Why we need manufacturing

Manufacturing is a bit like hair, you won’t realise how much you liked it until it’s gone.

As I wrote last week, the current squeeze on manufacturing is part of an unstoppable ‘structural change’ led chiefly by the cheaper labour offered by a rapidly industrialising Asia. Basically manufacturing is more globalised and Australia is being priced out of the market. What’s left in our economy is being reallocated to the resource sector where the money’s better.

The question a lot of people are now asking is – do we even need a manufacturing sector? I mean why bother making stuff when digging up dirt for China and India is heaps easier? Well I reckon we do. Manufacturing is a bit like hair, you won’t realise how much you liked it until it’s gone. For starters it is the mother of invention, innovation and technological change. Australian manufacturers spend about $5 billion each year on R&D in adapting existing technologies and developing new ones. This is the focus of a lot of cutting-edge creativity and if we diminish our capacity for innovation we’ll go backwards.

Secondly without a manufacturing base, Australia would need to import more ‘stuff’, which sends money out of the country. Even now, with more dirt leaving the country every day than a News of the World exclusive, we’re barely offsetting our imports.

Thirdly there’s the skills base issue. Manufacturing employs armies of scientific, engineering and computing types who have taken us generations to create and whom we’ll need in the new economy of renewables and biotech. And who’s going to install and maintain our desal plants, fix the phone networks and service the defence systems? Karl Stefanovic? Folks, engineers provide us with the core infrastructure skills our modern economy needs. Let’s give them the love they deserve.

I agree that no company should be guaranteed the right to survive by government. I also acknowledge markets must adapt to mega-trends. Karl Marx termed this ‘creative destruction’ and it includes things like globalisation, digitisation and the emergence of Asia. However, there is a small role for some form of protectionism. This is when a government uses tariffs, taxes etc. to make its exports more competitive and protect its struggling manufacturers. The trick is calibrating that role.