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Aug 31, 2011

Manufacturing ... there's nothing left to cut

As much as people didn't want to lose jobs, most could see that the manufacturing jig was up.

Yesterday, my suggestion that Labor could be regarded, for the purposes of thinking ahead, as done like a dinner, brought an angry response — largely from old Labor loyalists, who appear to prefer fantasy to reality in assessing what needs to be done. Many appeared to loathe the Greens more than they hated the Right, thus replaying the old ALP Right-Left wars, now stretched across two parties — and to be reminded that the Greens would sail on in the Senate while Labor fell apart, was particularly unwelcome.

The whole point of the exercise was to presume an Abbott Coalition victory, with all that that entailed, and think strategically about what the Left and progressive forces should do, in a situation when the two houses become divided along Right-Left lines, and politically antagonistic. That may not happen, but — given the decrepit state of Labor, created in part by its unthinking loyalists — it’s likely that it will, and it’s worth thinking it through.

Yet the political dilemmas of the Left are merely a part of the whole, and the other dimension of that is the grievous political problems faced by the Right, as they try and perpetuate Howardism, under conditions where it is ceasing to be viable. Tony Abbott’s each-way bet on the steel industry was a wake-up call to many on the Right, that it had to get its house in order. The coal-seam gas issue was able to be dismissed as an anomaly, which it wasn’t — it was simply the first major eruption of a contradiction on the Right, between conservatism and neoliberalism, one that can no longer be ignored.

Howardism? Yes, the term seems fair, it is not ideology inflation. Howard created a stabilised form of economic liberalism and social conservatism, with Australian characteristics. A modest social welfare/social market state was retained, as the Hawke/Keating neoliberalisation was extended. A moderate culture war was undertaken, with careful attention to the limits imposed by the social liberal nature of Australian life — Howard thus quashed Abbott’s eagerness to have a full-bore culture war on abortion, stymied efforts to ban flag-burning, etc. That combined with a reduced-tax, low-reinvestment strategy is sufficient to call it a specific philosophy.

The problem with Howardism was that the conditions of its success created a dilemma for those who followed. We are having a debate about manufacturing now, because it was in the Howard era that most of that sector was fully and finally given away, and replaced by … well, by nothing at all. We simply broke bits off of Australia and sold it on. As an economic strategy it was less Hayek than Beverly Hillbillies — find stuff in your backyard and move into a McMansion.

What history will damn Howard and Costello for — as it will damn Thatcher and Reagan — is that in giving away the old world, it spent no money or energy building anything to replace it. They simply juiced a century of embedded industrial development, a vast network of social, intellectual and physical capital, for a good look on the balance sheet. Howard, better than Thatcher, understood the sense of social dislocation this created, and argued that a socially conservative state policy was necessary to compensate for that effect,  politically and culturally.

Thus all that crap about Bradman, Anzac, values, etc, was designed to reassure people that the place they lived in hadn’t really changed, despite the great sucking sound everyone heard everywhere. (Keating had had what is an essentially Left version of that, based on an anti-British cultural nationalism — their fight was essentially one of content not of form).

So far, so good for the Right. Across the Keating-Howard era, manufacturing essentially disappears as a major economic sector. In that, they are identical. But look closer, and there’s an important difference. When Hawke and Keating mounted a war on protection in the early ’90s, they had a vast penumbra of uneconomic manufacturing to cut into. In the late ’80s, the inner-city suburbs of major cities were still place of work — of factories and workshops cheek-by-jowl with houses and flats. They went in a decade, and the utter transformation of a place such as Brunswick in Melbourne serves as a microcosm of the country — a place of textile factories that became ghost buildings in a snap, and then overpriced spec apartments.

But, as much as people didn’t want to lose jobs, most could see that the jig was up — that there was something absurd about making shoes in Collingwood, dresses in Redfern, fabric in Footscray — when they could be done so much cheaper elsewhere. On that, there was a broad deal of implicit agreement between the neoliberal elites and the masses.

The difficulty now, for both major parties supporting this move, is that it’s a one-time deal. Like a diet that goes too far — cutting first fat, and then muscle and organ tissue — the obsessive free trade/comparative advantage mantra makes no distinction about what is being lost. In that, it wilfully blinds itself with the abstract generalities of economic theory, to its particular effects on the ground, and how they are viewed. The  public lacks that bias, and retains its willingness to take things on a case-by-case basis.

