Companies

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.

Guy Rundle — Correspondent-at-large

Guy Rundle

Correspondent-at-large

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.

27 comments

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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. [email protected]

    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.

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