Rich Listers gush manufacturing nonsense

There is nothing more amusing than miners and realtors governing a manufacturing revival. At the AFR of course:

It’s the end of April and Nev Power is a lone figure marching up Perth’s St Georges Terrace. He’s on the phone, a device that has become an extension of his body since Prime Minister Scott Morrison rang him one month earlier with a simple message: “Your country needs you.”

…The 61-year-old, who’s an imposing 190 centimetres, was hand-picked by the PM in late March to chair the National COVID-19 Coordination Commission, which is advising the federal government on how to prevent Australia’s short, sharp economic hibernation from becoming a deep freeze.

The native Queenslander, who spent 11 years working for Smorgon Steel, believes one way to fire up the economy is to turbocharge Australian manufacturing. The sector has dwindled since its 1960s heyday, when it accounted for 30 per cent of GDP, to less than 6 per cent today. Power thinks conditions are primed for a rethink, and a rebound.

“We’ve got a low Australian dollar, low interest rates, disrupted and fractured international supply chains and a rise in the need for sovereign capability and capacity in manufacturing core equipment,” he says. “There’s a perfect environment here for companies to invest.”

No, it isn’t. The Australian dollar is clearly not low enough. Energy prices are way too high. Land prices are way too high. Wages are high too high and we’ve lost the worker’s expertise. Universities have been debased. Innovation is a long second to rent-seeking.

There are no conditions apparent for a manufacturing renaissance.

What there is is a little government goodwill post-virus as Australians turn on China. But it has no will to actually change the policies that kill manufacturing.

Anthony Pratt offers little:

“In the past, people said Australia’s population was too small to support manufacturing. But the free trade agreements have given us a huge market just to the north of us,” he says.

Paul Little is busy hollowing out manufacturing with his real estate interests and so ironic:

“I was talking to a couple of my old customers the other day, and they’ve still got up to 30 pieces of paperwork to fill in for 30 different government departments every time they want to import or export something,” says Little, who’s also been appointed to the COVID commission and is working on a submission related to logistics.

Others are making sense but are cut down:

Vivek Sehgal… plans to bend the ear of Liveris about bringing the car industry back to the future. “The economic cost of COVID is going to be so huge, suddenly arguments about $500 or $1000 extra for a car are of no relevance,” he says. “The government should re-do their sums, look at the flow-on jobs and innovation and invite some car companies back.”

Unfortunately for the patriotic Sehgal, he’s about the only manufacturing heavyweight seriously suggesting a return to labour-intensive, assembly line industries like cars. Before its demise, the industry had, for decades, been on life-support through taxpayer and consumer subsidies.

How do you think that strategic manufacturing works?

…Ray Horsburgh, a former Smorgon Steel managing director and now a director of listed plastics manufacturing company Pact Group, founded by Rich Lister Raphael Geminder nearly two decades ago. He also sits on the board of British billionaire Sanjeev Gupta’s Liberty Steel Group.

“Supply chain managers are going to look at the pricing and say we can’t afford not to buy cheap products from lower-wage countries like China.”

Even then, Horsburgh is optimistic Australia could still double manufacturing’s share of GDP within five years. “I think you could get it into the mid-teens,” he says.

But to do so Australia needs to focus on industries we are already good at – from food production to biomedical technology to chemicals. And it must harness its natural resources. That means relying on coal, at least in the short term, says Horsburgh.

Give me some of what he is smoking.

Australian manufacturing collapsed to 5% of GDP owing to:

  • bad tax policy;
  • bad tax concession policy;
  • Dutch disease in currency and capital availability;
  • horrific energy policy;
  • horrific monetary policy;
  • inflated land and wages.
  • no industry policy.

There are no plans to change any of it and so nothing will change for manufacturing.

David Llewellyn-Smith
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Comments

  1. TrooDohMEMBER

    “The 61-year-old, who’s an imposing 190 centimetres…”

    Average male height in Montenegro is 186 cm. A nation of imposers?

  2. SnappedUpSavvyMEMBER

    since the mumbling moron sent the dollar through parity the country is now full of importers who want to go back to how it was, most have never made anything other then a turd in their lifetime, and they’ll undercut anything Australian made, also, there are now heaps of Chinese and Indian importers here who have no interest in making anything, its very difficult

  3. We have a few clients that would like to get products manufactured in Australia as opposed to China.
    We had to dust off the old contacts book to see who was still around and what capabilities we still have (i.e. injection moulding, CNC machining, press forming and sheetmetal bending etc..)
    In short, its not good.
    I would love to see manufacturing return but there are 2 big issues:
    – Cost is still far too high
    – Capabilities and quality is far too low

    • Arthur Schopenhauer

      A big problem is capital, along with people and a general lowering of quality standards.
      High labor costs need high levels of automation. No Aussie financier is going to fund the plant, without tax incentives.

