Many people seem to equate manufacturing with 19th century technology, with the steam engine and grease, but in fact that is not the case.
What is manufacturing? It is pharmaceuticals, it’s advanced industrial chemistry, it’s advanced materials, nanotubes.
Consider the car industry. It draws on an extraordinarily wide-range of advanced technology and services, advanced metallurgy, machining. Consider the millions of lines of code that go into engine management systems and safety systems of modern vehicles.
Australia is just one of 13 countries in the world that have the capacity to go from the drawing board right through to the production line and the showroom – and every country that has that capacity seeks to nurture its industry. The modern motor vehicle industry sits at the very heart of a national input-output system at the very heart of its national science and technology base.
Well, so what? Surely the resource sector can fill the gap? But in fact under present policy settings the resource sector draws most of its advanced components – its advanced manufactured inputs – from overseas, in contrast to many other countries with large resource sectors, such as Norway.
The other consequence of increasing dependence on a large resource sector is that growth in the economy and tax receipts of governments will become increasingly volatile as a consequence of the large swings in commodity prices and national income.
It is explicit government policy to shift resources away from manufacturing and other non-resource based industries into the resource sector. This sets up a vicious cycle; every time there is a boom in the resource sector, the rest of the non-resource parts of the economy are actually forced to shrink.
Another consequence of the decline of Australian manufacturing is this ever widening trade deficit as we increasingly import more of our manufactured products.
The Australian science and technology base is fairly fragile.
The science and technology base in Australia is much more dependent on government funding than in many other countries. There really isn’t the type of political consensus that can ensure its continued funding.
We can ill-afford to lose an industry such as manufacturing which is so science and technology intensive. 25% of total private sector R&D is conducted by manufacturing. You go back ten years and the figure was 50%. It is simply not sustainable in the long run for a country to embark on a strategy (whereby) it can think it can retain the advanced science and technology but outsource manufacturing. It is simply not possible in the long run to divorce those two.
The continuing and rapid decline of the manufacturing industry isn’t inevitable. There is undoubtedly a cost in attempting to retain a large and sophisticated manufacturing industry. However what we have to consider is, what is the cost of its continued decline?
This piece originally appeared on The Conversation