Nev Power talks manufacturing boom nonsense

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Via the AFR comes motherhood statements:

Australia has an “enormous opportunity” to reboot its manufacturing sector by taking advantage of crippled global supply chains and a lower currency, says Nev Power, the man handpicked by the Prime Minister to lead an expert advisory commission.

Former DowDuPont executive Andrew Liveris has been recruited to work with the Power-led National COVID-19 Coordination Commission and devise a long-term strategy to deliver a competitive, best-in-class manufacturing sector as a major pillar in helping rebuild the economy.

“It [manufacturing] will be a big employer,” he said. “It will be import replacement and we can take advantage of current market conditions and disrupted supply chains around the world. It reduces our reliance on single point failures in our supply chain.”

Why would it be a big employer? If it is it won’t be able to compete. What it needs is to be is highly automated, highly efficient and highly competitive.

I happen to agree with Nev that there is a potential boom ahead. But to make it work it will need four things:

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  • cheap energy;
  • lots of capital (not lots of labour);
  • a much cheaper currency, and
  • government commitment.

These are all policy driven outcomes. The Morrison Government will need to work on two fronts, micro and macro. On the first it must:

  • identify which areas of global supply chains it is no longer tenable to outsource. These segments must be actively incentivised with investment and research tax forgiveness;
  • create industrial relations regimes that do the same with both unions and bosses on board.
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On the macro front it must:

  • deliver tough gas reservation and pipeline regulation to crash local energy costs;
  • adopt an all of government policy for a lower AUD and higher productivity which includes cutting things like franking credits and negative gearing plus having higher mining taxes;
  • use tariffs or behind the border protections where needed.

At the industrial level, Australia is a mining economy top to bottom. Ironically, mining man Nev Power is the embodiment of this; part of the very rampant Dutch disease that he now seeks to fight. It has destroyed manufacturing for three decades such that it is now down to about 5% value-added GDP, far below other supposedly financialised economies.

Dutch disease has gutted Australian manufacturing IP, capital, equipment, energy, and the people needed to be turned around.

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Motherhood statements won’t do it.

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.