    • Actual capital expenditure to be leveraged by actual human capability, with firms subject to actual competition and other externalities and therefore carrying some actual risk…. F’ck that for a joke, too hard mate.

  4. Arthur Schopenhauer

    All true DLS. Pure marketing BS.
    On the bright side, the general population must have realized that weaving cloth, cranking out nails and rolling out sheets of plasterboard is important.

  5. term “manufacturing” reminds me now of “STEM” few years back ….
    even if we somehow manage to manufacture things who is going to buy out sh&t

  6. Some manufacturing could certainly return but it requires a fundamental acceptance that unproductive capital inflows and unproductive allocations of capital internally must STOP.

    1. No sale of existing assets to foreigners. If a foreigner wishes to “invest” in Australia they must build new productive capacity and not merely acquire existing productive capacity. When they do invest they should always do so with a local partner.

    2. No off shore borrowing by our banks to support lending secured by existing residential assets.

    3. 90% of the proceeds of commodity exports should be restricted to local productive investment or offshore productive investment. The proceeds of non-renewable commodity exploitation should not be applied to unproductive asset price speculation or consumption.

    Not difficult or complicated but politicians have to be convinced that the greedy baby boomers will not be able to swing an election with their to be expected dummy spit.

    • Blottridesagain

      Parts 1 &2 are the immediate easy and ESSENTIAL steps to start heading in the right direction. The fallout another matter. I’m having trouble assembling Part 3 – not to say it’s wrong but if 1 & 2 are instituted I’d guess Part 3 won’t require legislation.
      Your big problem is to get re-elected every three years for the next 30 years that reform of this dilapidated contraption of an economy will require.
      1. You’ll have 70% of the population who will hate you for taking away their easy lolly life.
      2. Every media organization in the nation will be 100% against you.
      3. The Idiot Propaganda Machine, the ABC, will be absolutely relentless

    • Jim's Central Banking

      There doesn’t seem to be any interest in stopping unproductive flows.
      To bring manufacturing back will require some special tax treatment and government will. Reliance on a weak dollar is never going to be the answer, as any AUD strength resulting from the stronger economy would shut down the manufacturing that produced that strength.

    • Excellent program, but it is a bit silly to blame the baby boomers as a whole generation. Most of them are just ordinary people who have never had the slightest say in anything important and own little besides a crummy little house, bought when they were going cheap, if that much. The rorts go to the top 10% with a few crumbs for the next decile down. It is the politicians and the media who have been trying (usually successfully) to rebadge a class issue as an intergenerational issue, to deflect attention from themselves and their rich mates. In any case, the baby boomers are outnumbered by younger voters by more than 2 to 1.

      https://www.populationpyramid.net/australia/2020/

      These clueless younger people who keep voting for the neoliberal parties are the ones that you need to convince.

  7. AFR ACME MANUFACTURING. Just add water !

    ¡¡¡¡¡¡ W A N K E R S ¡¡¡¡¡¡

  8. Australian manufacturing collapsed to 5% of GDP owing to:

    bad tax policy;
    bad tax concession policy;
    Dutch disease in currency and capital availability;
    horrific energy policy;
    horrific monetary policy;
    inflated land and wages.
    no industry policy.

    All true but all irrelevant since our Education pipeline is not primed to deliver the skills that modern Manufacturing requires.
    If we’re really interested in expanding Aussie high value manufacturing then I’d suggest we start by correcting our education system and ensuring good local job prospects for Science and Engineering graduates. This would require the expansion of our government Scientific institutes like CSIRO because without jobs nobody that attains these modern manufacturing skills will remain in Australia.

    • Our education system is adapted exactly for the economy we’ve got. It’s not an bug, it’s a feature.

      It will take time to adapt of course, but then, as then so will a manufacturing renaissance. Rome wasn’t built in a day and it will be years before we get back to where we were even ten years ago.

    • btw, absolutely the way to get things going. .Life for many STEM graduates in Australia is precarious and very poorly rewarded over the long run.