Thus, the evisceration of manufacturing could proceed in the Keating era, because everyone could see the sense of it — there was no compelling collective reason we needed to produce our own shoes (though there may be all sorts of social and cultural reasons for it) and most people can see that. But steel is a different matter, and most people can see that too.

Under Howard, the country began to enter a second stage of de-Fordism — all the obviously uneconomical industries had been wound up, and the process was starting to affect industries that might be viable. The continuation into the Gillard era has taken it to the point where the threat is poised over industries that any intelligent person might say are essential to the independence of a modern state, steel being the pre-eminent example.

What characterises the current period is the absence of anything left to cut. You can’t show your fearless commitment to the global market without hacking into something people think might be necessary to a viable independent country. A type of political anorexia takes hold, in which a permanently distorted image of the body politic guides action. Cutting a little more, would make things perfect.

The Howardist ethos was always an efficient form of fantasy (thus it came to grief over WorkChoices) but it was viable. Its success made Abbott’s continuation of it impossible — it was a cover by which the remainder of Australia could be disassembled and shipped away.

Now the contradictions are coming to the surface and neither major party is equipped to cope with it. From 1983 onwards, the Labor centre argument has been that free-market economics could be harnessed to supplying the revenues needed to funnel back into tackling poverty and inequality. This is still the position taken robotically by Craig Emerson and the free-market power elite within Labor. Long since most people have wondered if there is not something fundamentally wrong with a country giving away its most basic means of life, and trusting to the possibility that it will always be able to buy what it needs in a global market.

This is the gap that Tony Abbott has exploited — in typically cack-handed fashion, but nevertheless … But it’s a high-risk strategy because it has the capacity to crack the Right open irrevocably. Labor can, in the last instance, always reconcile these contradictory notions on the grounds of pragmatic social interest — for the Coalition it represents the fundamental contradiction between its twin political poles, the prudence and traditionalism of conservatism and the anarchic possessive individualism of classical liberalism.

The more that the latter undermines the former, the more that the Right falls apart as a political formation. The slow death of the National Party has been the most obvious example of that, but it will pop up everywhere — the Coalition has peddled a fantasy to its followers, and now they demand its maintenance — an Australia unchanged in key respects, but nevertheless relentlessly free market, with the exception of rural subsidies … and capital subsidies to industry … and … and …

In diving in to the eye of the storm, Abbott has been admirably creative and audacious, but he needs to be. He is coming from the political tradition of B.A. Santamaria, who was not so much protectionist as autarchic, arguing for a de-urbanised Australia with millions of families resettled on small farms, ruled over by bishops and protected from the depredations of running water and radio, etc. The Cold War pushed Santa to abandon such a radical social vision — all the more so when it was taken up by the New Left — and subsume his movement to the secular Right. He never liked them much, and he loathed Howard and free-market consumerism, and Abbott, his disciple has never managed to shake off those influences.

Hence, his bizarre acquiescence to Barnaby Joyce’s demand to be shadow minister of finance — a man who does not believe in finance in the modern sense, considering it “usury”. With major corporate capital demanding a neoliberal framework, and the “heartland” demanding the lost world of the postwar settlement, the Coalition is squeezed worse than Labor. It is easy prey, not only for Labor, but for forces to the Right of it, chiefly Bob Katter. Luckily for the Libs, both of those are so inept that they constitute minimal challenge.

Meanwhile, for Katter and the Greens, such circumstances represent unparalleled political opportunity — if they have the courage to be audacious. Katter should radically and finally renounce any fealty to the beliefs of his former allies, and position his nascent party as radically pro-Australian, unequivocally positive towards protection and the common good of the nation. The Greens should also make an unequivocal pitch to such localism — but from the Left tradition of communitarianism, a community that happens to be a (multi-ethnic) nation.

Both parties should push the major parties to declare where they stand, which side they come down on. In Labor it would serve to isolate the free-market elite, the power intellectuals, who believe that Australia should be ceaselessly reconstructed against its public wishes. In the Coalition, it would serve to sow total internal conflict. Those who yearn for the verities of either side will be disappointed. The sides are changing their most basic composition, as the world does.

*This is part of a Crikey series Make or Break: the state of Australia’s manufacturing sector.

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27 thoughts on “Manufacturing … there’s nothing left to cut

  1. John Reidy

    Interesting, certainly from an economics POV there is no difference between Keating,Howard,Rudd and Gillard.
    And it makes sense that while we could cut manufacturing in the ’80s and ’90s there is nothing left that should be cut.
    Not withstanding them media it really testifies to the ineffectual ALP machine that they can’t handle Abbott, Turnbull should give them much more trouble.

