A modest proposal for manufacturing

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If there’s one thing that bugs me about the Australian economy and business it is rent-seeking. It is that practice of big businesses wielding political power for shareholder and personal gain. It is a doubly toxic pursuit because it not only means that Australians often have to pay extortionate prices for goods but it retards productivity for the economy overall, meaning we all get richer more slowly (except for the protected few).

But, as I have before, I’m going to make one exception to this frustration, for manufacturing.

As we know, manufacturing has been targeted for extermination by the macroeconomic high priests of the RBA and Treasury, to free up resources for the mining boom. To my mind, this is an unacceptable and unnecessary risk for the national economy involving an enormous punt on an untried and untested political and economic model in China. Just why we should allow our export mix to tip completely towards commodities is beyond me.

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And so, today, I am going to offer some free advice to the Australian Industry Group, the manufacturers peak body and lobby about how to begin a rent-seeking campaign of their own.

First, however, we must diagnose the problem. And a couple of stories in The Australian do a good job of that this morning. Let’s contrast the rent-seeking maestros, Australian miners, with their manufacturing brethren. First, the miners:

With gold trading at new records, above $US1600 an ounce, and with new projects rushing to come into production, you’d expect to hear few complaints in the booming West Australian goldmining town of Kalgoorlie. But on the opening day of the Diggers & Dealers talkfest yesterday, it became quickly clear that hostility towards the Gillard government’s mining and carbon taxes would dominate discussion among more than 2200 delegates who flew in from around Australia and the world.

Diggers chairman Barry Eldridge set the tone within the first five minutes when he launched a blistering attack on the “extreme” and “superficial” policies of Labor and the Greens, during his opening address. Even Tony Abbott wasn’t spared, with Mr Eldridge predicting a future Coalition government would be unlikely to axe the mining tax, as promised, because it would be reluctant to forsake such a big revenue hit.

In his presentation, Integra Mining chief executive Chris Cairns paraphrased former Beatle Ringo Starr when he said: “Everything the Gillard government touches turns to crap.”

But the biggest talking point among delegates yesterday was the large neon sign outside Kalgoorlie’s historic Palace Hotel that reads: “Carbon tax. Mining tax. Useless Independents. Gillard & Co have to go — ASAP.” The scrolling sign just below the top balcony of the famed watering hole is the most watched in Kalgoorlie as it has long displayed in bright-red print the gold price that has determined the town’s fortunes for the past 120 years.

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This is perfect execution. Here we have an industry sector enjoying the greatest boom conditions for 150 years, yet there is NO acknowledgement of the fact. Note the toxic blend of anti-government rhetoric, gutter slurs, universal righteousness, a strong sense of building conflict and division and, above all, a national media brand pumping it out with gusto.

On the other hand, in the same paper, we have the following from the AIG on behalf of manufacturers:

Heather Ridout calls it the “boom and gloom” economy. She knows most of her members are mired in gloom and some have moved right on to doom.

The point was reinforced by the further slump in manufacturing in July, revealed yesterday by the Australian Industry Group.

The latest manufacturing activity index fell 9.5 points to 43.4, well below the 50- point level separating expansion from contraction. The record for new orders fell even more dramatically, down 14.4 points. No sense of improvement coming there.

It’s a message well timed for the Reserve Bank as it meets today to decide whether to raise the cash rate for the first time since November.

Despite the shock inflation figures in the June quarter providing hard evidence that inflation is on the march, any move to raise rates in this environment would be greeted with horror by most of business as well as by households.

The AI Group is fully aware of the dilemma facing the RBA.

“Perversely, the only indicators of broad business conditions showing an increase were input costs and wages, both of which are negatives for industry,” Heather Ridout said yesterday.

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A nice, gentlemanly phrase and a balanced assessment of the macroeconomic conditions faced by the sector. This could be a couple of ladies discussing the kids lunches.

No, AIG, parlor discussion is not the way to save your members. What you need is conflict, outrage and moral panic. Here’s how to get it:

  • pay for some partial analysis by a hired gun economics firm that shows how many jobs are going to be lost in the sector over the next decade
  • go and see the editors of the major media outlets and offer exclusive coverage of your campaign until one agrees to cover it in detail
  • declare a national crisis for manufacturing
  • declare war on the unholy alliance between the Gillard government and currency speculators
  • discredit the RBA as ivory tower economists that are out of touch with real Australian families
  • begin an huge advertising campaign that directly attacks the Gillard Government around the job losses
  • enlist the help of the unions. And get some protests going
  • declare the threat to house prices in the event that mining is allowed to destroy all other sectors
  • hijack the national tax summit and make it address the high dollar through a sovereign wealth fund
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And voila! Policy action on the manufacturing crisis.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.