Comments by Germaine Greer on Q&A last night and in The Australian Financial Review this morning by Senator Kim Carr, the Industry Minister from manufacturing-dominated Victoria, both suggested that Australia is doing something wrong by mining things and shipping them off overseas.
Ms Greer’s comments were fair enough, as were Senator Carr’s, but both obviously have no understanding of what is happening overseas.
Australia might be free from recession and recovering, but the big traditional manufacturing (making) economies of the US, the UK, Germany, Japan, South Korea are still very sick.
It’s a recession that has been more intense in countries with big manufacturing sectors: even China’s exports are more than 20% below what they were a year ago; in Japan they are off more than 30%. Similar falls are still being reported from other major economies.
Industrial output is still far below the levels of a year ago in all economies with a big manufacturing sector.
Many of these products are consumer goods, which will be in oversupply for years to come.
Imports into these economies are still weak to falling for three reasons: lower demand, lower prices and volumes because of price cuts (as for iron ore and coal and oil and gas) and higher currencies in the cases of Japan and the eurozone. The import bills in the US and UK are mostly weak because of lower oil prices and lower demand. Their currencies have fallen noticeably.
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And if anyone noticed, the number of people out of work in the US, Japan, the UK and across Europe is far higher than Australia, with peaks above 10% in the US and Europe expected next year. That is a big difference.
Australia, Canada, South Africa, Indonesia, are some of the economies that are recovering or still growing (Indonesia didn’t even slow dramatically as Australia did) because demand for their commodities remains solid, despite the downturns in demand for many of them.
Solid demand from China, and to a lesser extent, India is helping. That won’t last and the strong Australian dollar will cut returns in coming months.
Demand for the commodities Australia is producing won’t die off like demand for consumer and manufactured products will.
Does anyone seriously think that we will see a return to the cheap credit days of pre-2007 that helped drive the low interest financed consumer goods boom around the world?
Demand for goods that are ‘made’ is going to be very weak for at least the next five years or more, and probably longer.
Demand for resources (including rural goods) from rapidly developing emerging economies will fluctuate, but it won’t be as miserable as demand for manufactured goods.
But Senator Carr’s comments in the AFR this morning that “we can’t sustain this approach” is as silly as anything he has said.
Of course we can. Does he seriously think that we can produce a range of manufactured goods for industry or for consumers at a cost comparable to those that will be available from overseas for the next few years?
All that spare carmaking capacity, the extra plants making computers, tennis shoes, clothing, will either be kept going to justify their continued investment, or eventually closed. But while they are still going the cost will be rock bottom and be made even cheaper to consumers in Australia, Japan, and the eurozone by the strong currencies.
Ms Greer and Senator Carr forget that our singular big advantage over the rest of the developed world is that we are the single largest supplier of energy and major other commodities within the stable OECD economies. It’s why there’s a flock of companies waiting to develop gas deposits for LNG.
It’s also the only way we will be able to pay some of the costs involved in lowering our greenhouse emissions and carbon footprint.
Manufacturing is a consumer of energy and carbon, including green cars and the like which Senator Carr is paying Toyota to develop, or rather modify for use in Australia.
Import replacement is one of the oldest and tired economic frauds there is: it is really a grab by domestic business, unions and their political mates, for more of the consumer dollar (and that also includes business and individual consumers).
The only way Senator Carr can ‘help’ domestic manufacturing will be through trade destroying preference deals, or Government aid of some type.
I thought the big drive for the next few years was to cut spending and debt, not splash money on a nostalgic drive to rebuild a glorious manufacturing past that was based on a tariff wall that actively undermined our ability to export efficiently and which transferred billions of dollars a year from consumers to a small privileged group of companies and their employees, plus their mates in politics?
Things won’t be the same again. But perhaps Australians really needs another Keating-type recession to remind ourselves.