  2. Matt Hardin

    Comparative advantage means that countries should do what they are best at and that will end up with the most productive world. The argument is extended to individuals but a contradiction arises. What if you are best at what is no longer done in your country? The answer is unpleasant for the individual concerned.

    We need to have opportunities within the country that may not be economic but allow people to work. Unemployment is the ultimate in inefficiency.

  3. billie

    The danger with comparative advantage is that if you import all your food and you have lost the export markets for your commodities you will have a very hungry population. Why do Australian politicians put us in the same position as Irish peasants in the 1700s? Only by maintaining a diverse economy can we weather the inevitably changing economic conditions. Not even the Roman empire lasted 200 years

  4. beryceann@bigpond.com

    This is one of the best articles about Australia I have read in a very long time. Thank you!

  5. Stevo the Working Twistie

    We are Jack, and we’ve sold the family cow for a handful of beans. There is a giant at the top of the beanstalk, and we’ll be able to enrich ourselves for a while – until the giant stirs. When the iron ore and coal and all that have run out, I hope the world is in desperate need of plumbers, plasterers, chippies and bricklayers, because they’ll be the only people we have left with any “trade” skills. The rest of us will be computer nerds or unemployed.

  6. Whistleblower

    Unless you want to protect manufacturing for strategic reasons, there is no argument for manufacturing to occur in Australia if it can be undertaken more cheaply elsewhere. The laws of comparative advantage require you to pay excessive costs for protected industries if you are not prepared to rely on cheaper imported products. Eventually the wheel will turn full circle and virtually no manufacturing will occur in this country except for products for which the cost of transport protects the product cost to the point where local industry can compete because of its relatively short life transportation costs.

    The danger is that course in times of conflict that you may not be able to import required commodities, and as there is therefore an argument for subsidising the manufacture certain products in the community for strategic reasons. This would include vehicle manufacturing, weapons manufacturing, and critical logistic elements such as heavy transport and possibly ship and aircraft maintenance and repair. The cost of any such protection should be borne by the federal budget as an impost over all Australians to fund national security, without necessarily distorting the market for products by artificially inflating the prices by tariffs. It is likely that within 10 years there will be no manufactured goods made in Australia other than those having natural importprotection as a consequence of high transport costs relative to product value.

  7. Chess C

    Thank you. Finally someone who gets it.

  8. bjb

    Hey Guy – great article.

    All the “free traders” prattle on about how protectionism is bad and this comparative advantage nonsense, then tell us that we should become a “knowledge economy” (the same broken record we’ve been hearing since the Hawke/Keating days).

    Just what are these knowledge industries, and can someone please explain how it is likely that Australia can compete as a “knowledge economy” with China and India who quite possibly have more university graduates each year than the entire population of Australia.

  9. David Hand

    Interesting series of articles Guy.
    I suggest to you however that the departure of manufacturing is not a one way door as you suggest. Though closing the No6 blast furnace at Port Kembla, with the loss of all those skills is a very difficult move to reverse, manufacturing can return to Australia in the same way it left. All that needs to happen is for our standard of living to decline so that we are poor enough to be competitive.

    But of course this is not going to happen. Over the past 40 years, consumption has massively moved into services. We can only have so much “stuff”and our needs have developed to the extent that most of us now work in services.

    The other thing to recognise about China is the economies of scale. It’s not just low wages and an artificially low exchange rate. When you are manufacturing every flat screen TV in the world, the economies of scale are truly massive and the whole world is better off because of it.

    I do take Matt’s point though. Economic rationalists (like me) often get criticised because we ignore the human cost. It is felt very keenly by the victims of changing economic conditions and in my view is a vital role of government to assist the transition.

    But protecting jobs is not a justification for retaining uncompetitive industries, particularly in a trading country like Australia. Our collective wellbeing lies in excelling at what we do best and importing what we aren’t competitive at. As a community, we must support those affected by change.

  10. CML

    Great article Guy. But what the hell do we do about it? No one who has the power to change things is listening. The major interest of those in power is making money for themselves and their mates, coupled with greed, greed and more greed!
    However, you have just reinforced my view, that Abbott will last about 12 months as PM before things start to fall apart. He is a political lightweight who gives no indication of having the vision and intestinal fortitude to deal with the massive problems you elucidate in your article. And neither has our current PM Gillard, hampered as she is by the likes of Craig Emerson and his ilk.
    Perhaps we need to “rub out” our current political fiasco and start a new drawing.