Aussie manufacturing rebirth dead on arrival

I have warned over and again. All of the gushing drivel from Nev Power, Andrew Liveras and others about a manufacturing revival was based upon false assumptions.  We did not fall to the lowest industrial output in the world by accident. It was a maniacal experiment in macroeconomic policy that did it and nothing will change until that does.

To wit, the gas cartel gouges happily on:

Stubbornly high prices for contracted gas on the east coast have driven Brickworks to invest $126 million in a new, more efficient production plant at its western Sydney site as it seeks to eke out supplies of the fuel that are costing more than double spot prices in the domestic and international market.

“You’ve got to pull costs out somewhere,” said Brickworks managing director Lindsay Partridge, noting that the company’s gas supply contract with Santos is priced at “north of $10 [a gigajoule]”, well above short-term rates.

Mr Partridge said he understood that current soft spot prices wouldn’t support development of new gas wells, and noted that Brickworks also couldn’t rely on the spot market for supplies given its need for certainty over delivery and the risk prices could shoot higher.

Let me just reiterate that Aussie gas is currently being sold throughout Asia at…wait for it…$2.90Gj. The ONLY way to change this staggering gouge is domestic gas reservation.

But that is only the tip of the iceberg of government intervention required. As the above business titans trumpet the perfect conditions for a manufacturing rebirth, the Australian dollar is on its way back to the moon as it tracks iron ore.

This has two implications. First, manufacturing is being priced out instantly again. Second, all local capital will immediately get funneled into mining and prospecting.

To overturn these forces for a manufacturing rebirth you need to:

  • tax miners heavily and throw the dough offshore into an SWF;
  • cut taxes for everybody else, in particular manufacturers;
  • lean heavily on capital incentives to correct the pull of the endowment sector.

In short, to have any manufacturing renaissance at all, you need a suite of policies that include:

  • mining super-profits taxes and a much large SWF;
  • other low dollar policies including negative interest rates and, crucially, property tax concessions reform plus tight macroprudential;
  • massive government incentives including co-investment, next-to-no-tax and wage constraints.

Then you might get some more industrial investment provided your micro-economic policies are aligned, such as university skill production (nope), innovation incentives (nope) and R&D incentives (nope).

Self-evidently, none of this policy is coming so neither is a manufacturing reboot. The one exception will be where the government chooses that it is a national security risk to not have it. And the Government will have to fund, partly or completely, those areas as well. Something along the lines of this:

The Australian government handed major pathology companies lucrative Covid-19 contracts through limited tenders, shielded their closed collection centres from takeover, provided large subsidy increases after industry lobbying, waived normal registration fees and promised to provide additional assistance outside jobkeeper.

Guardian Australia has spent the past week examining aspects of the federal government’s response to coronavirus, investigating problems with jobkeeper, the childcare support package, and the potential economic impact of the sudden cessation of stimulus.

A critical part of the government’s response was aimed at helping the highly concentrated and influential private pathology sector.

The sector has played an important role, providing crucial testing capacity at a time of immense need. The sector also suffered a significant financial hit when non-Covid-19 testing declined in the middle of the pandemic.

That of course trashes free trade agreements, promotes corruption and kills markets.

Perfect for Australian conditions.

David Llewellyn-Smith
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Comments

  1. BoomToBustMEMBER

    Its almost like someone is playing with the currency to ensure Australia is not competitive.

  2. DominicMEMBER

    In order for manufacturing to have a rebirth here it needs to be competitive globally.

    Right now, high land prices and extremely high building costs, onerous regulatory environment etc mean it’s a pipe dream. In addition, the incentives that direct domestic capital into property speculation need to be removed – but they won’t be because we have an economy moulded around property and it’s too painful to unwind it all.

    • Did you see my post yday re our house sale?
      And how we excluded the buyer from sales commission? THAT caused some interesting discussions when that buyer actually ended up buying

      • GlendaFMEMBER

        Can you please explain how a buyer gets sales commission? Actual question here….

        • He means the RE agent was not going to get commission if one particular prospective buyer became the eventual buyer. Because that buyer was interested before the agents got the gig. Which is What happened.

        • If, and it’s a big IF, I understand this correctly, when a seller already has an offer (“subject to” or whatever) but changes agent the new agent can’t claim a commission on the sale if the “subject to” sales goes through.
          I think….But I’ve always sold houses myself because agents are vermin.

      • DominicMEMBER

        Crikey, you guys have been through the mill – I was exhausted just reading all that. Glad to hear you’re out the other side and at leisure to pick and choose the new place. Good of the agent to agree to the no commission prospect. I always appreciate agents who are flexible with arrangements – a bit entrepreneurial (as opposed to downright scummy).

