Manufacturing Opinion Piece

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Hey Guys here's an opinion piece on how manufacturing is dying in our country. Quite interesting. What are people's thoughts?


http://www.theage.com.au/opinion/man...d.html?page=-1

AUSTRALIAN manufacturing is slowly bleeding to death: the departure of Pacific Brands and the collapse of Drivetrain Systems International are just two of the most recent milestones — or tombstones — on the path to oblivion.

Only a third of the people affected will get an equally well-paid job again, while another third will never get a full-time job. Many have lost their entitlements — holidays and long-service leave that they worked for — and won't receive redundancy pay as their employment contracts won't be honoured.

The slow death of manufacturing affects all working Australians, even those whose jobs are impossible to move offshore.

Good, well-paid jobs are those with significant responsibility. This may be because they involve the use of expensive equipment; or because mistakes are likely to be expensive. Manufacturing jobs are good, well-paid ones. As long as such jobs are available, competition in the labour market keeps other wages up, too.

For much of the past 20 years, Australians (and Americans and British) have been told that losing manufacturing industry jobs doesn't matter because financial services will replace them. We now know that the financial services industry's main products were hot air and bubbles inflated by misrepresentation and fraud.

Australia lives in the world and trades with it; and we must pay for our imports with something that people in other countries want to buy. Toxic financial instruments won't do. Our export performance has been so bad that we now owe foreigners more than $600 billion for goods that we bought but haven't paid for. Household debt is more than 1½ times household income.

Train drivers in the Pilbara earn more than $100,000 a year: mining jobs are well paid but not the answer. Australia is a major raw materials exporter, and for a few months last year, as the price of coal shot from $40 to $400, the balance of payments slipped into the black for the first time in many years. Unfortunately, the price of coal is heading back towards $40 nearly as fast as it went up, and other boom-time mineral prices are heading the same way.

Mineral exports are being hit from two directions: first, as products become more sophisticated the raw material cost as a fraction of the price falls; second, as economies become more sustainable and we get better at recycling, recycled material begins replacing raw material as an input to industry. Looked at over time, real, inflation-adjusted mineral prices have been declining steadily. Raw material exports won't replace manufacturing: the jobs may be good, well-paid ones, but there will never be enough of them.

Harvard economist Michael Porter pointed out 19 years ago that prosperity comes from competitive advantage, not the comparative advantage beloved of economic fundamentalists. Comparative advantages are found, such as Australia's easily accessed iron ore. Competitive advantages are created, not necessarily by direct state intervention, but they must be supported by policy. China's factories would not be attractive to Australian manufacturers without China's huge investment in infrastructure to let raw materials in and get finished goods out. China's vast reserves of cheap labour would be unusable without an educated middle class to act as foremen, supervisors, accountants and managers.

If providing infrastructure and human resources doesn't get the Chinese where they want to be, push turns to shove: export taxes on raw materials encourage domestic processing; multinational companies setting up in China must share their technology as a condition of operating; the yuan's value is kept steady to stop currency fluctuations adding to business uncertainty and so discouraging investment. When Chinese governments at any level let contracts, locals get first bite and foreigners chase the crumbs.

The Chinese want manufacturing industry and they welcome inward investment by manufacturers. They haven't let their universities become infested with fundamentalists who oppose every positive act by governments on principle, and who, even when they fail to convince, often intimidate.

Twenty-three years of economic fundamentalists influencing governments has damaged Australia's manufacturing base, but it is not yet beyond repair. The simplest step is to increase value-adding in Australia: cut down exports of iron ore and coal and export steel instead. Send less raw wool overseas and export more cloth. We should establish local preference in government procurement: stop importing trains built in Toulouse when we can make them in Ballarat. If our public servants want cars as a fringe benefit, give them Australian-made ones.

We must commercialise our best research. Australian researchers, supported by Australian taxpayers, developed a revolutionary form of solar cell: it is being made in Germany. Australian researchers, supported by Australian taxpayers, developed the world's most efficient medium-scale refrigeration compressor: it is being made in Canada. Australian researchers, supported by Australian taxpayers, developed the world's most greenhouse-friendly iron-smelting system. The only completed plant is mothballed.

Most important is a clear statement of government purpose. No one opposes defending our borders from economic migrants. Defending our best jobs from heading the other way is just as important. Manufacturing is not just one way Australians can enjoy good, well-paid jobs and keep our comfortable lifestyle: it is the only way.

John M. Legge is an instructor at Chifley Business School, and is responsible for innovation and advanced finance in the MBA programs.