With the mining boom all but over, its back to reality for Australia, which, riding on the wave of the commodity price hike for so long, squandered a once-in-a-generation chance to reposition its economy for sustainable growth by transiting from a resource-based economy towards a high-value manufacturing economy, says Professor Roy Green, Dean of the UTS Business School, in an article featured on the abc.
Australia’s mining boom, which added 15% to the country’s national income over a six year period during which the rest of the world languished in recession, ended in predictable symmetry with the way it began—a commodity price collapse.
The sudden but predictable end of the mining boom instigated by the steep commodity price declines burst the bubble that Australia can rely on its resource industry to make up for the underdeveloped manufacturing sector , which scarcely registers in high-tech manufacturing, despite some notable success stories.
“The Dutch had to learn these lessons the hard way in the 1970s when a currency spike associated with North Sea gas made their manufacturing sector uncompetitive. The phenomenon was given a name—the ‘Dutch disease’,” said Mr Green.
“The British did no better, and in fact arguably did worse, when in the 1980s they cheerfully frittered away the proceeds of their oil bonanza in tax cuts and a consumption boom, rather than a long-term investment strategy. It has taken more than a decade for the UK to rebalance its economy with a renewed focus on manufacturing.”
According to Mr Green, Australia must identify new sources of growth based not just on its comparative advantage in raw materials, subject as they are to diminishing returns, but on the “competitive advantage” conferred by knowledge and ingenuity.
“How can manufacturing help us to re-imagine our future? In becoming more globalised, knowledge-intensive and interdependent with service design, robotics and digitisation, manufacturing matters more than ever for advanced economies. Firstly, this is because it drives innovation and technological change, and secondly because it contributes to the external trade balance,” said Mr Green.
“Without manufacturing, we face the prospect of losing science and engineering expertise in research and production that has taken generations to nurture. Manufacturing directly employs one in five engineers in Australia, and many more indirectly. These skills are not only critical to new growth industries but are the core infrastructure skills on which every modern economy depends. “