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We No Longer Make Cars But We Must Still Milk Our Manufacturing Industry For All It's Worth

We did such a good job conditioning ourselves to believe we can’t make things anymore that we meekly accepted the wind-up of our automotive sector.

25/10/2017 2:30 PM AEDT | Updated 25/10/2017 3:20 PM AEDT
Handout . / Reuters
"So long as we perpetuate the idea that high-wage countries cannot compete in manufacturing we will discourage our best and brightest from envisioning a future for themselves in the sector."

The words 'death' and 'manufacturing' appear together so often in the media that you could be forgiven for thinking its demise were truer than death and taxes. Contrary to glib assertions, however, manufacturing in Australia is far from dead, though it will struggle to reach its full potential if we can't remove such simplistic notions from our public debate.

To the extent that manufacturing has declined, it has largely occurred relative to faster growing parts of our economy. In many ways this reflects the healthy priorities of a nation choosing to devote increased resources towards ensuring dignity in retirement, caring for those with a disability and investing in future generations. In the meantime, Australia's manufacturing sector remains a significant source of quality, well-paid jobs.

But so long as we perpetuate the idea that high-wage countries cannot compete in manufacturing we will discourage our best and brightest from envisioning a future for themselves in the sector. Just as our tax system currently encourages them to build wealth via speculating in real estate rather than through genuine entrepreneurial pursuits.

If there's one lesson we should take away from the loss of our car-making sector and the transition underway, it is that the first place to start building the industries of the future is to avoid losing the capabilities we already have today.

We Australians did such a good job conditioning ourselves to believe we can't make things anymore that we meekly accepted the wind-up of our automotive sector. As though the Aussie dollar was destined to stay at parity with the greenback for decades to come.

Of course it is too late now for local car-making to ask what could be done to avoid 'hollowing out' our economy in future mining booms or in the face of other temporary headwinds. But it's not too late for the other 907,000 Australians that work in manufacturing.

Indeed, it is especially relevant right now for the dairy industry, itself a significant part of the Victoria's broader manufacturing sector, particularly in regional areas.

While many industry observers see a strong longer-term outlook for dairy, underpinned by domestic population growth and Asia's expanding middle class, the picture is not so rosy for the towns of Kiewa and Rochester. Both communities are now staring at significant job losses following the decision by the Murray Goulburn Co-operative to close the processing plants in their areas.

Regardless of what you may think about the factors leading to Murry Goulburn's decision, does it really make sense for such disproportionate pain to be inflicted on two small communities if the long-term prospects for the industry are positive? Should their opportunity to participate in that future be reduced?

The McKell Institute Victoria does not think this makes sense. Particularly when one of the reasons for forming co-operatives is to spread risk among the many and not concentrate it upon the few.

That is why we are argue for one of the recommendations in our recent report 'The Place to Make: The Future of Manufacturing in Victoria'. It suggested measures to improve the viability of regional cooperatives, in particular improving access to capital via expanding existing concessional loan programs or adopting partial loan guarantee schemes for underserviced market segments, as is practised in the United States.

In this instance, the objective would be to enable farmers and workers in Kiewa or Rochester to form new co-operatives and raise enough capital to purchase the shuttered plants or, if Murray Goulburn proves unwilling to sell them, to build their own.

Any loans would be subject to a commercial business case, ensuring this would not be a handout but would serve to empower these communities to stand on their own feet and to have a stronger hand in discussions with Murray Goulburn, or one of its many future owners.

Over time, local co-operatives can enable brand equity to be built in those regions that in turn create opportunities to value-add or cultivate culinary tourism.

In the meantime, if there's one lesson we should take away from the loss of our car-making sector and the transition underway, it is that the first place to start building the industries of the future is to avoid losing the capabilities we already have today.

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