Home > Where to for manufacturing? IBISWorld outlines the industry's future

Where to for manufacturing? IBISWorld outlines the industry's future

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Leading Australian industry researcher, IBISWorld examines the problems facing the manufacturing industry. 

Diluted protectionism, scarce or begrudgingly extended subsidies, and economies of scale in North Asia’s emerging economies have been added to the already-existing competition from Japan and Korea, with the GFC-induced overvalued Australian dollar being the last straw for many sectors.

China now accounts for half the world’s manufacturing and has a standard of living around one-eighth of Australia’s, which makes the latter uncompetitive with its cost structure and small volumes. Australia’s overvalued dollar has had a devastating impact on the manufacturing industry as well as sectors such as inbound tourism, tertiary education and agriculture.

Much of this distortion will fade for some years, but a high dollar could return later in the decade if inflation leads to a real deterioration in the value of the US dollar.

The recent announcement of some 1,200 jobs to be lost at Ford Australia in 2016 made headlines. However, the car parts manufacturing and car assembly industries have been shedding over 2,600 jobs per annum on average, for the past decade. Within this period, Mitsubishi has ceased manufacturing, and will soon be followed by Ford. In the event the car manufacturing sector shuts down entirely by the end of the first quarter of this century, or even this decade, most of the remaining 30,000 jobs in parts and assembly would be lost. 

The Australian manufacturing industry has been losing, on average, 8,800 workers per year since its peak of 1.2 million employees in December 1989. All told, it has shed 205,000 jobs since then.

But the nation has also created 3.9 million new jobs (almost 19 times more jobs than those lost from manufacturing) during the same period at a rate of 13,640 per month. Any suggestion that the demise of car manufacturing is some sort of a tragedy is unfounded. 

Manufacturing has stirred passion ever since the early 1900s, when two fledgling parties in the national parliament – the Free Traders and the Protectionists – fought bitterly on the issue of protecting manufacturing to obviate imports from Mother England and create new jobs in the new federation of states, mostly in Victoria and New South Wales. The Free Traders lost and merged with their opposition to create the Fusion Party.

So protectionism won, as it had done in many other countries around the world, until the 1970s in Australia when the Whitlam ALP Government began the painful dismantling of the protective barriers that had once served the nation well but had now begun to threaten economic growth and productivity, and inhibit the emergence of new growth industries and new jobs in the new age that was on its way to supplanting the industrial age.

Subsidies have nevertheless continued to the present day, dispensed by both sides of politics. Ironically, the recipients in the case of the car industry have still run losses for years, and the workers still lose their jobs in the long run. 

The immoral part of subsidies and protectionism is two-fold: they rob the nation of using scarce capital to grow new industries faster (and create jobs faster), and they rob ageing workers of time to reskill themselves. This was so obvious in the case of the textile and clothing industry – once having quotas and a tariff of 250% for protection, with a high proportion of ageing migrant workers. The car manufacturing industry (including parts manufacturers) is a rerun. 

The quaternary services sector now accounts for 47% of Australia’s GDP and most of the jobs. Paying higher wages than the old secondary or tertiary sectors, it would normally beat the primary sector except during price and wage booms like the recent one. The quinary services sector is on its way to adding to this new age of growth by the middle of the century.

No, manufacturing isn’t dying: it is just being rationalised. This does not mean one should have no compassion for those needing to reskill or migrate to other suburbs, regions or states. But to try and preserve the status quo is to condemn current and future generations to a static or falling standard of living as wages are forced down to compete with poorer countries. 

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