Andrew Liveras is the man, at the AFR:
“Australia drank the free-trade juice and decided that off-shoring was OK. Well, that era is gone,” said Mr Liveris, who’s been tapped to work with Nev Power’s advisory commission into restoring local manufacturing.
“We’ve got to now realise we’ve got to really look at on-shoring key capabilities,” he said…Mr Liveris indicated Australia should never have accepted the hollowing-out of its manufacturing base – part of what is known as “Dutch disease” – to the extent it has.
While he insisted he’s not seeking to create a system of “picking winners” in the mould of national corporate champions or conglomerates common in places such as China, Japan and South Korea, Mr Liveris said there was a need to focus on competitive advantage in some sectors.
According to the Darwin-born engineer, who is currently sheltering from the coronavirus storm at his home in Sydney, Australia’s inability to compete in scalable industrial sectors was laid bare by 1990s trade liberalisation, globalisation and domestic deregulation.
…By contrast, smaller economies such as Singapore, Taiwan, South Korea and Hong Kong have succeeded because “they worked hard on the research side,” he said, linking universities to foreign direct investment.
…That’s meant Australia has over recent decades missed out on a broad swath of innovations from what World Economic Forum founder Klaus Schwab has dubbed “Industry 4.0”. That includes the digital economy, big data analytics, artificial intelligence, robotics, drones and other advanced technologies, Mr Liveris said.
“We have done a decent job in the medical area, in Melbourne in particular.
“But support for R&D, our R&D tax credits, have basically disappeared whereas other countries – the ones I’ve mentioned – have massive credits to encourage innovation and scalability.
At the top of his list is health, followed by defence and cyber. Next comes energy, which must include “transitioning, using natural gas, away from coal to renewables,” followed by water and food.
…”You don’t want to erect tariff barriers and subsidise sectors … or worse still, not pay your people the right wages,” he said.
…It’s about “the high end, the stuff that really matters to the nation, the sectors I’ve mentioned.
“Why don’t we become the technology provider to the world on ways to have health and hygiene in your food supply chain?
“Why aren’t we the number one precision agriculture country in the world, and figure out how to use the best farming techniques, crop rotations, minimise deforestation and use of water?”
And on he goes. All to the good. I agree on Andrew Liveras’ micro-economics positions. Neglect in these areas of industry policy is a result, in part, of Dutch disease as policymakers become complacent about “mining to the rescue” always.
But Dutch disease in Australia is far beyond industry policy. You don’t crush manufacturing to 5% of GDP without something going very wrong with macroeconomic settings. Nobody else did it:
The major inhibitors are macroeconomic:
- overly high currency;
- capital strike outside of resources endowment sector;
- energy policy;
- immigration debauching university standards, and
- tax policy incentivising capital importation to inflate domestic prices.
All of these things destroy your competitiveness as:
- capex costs spike;
- opex costs spike
- labour costs spike;
- IP costs spike;
- and real exchange rate costs spike.
What hope is there for tradable goods under this regime? None. See chart above.
The revival of “scalable industrial sectors” goes far beyond the Andrew Liveras’ discussion. What will be needed is policy settings that trigger:
- cheaper capital, plus
- cheaper land, rent, labour, energy, research, tax and IP.
These cannot be done in Australia’s current economy without making an enemy of so many interests that you might as well shoot everybody dead. Consider the reforms that will be needed:
- tax mining super-profits to fund industry tax cuts to correct capital imbalance;
- scrap negative gearing (and or deeply strong macroprudential) to reduce offshore borrowing, deflate land and rent costs and help lower the AUD;
- severely restrict international student numbers and invest public monies into universities;
- deploy domestic gas reservation to crash energy prices, and
- create new enterprise bargaining systems linking productivity gains to pay rises.
Consider that the Labor Government recently lost a PM on the first. The Coalition Government recently won an election trashing the second. The third is the key input into the great house price Ponzi relied upon by banks, construction and media for survival. The fourth is run by the world’s largest and aggressive lobbyists. And the fifth brings in unions long since disabused of the national interest.
It is not my intention to make anybody want to give up. Andrew Liveras’ mission is vital to the national interest and I hope very much that he succeeds.
But without some of these reforms the only thing that will change is that Australia will apply a few select tariffs and go back to offshoring what little manufacturing output that remains.
