24/08/2011 - 10:22

It’s not mining vs manufacturing

24/08/2011 - 10:22

Bookmark

Save articles for future reference.

The politics of envy, which reared its ugly head when the resource super profits tax was proposed, has emerged again this week.

Should we ask who is to blame, when companies like BlueScope Steel announce plant closures and large job losses? Or should we ask, where is the opportunity when the Australian economy is going through a period of major change? 

The initial reaction to the BlueScope announcement, led by prominent unionist and Labor party figure Paul Howes, focused on the former.

Sitting on the western side of the country, and observing numerous success stories during the current profit reporting season, makes me think we should be focused on the latter.

The BlueScope announcement had been telegraphed well in advance by the company, which has previously spoken about the impact of tough trading conditions and the high Australian dollar on its operations; despite this, the announcement has triggered a vigorous national debate about industry policy and economic management.

Some commentators have pointed the finger at the mining industry, with Mr Howes criticising big mining companies for “trying to save a buck” by importing lower-cost steel from China.

The Australian Steel Institute said it was the government’s “lack of policy” that allowed resources companies, such as Woodside Petroleum, Chevron, BHP Billiton, Rio Tinto and China’s Citic Pacific to import most of the steel used in their projects.

The institute said that meant domestic steelmakers, distributors and fabricators were missing out on billions of dollars worth of contracts.

Federal Treasurer Wayne Swan said he was disturbed to hear complaints from unions and manufacturers about resources companies doing deals with cheap Chinese suppliers, when the purchase of local products would help protect Australian industry.

None of these arguments are new, so it is surprising to hear Mr Swan’s reaction.

First, it is clear that the Australian steel industry – both manufacturers like BlueScope and fabricators on the Kwinana strip – are doing it tough.

There is no point trying to sugar coat their situation, nor should it lead to indignation about “the loss of our manufacturing base”.

One of the reasons Australia’s economy has performed well over the past few decades is because, as a country, we have accepted change.

And in many cases, we have anticipated change and developed industry packages that facilitate change, so it causes less of a rupture when it inevitably occurs.

Propping up industries that are unable to compete adds a dead weight to the rest of the economy.

Much of the recent commentary indicates that a lot of people see the mining and resources sector as an area that can afford to subsidise other industries.

The whole debate around the mining super profits tax – or Minerals Resource Rent Tax as it is now called – is underpinned by this thinking.

What is lost in a lot of the debate is the understanding of the complexities that should inform good policy making.

Chevron, for instance, has copped a lot of flak for the level of local content on its Gorgon project yet anybody who works in the sector knows that Chevron has been working for years to help local industry win work.

They don’t always please local industry, and one of the main reasons is that the cost margin between local suppliers and offshore suppliers is so wide.

As I have reported before, the WA government (under Labor) faced exactly the same dilemma a few years ago when it wanted to build a floating dock at the Australian Marine Complex at Henderson.

It opted for an offshore supplier (which happened to be owned by a WA company) because steel fabricators on the Kwinana strip were much more expensive.

The debate over industry policy also needs to keep a close eye on the limited supply of skilled labour in Australia.

With unemployment around 5 per cent, the reality is that the pool of available and employable labour is very small.

Training schemes and adult apprenticeships are important initiatives to help those out of work, but let’s not kid ourselves. 

As new resources projects like the Wheatstone gas development get underway, there will be more pressure to import skilled labour, along with the imported steel Australia needs.

Won’t that set off a lively debate. 

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options