24/08/2011 - 10:24

Small market stifles manufacturing sector

24/08/2011 - 10:24


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Australian businesses don’t need government to protect them.

THE news that we are spending $100 million to help preserve struggling industries, after BlueScope Steel announced production and job cuts, shows the calls for Australia to protect its manufacturing sector are being heard in Canberra, where the government sits on a knife edge.

The Julia Gillard-led federal government, following a recent history of wantonly splashing money about, plans to use still-to-be legislated carbon tax adjustment funds to rescue uneconomic operations.

Driven in the main by demand for our minerals, the high dollar has been blamed by many for the problem. 

Less is said about the cost of employing people in Australia.

The political environment dictates  there will be calls for the resources sector to pay more tax for the damage it is wreaking on the traditional economy which, like BlueScope, is struggling in the wake of mining, oil and gas.

Perhaps there is a bigger picture here. Maybe Australia can’t afford to have a mainstream manufacturing sector.

Throughout the past century at least, our manufacturers have generally struggled, in between small periods of non-subsidised profitability. 

Jealous of the wealth generated from the land – mining and farming – manufacturing has consistently argued for protection, subsidies and hand-outs, claiming it is wrong to send our minerals and farm produce abroad only to buy back cloth and machinery at great expense.

That is an appealing sentiment that, once established as policy, becomes difficult to stop due to the circulatory nature of its impact. 

Protected manufacturing tends to occur in cities or other places where voters congregate and, inevitably, demand political protection. The result has been that urban populations have developed in places where the jobs don’t really ‘exist’.

History has shown, however, that even with all the protection in the world our mainstream manufacturers cannot survive global competition on their own. 

That has nothing to do with the Australian dollar. The slide has been consistent for more than a century as industry after industry has become too expensive to prop up. 

The reason for this, in my view, is that Australia doesn’t have the population to support a manufacturing sector. Around the world, nations that make things appear to require a strong domestic market in order to be globally competitive.

Yet Australia either won’t, for political reasons, or can’t, for ecological reasons, allow a population base of a scale to encourage globally competitive manufacturers to operate in mainstream sectors without protection.

The recent argument about whether Australia should grow to a mere 36 million people over the next few decades – an insignificant number in world terms – shows that Australians don’t want to crowd our continent with humanity, as most others have. If that is the case, it should be clear that manufacturing in anything beyond boutique or niche areas is dead.

The outcome is that we must focus on the viable and profitable alternatives, the ones that population size doesn’t significantly affect. Mining and agriculture are obvious ways of exploiting our natural resources, as is tourism. We ought to get on with that and make the most of it.

And what happens when all our minerals run out? This is another argument that is constantly trotted out; that we sell our resources too cheaply and will leave little for our children.

While there is much conjecture about how long our resources will last at the current rate of exploitation, my view is that it’s irrelevant. Japan, Singapore and most of Europe have proved that natural resources are not a pre-requisite to economic success.

No matter what your view of their current economic states, those places are as rich or richer than we are and became so while importing most of the raw ingredients for manufacturing. Perhaps a lack of natural resources is actually an advantage. 

And timeframes? Europe, Japan and Singapore were left devastated by war only 66 years ago. They have rebuilt their economies from scratch and then restructured them several times since. What sophisticated Japanese industry does today has little resemblance to the way it operated only 50 years ago when it was a centre of cheap labour. 

Perhaps Singapore, though, is the best example for us of a small population without natural resources that has thrived.

New territory

I RARELY venture into areas of policy outside that which I think directly affects the business community and the general economy but I think a short word on the issue of immigration is warranted.

Having watched as bumbling federal Labor has lurched from its position while in opposition to, for all intents and purposes, reapplying the policies of John Howard when in government, it is worth noting the positive side of this outcome.

The so-called Malaysian solution, even in its limited capacity, is a better policy than anything we have had since this issue arose.

Let’s face it; we simply can’t afford to allow people to flood here in boats. While the numbers in the recent years or two are relatively small, they risk becoming bigger if we allow the perception of open borders.

On the other hand, simply dumping people on Pacific islands isn’t helpful either. It was a lose-lose outcome and, as we saw, most of those interned there ended up in Australia anyway.

The Malaysian option is different. It sends boatpeople back to a country where they most likely travelled prior to the more dangerous last leg to Australia. We are not sending these people back to the harsh prospects they left; Malaysia is much better than Afghanistan in the eyes of almost anyone who truly faced persecution in their homeland. But for economic migrants, the risk-reward balance has shifted.  

The truth is that those who are simply paying passage to Australia may question the cost if the destination is really Malaysia, a prosperous economy but not nearly as wealthy as here.

In the meantime, from Malaysia we get refugees who have been through another form of detention and ought to be worthy candidates. The imbalance of numbers – trading 800 for 4,000 – doesn’t bother me; I am all for increased migration and believe refugees have much to add to our community. But we want those refugees to be genuine and there’s no doubt that spending time in camps or similar situations is a truer test of that status than someone who made the relatively short trip to Australia by boat simply because they have amassed the funds. 

I am aware this is not a popular position to take at either extreme of the debate but I think if this policy could become a longer-term option it may well offer the best balance between Australia sending out harsh message to people smugglers and their customers, but also doing more for genuine refugees.

• mark.pownall@wabn.com.au



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