.
Recreating the manufacturing base we once had would require a large dose of protection, and that doesn’t come cheap.
Just ask United States President, Donald Trump. His quest to Make America Great Again has backfired spectacularly.
Research from the US Federal Reserve has shown his tariffs on Chinese components and materials have damaged US competitiveness and jobs primarily because they act as a tax on Americans.
The Federal Government has baulked at the idea of introducing tariffs to support domestic operations.
However, unless it can offer new entrants a guarantee that the dollar won’t rise during the next resources boom and can deliver cheap land on which to build new factories, there’s little chance of a resurgence in heavy industry here.
When it comes to a cheap and reliable energy, the only short-term solution would be to make east coast gas exporters reserve a portion of the existing cheap gas for domestic use.
Longer term, a focus on large-scale and low-cost renewable energy infrastructure and energy storage would be a better option than gas.
Another option would be to promote innovation with research and development incentives.
It’s been done before with varying success.
The most over-used cliché in the business world is ‘going forward’.
As annoying as it is, it beats the hell out of looking backward.
*Ian Verrender is the ABC’s business editor. A journalist for more than 30 years, he has also worked for the Sydney Morning Herald, Business Spectator and Eureka Report.
A fuller version of this article appeared on the ABC News website.