    • boomengineeringMEMBER

      Dominic,
      You are hinting on a RE lesson I was going to give you a week or so ago when I said that Mosman shops for leases signs are proliferating and you said It must be bad for that to happen. No, they are the first canary to go as they are the least needed and the most expensive to rent. Same as when a real estate lady drove me all over San Diego USA who explained that the real estate was so expensive in that area meant the commercials were also. This meant this extra cost had to be added to sale price of selling products. What really happened is that the local clients just drove out of town to buy what they needed and the shop went broke making room fot the next sucker.

  3. happy valleyMEMBER

    Nah – all good. Residential property prices to the moon, lots of money laundering in to the country and plenty of sub-prime lending; meanwhile, pursuing the undeserved and their phony robodebt. What’s not to like?

  4. Need reminder of why it was that anyone on this site supported lowering teh rates and wtf we were expecting to happen from that which was actually good. As if a manufacturing renaissance was ever on the cards. Even if it WAS, it wouldn’t be worth the costs of further inflating housing. Joe Bloggs wants a smaller mortgage more than he wants to trade in his desk job for a factory job.

  5. happy valleyMEMBER

    Surely, some manufacturing must come out of the commission eg a few gongs?

    • Jumping jack flash

      manufacturing gongs is probably a bit above our skill level at this point. Especially those fancy Japanese ones. We could probably make a tin disk with a string to hold it by.

  6. MB readerMEMBER

    Watched QandA last night. I don’t recall gas reservation being mentioned! I might be wrong. No one appears to get it. Senator Patrick is quiet. Brickworks is not squealing about it. Incitec Pivot keeps mentioning it but it falls on deaf ears. MB needs to find a way of elevating this issue.

  7. Jumping jack flash

    The return of manufacturing is a pipe dream.
    There’s far too much debt for that.

    If its not a sure thing that can return enough revenue to be able to pay wages at the level where people will be able to obtain and/or service the gargantuan debt mountains which are absolutely vital to obtain, what is the point of working there? What is the point of private companies deciding that building a factory is a good investment? Unless the government throws them buckets of money. We saw how well that worked out for the entire car manufacturing industry.

    And then we will probably need to import a ton of overseas slaves with no aspirations for debt mountains to work our manufacturing jobs so the companies can turn some semblance of a profit, and we would get an identical scenario as all the cafes and restaurants and nail salons and all the other services that aren’t essential and therefore aren’t gougeable.

  8. I know exactly why I’d like to see Aussie Manufacturing reborn
    What I don’t get is why you DLS wants to see a reborn Aussie Manufacturing sector
    Is it a morality thingy? Production = Good, Consumption = Bad??
    Is it some sort of National Defense strategy? Along the lines that if you can’t make what you use then you’re very vulnerable to supply line disruption especially in a real shooting war.
    If it is neither a Morality nor a defense strategy thing, then frankly I’m clueless as to why you care what happens to this sector. If you’re pining for the days when Manufacturing was the big employer then just get over yourself because that era has come and gone.
    Today’s Modern Manufacturing is not a big employer, Tomorrows Manufacturing will employ even less than today’s

    So what is it that you really want?
    What economic / social role do you believe a resurgent manufacturing sector can play?

    • Jumping jack flash

      Export manufacturing earns real money for the country through the transformation of raw materials into finished goods for sale to the world for profit to achieve prosperity.
      This is in stark contrast to using piles of fake debt money created by the bank that needs to be all repaid, plus the interest on top, to achieve prosperity.

      Manufacturing also generally requires productive debt to build and expand production to generate *new* income – the only reason why debt should ever be created and used. This is in stark contrast to nonproductive debt which sucks interest out of the economy from elsewhere, because what the debt is spent on doesn’t create the additional money for repaying the interest. Even building a house is a nonproductive use of debt. Sure it employs a heap of people, but once the house is finished it doesn’t continue to generate income to repay the interest component of the debt. Generally the house just sits there and looks nice while the interest component is found and taken from somewhere else.

      It doesn’t matter if we don’t employ anyone in the factories due to robots – people like me would love that because we build and program the robots, and research and develop the innovations for automated QA, sorting, shipping, etc.

  9. Arthur Schopenhauer

    Battery Mega Factories currently planned to be operational by 2028:
    Asia (not China): 9
    China: 19
    Europe: 8
    USA: 4
    Canada/India: Possibly 1
    Australia: 0