Nobody enrages me like Gittins! Not even Pascoe. Sadly for me, the two Fairfax commentators today engage in an awful double-act of cavorting on manufacturing’s grave.
Let’s begin with Gittins!:
And the fact is that, throughout most of the 20th century, we diverted a fair bit of our income from agriculture and mining to subsidising our then highly protected manufacturing sector. This may help explain why so many people – particularly older people – are so ready to do whatever it takes to stop factories being closed. It’s the traditional Australian way of doing things: passing the hat.
But what’s the positive, future-affirming alternative? What else can we do?
Embrace the newer revolution in the developed world, the Information Revolution. While the poor countries are becoming manufacturing economies, the rich countries are becoming knowledge economies.
The knowledge economy is about highly educated and skilled workers selling the fruits of their knowledge to other Australians and people overseas. It covers all the professions and para-professions: medicine, teaching, research, law, accounting, engineering, architecture, design, computing, consulting and management.
Jobs in the knowledge economy are clean, safe, value-adding, highly paid and intellectually satisfying.
The developed economies are fast becoming ”weightless”, as an ever smaller proportion of income and employment comes from making things and an ever increasing proportion comes from providing services. Some of those services are fairly menial, but the fastest growing categories involve the highest degrees of knowledge and skill.
Employment in Australian manufacturing has been falling since the 1980s. It’s sure to continue falling whatever we do to try to prop it up. By contrast, since 1984 total employment has grown by almost three-quarters to 11.4 million. Get this: all of those 4.8 million additional jobs have been in the ”weightless” services sector.
Notwithstanding our future increase in the production of rural and mineral commodities, our economy – like all the rich economies – will continue to lose weight. The real question is whether the services sector jobs our children and grandchildren get will be at the unskilled or the sophisticated end of the spectrum.
As I wrote the other day, the issue with losing your manufacturing base (at least in economic terms) is that it leaves you with a very unbalanced export mix. This is simply because the lovely services that Gittins! refers to are not, for the most part, export amenable. Let’s take a look at the Australia’s mix of exports:
That’s 70% or so of the economy contributing 21% of its exports, roughly $50 billion versus $200 billion in goods in 2009. And if we dig into it we find that that $50 billion is completely dominated by two exports, neither of which actually leave our shores, education and tourism:
Take a look at the “other” category. That, basically, is Gittins! knowledge economy beyond education. If that’s the future of our exports then I’m a goddamn monkey’s uncle.
Now, don’t get me wrong. Education and tourism have both at times in the past two decades been great export success stories. But they’re terrestrial you know. And that is significant. Australians are dreadful at investing in Asia and if you’re going to export services, that’s what you’ve got to do.
And I’ll add that since the dollar reached $US parity in 2008, export growth in both education and tourism has virtually ceased.
So Gittins! is offering a chimera. His wondrous services economy has very limited scope to boost its contribution in the export mix so what he is really arguing for is an acceptance of an ever greater dependence upon resources. He should just say so.
…the crucial opportunity to be grabbed during the commodities boom is a massive and broad increase in our investment in education. It’s an investment the nation has failed to make for decades as Australia’s educational spend has fallen down the OECD rankings. From pre-schools to universities, we’re slipping away just when we have no choice but to chase leadership.
He also argues that that will support:
…the opportunity and knowledge in parts of manufacturing, but as our strong dollar forces us up the value chain, it means the manufacturing that will continue to be profitable here will be concentrated on specialist niches and high-end quality products – areas with the greatest value-add.
Which I completely agree with (but note that that is not what Gittins! argued). Except this, too, I suspect, is largely bullshit. Fact is, the dollar is so high that even high margin value-added is under pressure. Here’s a chart of manufacturing exports as a share of goods exported:
Down from $45 biilion in 2005 to $39 billion in 09/10. And another showing elaborately transformed manufactures (ETM) are under as much pressure as simply transformed manufactures (STM):
I don’t support protectionism either. But these guys are dreaming about the prospects for non-resource exports if the dollar stays at these levels, and afterwards will be too late.