  9. Jumping jack flash

    Great article.

    There’s too much debt. It weighs us all down like an anchor. Our economy is not agile as a result of the debt piled on top of us, just as a worker, once they take on a soul-destroying amount of debt suddenly cannot be agile any more. They’re locked into the slow grind to pay off the debt plus the interest.

    As a result we can only pursue that which guarantees us enough of a return to be able to pay ourselves enough to service the debt we all have. And if the government asks us to do anything that may not be able to return that much, then the government has to cover the risk so we can continue to pay the mortgages. Cutting wages is simply not allowed at all because the debt we own has locked in our wages at the minimum levels required to be able to obtain and service it.

    Let’s consider the other approach, how far would we need to crash the dollar in order for us to become globally competitive while still maintaining the status quo? And what would that mean for imports while we scramble around trying to build the supply chains, infrastructure and train the people with the skills to become self-sufficient?

    What are the alternatives? Crash house prices? The banks would not allow it, nor would they survive it. Crashing house prices also does nothing for the existing debt.
    Import a ton of cheap slaves to do the work? We already know that strategy doesn’t work to achieve anything.

      • Jumping jack flash

        I like the way you think.

        But you see the point? We have over 2 trillion reasons why we can’t pursue pie-in-the-sky stuff without the government insuring us against failure at every step.

        For this exact reason, there is almost no alternative except for the government to do it themselves, just as governments had to do in the 30’s to drag countries out of the depression. This time is not that much different.

        However the biggest barrier to achieving that is the bunch of total morons we have in parliament who couldn’t organise coitus in a house of ill-repute, much less rebuild an entire economic sector from basically nothing.

        • Blottridesagain

          Yeah Jack -but the problem is deeper than that. How did we get to be this dumb? How did this go on for soooo long each year burying us more in the pile of BS? All the advisers are ‘dumb’ as well – name a single Treasury Sec who has called out? A single RBA Gov (I do remember Macfarlane opening his mouth once)? Where are the university professors?

  10. Peter SMEMBER

    Sounds like conditions are perfect for a turnaround. If all the positives were already in place and we were still going backwards, that would be a worry.
    Starting from a low base, a Power led strategy rethink could be very effective, especially considering the damage done by the status quo!

  11. Would have thought it depends what you want to manufacture. I would have gone for medical equipment and pharmaceuticals as a start.
    Yes, it would be more expensive than the Chinese equivalent but so is our baby milk powder.

  12. TrooDohMEMBER

    And where is the capital going to come from to rebuild manufacturing in Australia?

    Australia doesn’t have a development bank or similar government finance facility to support such industry expansion.

    • It’s all pure hot air, and it’s all about the latest DISTRACTION.. It’s what they’re good at AND THEY KNOW IT AND SO SHOULD WE. We should be calling them out for the BS artists they are. EOS

    • ZevombatMEMBER

      That’s assuming they actually do want to re-establish manufacturing in Australia though, and it’s not just a token effort to cover more and better subsidies to the coal and gas industries and a hit to minimum wages

      • TrooDohMEMBER

        Andrew Liveris has credibility and I think he really wants to see manufacturing return to Australia. But I’m not convinced about the rest of them. And nothing will change unless the Commonwealth is prepared to adopt a more interventionist industrial policy and co-invest in strategic manufacturing projects via concessional loans or some other mechanism.

    • Blottridesagain

      Setting up a Development Bank, although it will be badly needed, is a minor problem. Getting the currency to actually buy all the machinery, buy all the tech and build the infrastructure necessary is really the big problem. Every machine, hammer, nail, computer etc etc that we buy requires us to sell some profitable asset to foreigners to pay for it.
      We’re in a bad bind.

  13. working class hamMEMBER

    We can just import the cheap labour?
    New IR laws that provide immigrants jobs at “Jobmaker” wage rates, doubling as renters for all the vacant shoeboxes. 10 to a box should drive the the rents back up.

  14. Fascist China

    We’re still relying on imports for PPE so no real chance of getting manufacturing going just not agile enough to compete against the world.

  15. If someone can start up a profitable manufacturing business in OZ then they aren’t paying enough for rent, power, payroll and they don’t have enough debt. The system is very good at making sure all of that happens.

    • ^This. At least middle Americans only have to shell out $200k for a house, anything extra can be spent developing a small business or hobby. That doesn’t exist in Australia and the supply chain is so slow would the goods even make it to market?