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You can't save manufacturing by first killing it

article image Senator Kim Carr, Shadow Minister for Higher Education, Research, Innovation and Industry.

Forget about incongruous comments from bankers about the death of car making. Australia needs to decide how to nurture manufacturing into the future. Kim Carr writes.

Earlier this month the chief executive of the ANZ Bank, Mike Smith, gave Australian manufacturers the benefit of his wisdom on the country’s economic future.

Mr Smith said that the death of the car industry was an inevitable part of the transformation of the economy to meet the needs of the 21st century.

Then came a punchline that revealed the bank boss’s shaky grasp of his own argument: Australia had to become more “technologically driven”, he said, so that it could concentrate on things in which it had an advantage – like “high-value manufacturing”.

Just how we are to become more technologically driven by abandoning an industry that is the exemplar of advanced manufacturing and which has long been the great driver of innovation in manufacturing, Mr Smith did not say.

I don’t point out the contradiction in his remarks to score a debating point. It is because the industry of which Mr Smith is a part is one of the obstacles to manufacturing becoming more “technologically driven”.

Manufacturers already know this, but apparently bankers either don’t know it or prefer to ignore it.

Consider, for example, this comment by Ai Group in their submission to the Financial System Inquiry:

“Ai Group has been concerned for some time that banks impose especially stringent lending criteria on the manufacturing sector. In a 2011 survey of members, we concluded that financial institutions, responding to the perception of higher risks facing the industrial sector, were downgrading manufacturing industries and making access to finance more difficult and expensive for businesses across the entire sector, regardless of the individual circumstances and risks.”

Lest anyone mistake Ai Group for a radical organisation with avant-garde left-wing views, here is a similar remark made last year by Philip Lowe, deputy governor of that establishment pillar, the Reserve Bank:

“The low level of investment in the manufacturing sector is particularly noteworthy, as manufacturing has traditionally accounted for about one-fifth of total non-mining investment.”

If Mr Smith really wants an Australia with more high-value manufacturing and a diverse economic base, he and his counterparts in the other major banks are well-placed to do something about it.

But they haven’t been rushing to provide innovative Australian manufacturers with the investment capital they need.

Instead bank executives seem more comfortable offering gratuitous advice on the “inevitable” death of an industry that was not inevitable at all.

A couple of days after Mr Smith blithely consigned to history the automotive industry and the 200,000 jobs it sustains, I attended a manufacturers’ forum in Adelaide, organised by the South Australian Government.

No one pretended that there is no crisis in manufacturing, or that it is not bound up with the shutdown announced by the motor vehicle producers.

But until that actually happens, the automotive industry – not only the carmakers but the supply chain as well – remains Australia’s great repository of advanced skills and industrial capability.

Innovative investment could adapt that capability to create the technologically-driven future Mr Smith recommends. A future that will sustain high-paid, high-skilled jobs for Australians.

But we need to keep the capability alive, and we need to find a reliable source of investment capital. The question is what that source might be.

It isn’t going to be the Abbott Government, which has ripped $2.5 billion out of the Industry Department and axed programs such as Enterprise Connect and Commercialisation Australia that were established to assist innovative firms.

The Government has also announced cuts of $900 million from the Automotive Transformation Scheme. It intends to close the scheme, putting in jeopardy supply-chain firms that have made investment decisions based on the expectation of ATS grants.

Labor will do all it can to block these cuts in the Senate, because we know that industrial capability must be kept alive. For the same reason we will oppose any Government decision to buy the navy’s new submarines overseas, instead of building them here.

But there remains the problem of future finance. We shall have to find new means of fostering innovative investment.

Unlike the Government, some people are already turning their minds to possible solutions. In its submission to the Senate Economics Committee’s innovation inquiry, the AMWU has called for the establishment of a Manufacturing Finance Corporation (MFC) on the model of the Clean Energy Finance Corporation (CEFC).

Like the CEFC, the MFC would be independent of government. It would not dispense handouts to struggling businesses. The aim would be to form partnerships with industry, spurring the transition to more advanced manufacturing and creating new jobs.

The MFC would be seeded with Commonwealth capital but over time its operations would have little impact on the budget because, unlike grant-based schemes, there would be no regular government outlays.

Overseas experience has already demonstrated that investment funds of this type can fill gaps in the financial market and make strong enough returns to become self-sustaining.

That has happened in the US, where the Small Business Investment Company, an initiative of the Small Business Administration, has been highly successful since it was established in 1958 and has bipartisan support.

Such funds are able to support investments that are viable but may not generate the return of more than 14 per cent that banks often expect. In doing so, they make a return for the taxpayer and the broader economy.

In addition, as has happened with the CEFC, investment decisions by government-backed funds attract subsequent private finance as banks and other investors leverage off the finance corporation’s due diligence.

I commend the AMWU for offering an innovative suggestion that could become one element in a suite of measures as we seek to rebuild the industry policy framework the Abbott Government is busy tearing down.

That is why Labor established the Senate inquiry into Australia’s innovation system: to seek new ideas for overcoming the barriers to future technical innovation.

In the meantime the task is to defend the manufacturing base we already have, because if we do not there won’t be any “technologically driven”, “high-value manufacturing” future. Nothing can come from nothing.

Senator Kim Carr is the Shadow Minister for Higher Education, Research, Innovation and Industry.

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