Jobs top the agenda of most nations – and what a lucky country we have been. For decades, we have leveraged our abundant natural resources, turning our bounty into wealth and employment, with one direct mining job creating more than six indirect jobs in adjacent sectors.
It doesn’t take a prophet to see that we will eventually run out of our largely commodity-based luck. But as long as we are a lucky country, we have some runway left to transition to a smart country – one that is resilient and provides well-paid jobs.
A smart country can make complex things. A country that cannot do so, while still doing well, is a lucky country. Manufacturing is the single most promising capability that can transform a lucky country into a smart country.
Harvard University’s Economic Complexity Index (ECI) ranks a country’s ability to manufacture and export diverse and complex products and components. Currently, Australia ranks 87th, between Uganda and Burkina Faso.
Growing our manufacturing capability would improve our ranking. It is the key to money and the jobs of the future. We need to manufacture complex products instead of only extracting their base elements.
For example, compare the extraction stage versus the value-adding stages of manufacturing lithium batteries. Projections value the world market for mining and concentrating lithium at US$12 billion in 2025. At the same time, the market for refining and processing is projected to be worth US$41 billion, electrochemical processing a further US$297 billion, cell production US$424 billion, and battery assembly US$1.3 trillion.
Manufacturing is not a sector. It is a capability that spans all other sectors in which things are being made – like transforming extracted commodities into components or products, adding value along the way. This is evident when comparing the value of one kilo of lithium with a one-kilo battery.
Often, manufacturing is confused with production. But manufacturing involves seven steps along a value chain – Research & Development (R&D), design, logistics, production, distribution, sales and services. The six most valuable steps take place before and after the production step.
Making a vaccine – to take a timely example – involves all seven of these steps. First, R&D identifies the components of an effective vaccine. Design deals with how to make the vaccine to scale. Logistics sources the ingredients. Production is the actual making of the vaccine in volume. Distribution and sales follow. Finally, servicing refers to administering the vaccine, monitoring recipients, and supporting customers such as physicians and hospitals.
The industrial sector in the vaccine example may be health or pharmaceuticals, but manufacturing is the enabling capability for these and every other sector that makes things. Narrowing the definition of manufacturing to production alone grossly underrates and underestimates its capability and value for a nation.
Creating jobs and encouraging manufacturers to make complex products or components along the broad value chain has topped the Advanced Manufacturing Growth Centre’s agenda for the last four years. Our collaborative industry research projects target commercialisation. Through these projects, we have created real jobs that pay well and lift the technical nature and complexity of Australia’s output.
The manufacturing jobs we have created extend across the country’s winning sectors: medical technologies and pharmaceuticals, food and agriculture, mining, oil and gas, defence, energy and space. These jobs include IT specialists, supply chain managers and communication professionals, as well as the more familiar roles of welders, machine operators, fabricators and many more.
We want to create more jobs through our projects and move Australia closer to the top of the ECI leader board. We also want to have more of our manufacturers competing for global customers against companies from the likes of Germany, Japan and South Korea.
Australia has about 45,000 manufacturers, and 95 per cent of them employ fewer than 20 people. Australia’s manufacturing industry has demonstrated that it does not lack ingenuity. What it lacks is scale.
Scale matters for jobs. Take Germany, which largely ran out of commodities decades ago, as an example. It is an industrial powerhouse, with mid-sized companies (called “Mittelstand”) employing almost half of the population in high-paying manufacturing jobs.
If we want a future in which we don’t sell fossils (which will inevitably drop in price), we must do two things: help our many small yet most innovative manufacturers to scale up, and to make more complex and globally competitive products.
A good start would be to complement coal and iron ore extraction by adding value to commodities such as lithium. We should also accelerate our engagement in the field of hydrogen. These fields are admittedly complex, yet they are economically most viable. They create resilient jobs, while also addressing climate change rather than adding to it.
We do not need to look any further than our experiences over the past year to see how smart we can be. Australian manufacturers responded to the COVID-19 pandemic by tapping into their capabilities and turning them into solutions for our people.
Investing in manufacturing is not about subsidies. It is about investing in our capabilities and building on our strengths. Market mechanisms alone will not help us when other countries are also investing in their manufacturing capabilities.
Putting jobs at the top of our national agenda is the right goal. Smart jobs and many more of them will lift our competitive profile and keep our GDP per capita ratio high as we move from being a lucky country to a smart country.