The relative decline in manufacturing

These changes saw a long decline in relative importance of manufacturing, both as an employer and as contributor to total value added (GDP).  This impact was felt first in NSW, the largest and then the most industrialised State. The impact was later, but perhaps more severe, in Victoria and SA, where remnants of protection continued for textiles clothing and footwear (TCF); the automotive industry; and some special cases (like Kodak in Victoria) until recently.

In Australia, throughout this period of manufacturing decline there was an ongoing debate as to the wisdom and prudence of ‘living in the present’ with no concern for the probable future; where, it was believed, the capability to make things might be necessary; particularly in the context of national defence. There was also a lingering cultural belief that Australia needed to ‘populate or perish’; that it was necessary (or feasible) to out-populate our expected enemies; those jealous of our ‘abundant wealth’.   Labour-intensive manufacturing was promoted an essential part of this imperative; as at that time a significant number of manufacturing locations still employed many thousands of people; and the TCF industry was a very large employer of immigrant women.

Another stream of concern was that ‘infant’, particularly ‘hi tech’ industries needed initial support to become established, after which assistance might be wound back; and latterly that certain industries, like automotive manufacturing, are essential to preserving a reservoir of industrial skills and capabilities*.

Against this it was argued that governments are not skilled, and have a very poor track record, at ‘picking future winners’ and are likely to protect industries that have no long term commercial merit (like steam train, typewriter, radio valve or large scale vinyl record manufacture); and in doing so enrich some people at the expense of the rest.  It was further argued that such commercial risk is best taken by those who may reap the rewards of success, or suffer by their failure; and that interventions by government ‘socialise risk and privatise profit’.

The strong dollar was said to be ephemeral and to exploit the value of finite natural resources that were being depleted (the Dutch disease) to maintain the buying power of an ever growing consumer market fed by high levels of immigration.

That the value of the dollar is supported by the exploitation of non-renewable resources, and that this will end in disaster, is a similar argument to that on climate change that: 'we are presently exploiting the birthright of future generations and leaving them with a depleted environment'.  

Against this, technological progress makes it very difficult to predict what resources the future may or may not need or find valuable.  Banks and Phillip believed the potential wealth of New South Wales to be in flax and pines (for sails and masts).  They would have seen no value in a nickel or tantalum deposit or even in iron deposits ‘on the other side of the world’.  In an environment of enormous change and seemingly random natural disasters and fluctuations are voters ready to make sacrifices to their living standards now in the interests of speculative outcomes in the medium to distant future?  Will coal, or gold for that matter, still be valuable in another 200 years when we may have fusion energy and/or the ability to synthesise the metals we need?

It was argued that various countries that would become future competitors were accelerating economic development through the deliberate application of economically distorting economic tools, direct intervention in the productive process, aimed at directing productive resources towards selected industrial activity, education and research.  They and others were using currency manipulation to lower the price of exports; increase domestic savings; and increase investment overseas.  This was seen to be particularly effective in Japan, Korea and China in moving from predominantly rural, feudal societies to industrial ones. 

In 1975 the ‘Jackson Green Paper’: ‘Policies for Development of Manufacturing Industry’ (following the Industries Assistance Commission annual report of the previous year) predicted that the industries most likely to be encouraged by the change from protection to free trade would include:

1.                  The Service Sector.
2.                  Manufacturing industry that is land (eg food) or minerals based.
3.                  Manufacturing industries based on skill, innovation or design.
4.                  Industries with a high degree of natural protection by virtue of their bulk, non-durable nature or ability to satisfy specialised local demands.
5.                  Rural industries – particularly exporters.
6.                  Mining industries based on rich deposits.

A prominent and influential member of the ‘Jackson Committee’ was Robert JL (Bob) Hawke – future Prime Minister.

By 1983 political intervention in the relative value of the dollar, partly driven by electoral considerations, had led to growing disquiet about its negative impact on economic restructuring and the dollar was floated (by the Hawke/Keating Government).

*I later expanded on this need for a manufacturing base in my essay on: 'Holden - The Demise of an Iconic Brand', where I remarked that some manufacturing skills, like programming a particular NC machine, are ephemeral, yet there is evidence that people with the appropriate aptitudes are a scarce resource, like champion sportspersons.  I questioned if, by virtue of government handouts and special market protection, automotive manufacturers and their suppliers had been unfairly competing for this scarce resource, with unprotected manufacturers, effectively sequestering the best workers.  Where such special plans to end, might the best workers be released to find employment where their skills and aptitude add real economic value, not in activity that is only profitable with a subsidy?