Jobs Summit: making a future for manufacturing
6 October 2011
The future of Australia’s manufacturing sector will be the focus of today’s Jobs Summit. AAP
Hot on the heels of the Tax Forum in Canberra is today’s Jobs Summit, which is expected to concentrate on the pressing issues facing manufacturing.
Dean of UTS Business School Professor Roy Green, who will address the Summit, spoke to The Conversation on the best ways Australia can continue to nurture its existing manufacturing sector and our need to embrace a hi-tech future.
What are the most important issues for this week’s Jobs Summit?
Clearly this summit is about the future trajectory of the manufacturing industry, in the context of a high-terms-of-trade and high-Australian-dollar economy.
This economic situation will likely remain for as long as the commodity boom continues.
We saw a sign last week of what might be in store if the boom falters, with the Australian dollar dropping after after commodity prices weakened.
If China is affected by the next round of the global financial crisis, which could see many countries around the world slide into recession, its demand for Australian resources will fall.
It is clear that there are a number of long-term issues and a short-term issues for Australian manufacturing.
In the short term, with low productivity growth, we are losing our competitive advantage with each notch that the Australian dollar falls in value.
We therefore need to think not only about where we wish to have manufacturing positioned, in terms of new products and services, but also how we can make existing manufacturing more effective and more productive.
We need to do this in areas where we have seen our market share eaten away by imports in the domestic economy and where we are losing opportunities in terms of exports.
What are the benefits of maintaining a strong manufacturing sector in Australia?
Research and development in manufacturing is a significant factor in developing a knowledge-based economy more broadly.
If we lose our technological edge in manufacturing, we will also lose it in other areas. This would occur because manufacturing is becoming interdependent with the services sector.
A lot of manufacturers these days are marketed as a design-based or services-based customer experience, with a manufactured product at its core.
Manufacturing contributes to our ability to provide internationally competitive services.
Then we have the issue of our current account.
While we are exporting commodities at a high volume and a high price, we can deal with our current account issues.
In the longer term, we could face a situation where we a have a huge trade deficit in our knowledge-intensive products, which could easily create problems for the economy more broadly.
There is a theory going around that the current account deficit is not a problem, as long as foreigners are prepare to finance capital investment in this country.
However, in the face of another global financial crisis, we cannot count on that either.
So we need to ensure our domestic economy and our trade position are far more balanced than they are at present.
We must also have the capacity to compete in knowledge-based activities worldwide as part of international markets and supply chains.
The reasons why manufacturing is important basically boil down to technological capacity, and the need address our current account balance.
How do we develop the size and scope of our manufacturing sector?
We have to recognise that there are manufacturing industries in which we are not competitive and may never will be.
Then, we need introduce policies of structural adjustment to ensure that the transition away from these industries is not as painful as it would be if left entirely to market forces.
That includes retraining and skills development, as well as assistance with labour mobility.
Some manufacturing sectors are never going to be competitive in Australia, given the competition from low-wage economies. These include textiles, garments and footwear.
But we can be competitive in those sectors in the areas of fashion and design, as well as in research and knowledge based areas, such as technical textiles and smart fabrics used for industrial purposes.
Those are the sorts of areas where we can still capture market leadership through ingenuity and through research links between industry and higher education institutions.
There is a lot that we can do to improve the competitive position of Ausralian manufacturing by moving into higher-value activities and identifying new areas of manufacturing, such as additive manufacturing using lasers and 3D, where we have world-class scientists.
We have the potential, with decent investment, to grow this area and make it competitive from even a small country base.
But don’t these segments of industry hire fewer people than traditional manufacturing?
In many cases these kinds of innovative industries hire very few people, and that is a significant challenge.
Some of the mass-production facilities that have been high employers in the past are those most challenged by international competition.
We still employ about the same number of people in manufacturing that we did 40 years ago, but production has multiplied by a huge factor.
That indicates an enormous increase in productivity over that period.
An increase in productivity is often associated with fewer jobs, but it need not be.
It can be associated with an increase in jobs, if one takes into account what is known as the “multiplier effect” – the downstream effect of having highly productive manufacturing area, with a network of other services and activities in that area.
All the services and activities that feed into that manufacturing process – from business consulting to IT – benefit from the wealth it creates, leading to increased employment.
That wealth creation also benefits on our ability to have other services, including public services to the community, which are the really high employers.
We can’t afford public services if we don’t have the wealth creation that comes from a highly productive manufacturing base, as well strong mining exports.
Maintaining a strong manufacturing sector will ensure that we are generating the wealth and addressing our current account deficit, so that we can maintain community services.