The decline of Australian manufacturing results to a widening in the trade deficit, as the country increasingly imports more of its manufacturing products.
This is just one of the points brought forth by Economics expert Dr. Phillip Toner, a Senior Research Fellow in the Department of Political Economy at the University of Sydney, in a video where he gives his views on Australia’s manufacturing industry. The video is published on The Conversation.
Dr. Toner also explained why the country cannot simply depend on the resource sector to fill the gap.
“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,” says Dr. Toner.
“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.”
While the resource sector may see growth, a manufacturing industry in the state of decline causes another imbalance, this time in the area of science and technology. Since the science and technology base of Australia is fairly dependent on the government’s funding, losing an industry such as manufacturing which is intensive on scientific research and innovation, will likely have a consequence on the sector.
“25% of total private sector R&D is conducted by manufacturing. You go back ten years and the figure was 50%,” says Dr. Toner.
“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.”
In line with the relationship between manufacturing and science, Toner also explains how the industry has evolved leaps and bounds from earlier days and why a country like Australia should make the most of its manufacturing skills, especially in the car manufacturing sector.
“Modern manufacturing 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.”
According to the research fellow, Australia is just one of the 13 countries in the world that have the competence to go from the drawing board, to production lines, and ultimately to the showroom. Every country that has this capacity aims to grow its car industry.
Amidst the recent job cuts in GM Holden’s plant, and the significant contraction in the manufacturing index recorded by the Australian Industry Group for the month of April, Dr. Toner believes that the continuing and rapid decline of the industry is not inevitable. He believes that while it is certain there is a huge cost in trying to retain a large and sophisticated manufacturing industry, what the country really has to consider is how much it will cost Australia if it allows the industry to continue its decline.
Aside from being a research fellow in the University of Sydney, Dr. Toner was also a former Senior Research Fellow in the Centre for Industry and Innovation Studies at the University of Western Sydney. Phillip’s PhD was on the role of manufacturing industry in economic development. The thesis was published by Macmillan U.K. in 1999 as ‘Main Currents in Cumulative Causation: The Dynamics of Growth and Development’. (source: The Conversation)