Andrew Liveras doesn’t know what he’s up against

He’s getting some nice press though:

“We’ve long believed that free markets are the way to go – let the market decide,” he adds. “I have learnt that this is short-term thinking because most countries out there, especially top-down autocracies like China, or the planned Asian economies like Japan, South Korea and Taiwan – they had a plan that actually said, ‘I am going to industrialise and export to create wealth, and that then creates a virtuous cycle of innovation.’” These nations, he says, found ways of supporting their manufacturing industries that skirted along the edge of free-trade agreements. “The big fallacy is that it should just naturally happen, but it doesn’t.”

Liveris says we have some of the world’s leading researchers but all too often they get “picked off” and taken abroad to commercialise and scale their ideas. “We’ve got to find a way to keep them here,” he says.

One of the ideas the Manufacturing Working Group is exploring is the creation of industry ­clusters. “These would be special parks where we’d build precincts and incubators and accelerators – we’d put the best researchers alongside the best small- to medium-sized manufacturers and create a campus environment to leverage technologies.” Liveris says this has been done successfully in the US, where he was part of a program that created 11 manufacturing institutes in the so-called rustbelt regions, mimicking the tech sector in ­Silicon Valley. The government helped build the parks and then “matched dollar for dollar the ­private sector investment; it will share in the IP [intellectual property].”

Industry clusters. Cripes. Everything old is new again. There’s not a lot of evidence that they help.

So, if Mr Liveras recognises that manufacturing requires certain conditions to flourish, including many that are only possible with public intervention, why has he not demanded:

  • gas reservation to lower energy costs;
  • lower immigration to reduce the crowding out coming from land prices and financialisation driving a higher currency;
  • tax breaks to reduce the Dutch disease impacts upon capital availability and currency.

He can make all of the noise he likes about micro-economic reforms but without shifting the macro regime to one that enables manufacturing to compete it will achieve nothing. Indeed, all he needs to do is fix the macro and then micro won’t even matter. Competitiveness will restore manufacturing output.

The primary reason Australia reached the lowest output of manufacturing in a development market on the planet was getting the macro wrong.

David Llewellyn-Smith
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Comments

  1. land prices second highest in world which is an input cost into production (and living costs for people who need high wages for shelter)….could have solved this with land tax which would have stopped economic rents being capitalised into extremely high land prices….too late now….cant be unwound given political cost and banking sector dependency on extremely leveraged loans to land
    dont make anything anymore
    correlation or causation

    and also arent we the most monopolised/ duopolsed/oligopolised country in the world
    we are doomed and its too late

    notice how business industry bodies always talk about high labour costts but never high land prices (and other economic rent issues such as monopolies etc) even though it is obvious to everyone what the problem is

  2. manufacturing in most countries is subsidised one way or another. It can be via direct tariffs and declaring certain industries as strategic and critical to national security and/or by compelling all government agencies to by Australian made products. We are the only country that is actively destroying our manufacturers.

    • Sounds like this is what we’re going for, although talk as they say is cheap and the Liberals aren’t exactly known for their ability to deliver. The assumptions is that Australian manufacturing is going to be of a high quality (despite the industry being left to rot for years) and that Australian consumers will be prepared to pay more. On the off chance this actually happens, it should boost domestic inflation and then interest rates which is an outcome I don’t mind.

      https://www.afr.com/politics/federal/consumer-sentiment-to-help-boost-local-manufacturing-minister-20200519-p54ugj

      The Morrison government believes a groundswell of consumer sentiment will help drive a return to domestic manufacturing in the post-coronavirus world.

      In a speech to the National Press Club on Wednesday, Industry Minister Karen Andrews says while state and federal governments would use their vast purchasing powers to underwrite the manufacture of critical goods, consumers will also be an important factor.

      This, she says, will involve people being prepared to pay more in return for security of supply by saying they will put value ahead of cost, and quantity over quantity. “I think consumer sentiment will ultimately encourage businesses to actively seek a higher proportion of inputs through domestic supply chains,” she will say.

      • “..This, she says, will involve people being prepared to pay more” – that will never happen. Vast majority will always opt to pay less.
        If we don’t impose some tariffs and make it a law for gov agencies to buy Oz made products we will struggle. We simply don’t have economy of scale and are geographically too far from rest of developed world.
        Every other country is doing it for specific industry/ies.

  3. TrooDohMEMBER

    How about a Commonwealth strategic investment facility to co-invest in manufacturing and other industry development projects that would otherwise not occur?

    Despite contributing $US738 million towards China’s Asia Infrastructure Investment Bank and despite both major parties having proposed a Pacific development bank to assist Australia’s island neighbours, Australia does not have a development bank of its own.

    Germany’s KfW would be a good model to emulate.

  4. truthisfashionable

    “These would be special parks where we’d build precincts and incubators and accelerators..”

    No doubt the members of the Manufacturing Working Group just so happen to own some lands that would be perfect for these special parks.

  5. DominicMEMBER

    Aha – the ‘free markets don’t work’ meme. So, I’m nominating a smart person (like my good self) to help ‘guide’ and ‘direct’ the eCONomy.

    Wheeeeee!

  6. The90kwbeastMEMBER

    “Industry clusters. Cripes. Everything old is new again. There’s not a lot of evidence that they help.”

    Is there any evidence you have to back that up? Wouldn’t the creation of purpose built sector based business parks with government reduced rent (free rent even) create a fertile breeding ground for new businesses? Offer reduced payroll taxes for employees in these business parks, etc etc.

    Yes, our macro policies are bad for manufacturing but to me that doesn’t mean that micro can’t offer substantial targeted support.

    • Could do. But the key is the cheap input costs not the cluster.

      I know Michael Porter championed clusters but they were usually successfully identitied only after the fact. Organic as it were.

      There were lots Asian attempts at clusters aiming to be silicon this or that that went nowhere.

      • Why not both? I don’t think the micro and Macro situations are mutually exclusive, in fact they’re probably complementary

        It just comes down to intelligent policy. The fed’s should fix the macro picture, and then get a working group of folks like Liveris and other stars (Matt Barrie, Roy Green, Altassian dudes etc) to deep dive into getting new industries off the ground via programs and grants. Have scouts all around the world looking for the most promising entrepreneurs, offer them a 5 year PR, free land while they’re scaling up, Gov grants, no tax, free accom for the first 3 years, fridge full of beer upon their arrival etc.

        It can be done, it will take a decade at least, and yes some tax payer dollars will go nowhere, but the value created will be huge.
        The US navy did a study of the return on taxpayer dollars they had given in grants to commercialize new technologies. It was so high it was basically immeasurable, but on a conservative estimate put it at about 20:1 return over 30 years.

        I just don’t have ANY hope the sh!t for brains coalition will be able to do anything outside their ideological void

  7. Liveras is not entirely wrong about clustering but it needs all the other Macro stuff as well. And for us to start playing the same game as our competitors.
    A good start would be to stop the NAIF from funding massive imports from C h i n a.