Find above a fascinating interview aired last night on ABC’s The Business with Professor Yuran Roos, Chairman of South Australia’s Advanced Manufacturing Council, discussing the future of manufacturing activities in Australia.
According t0 Professor Roos, conditions in the Australian manufacturing sector are likely to “get much worse before they get better”. He also believes that “manufacturing is the critical part of all successful economies, so we cannot afford not to have it”. And while manufacturing is in decline, this is more due to increasing productivity – which requires less workers and inputs – rather than it losing relevance per se.
Professor Roos hits out at the claim that the Australian car industry is being “bailed-out”, noting that there is almost nowhere in the world where the car industry is not subsidised, in recognition of their intrinsic importance to so many other areas of the economy. Roos contends that the first critical decision that Australia needs to make is whether it does want a car industry. And if so, then it has to understand that there is an upfront cost involved, but that the payback is very large.
Moreover, the consequence of not supporting the car industry is that it will leave, which will impose dramatic short-term costs on the nation. Roos goes on to argue that the multiplier effect of the car industry is large, with some 15,000 to 16,000 people employed directly, another 45,000 to 50,000 in suppliers, and probably 250,000 jobs dependent on the industry throughout Australia. As such, there are very few other industries where the same level of subsidies would have the same employment effect, at least in the shorter-term.
As to the longer-term future of manufacturing, Roos argues that high cost nations like Australia need to make things that no one else makes, so that other nations will still buy them. Australia’s manufacturing future is likely to, therefore, centre around the digital space – testing, development, and distribution – rather than assembly operation, which will take place elsewhere.
Whether you agree with Professor Roos’ views or not, manufacturing looks to me to be in terminal decline, with the employment share at record lows and capital expenditures in the gutter (see below charts).
For a variety of reasons, including the high Australian dollar and excessive labour/land costs, Australian industry is uncompetitive, which requires a widespread program of micro-economic (structural) reform aimed at boosting productivity.
