The billionaire philanthropist Warren Buffett once remarked in relation to a stock market crash and individuals out of their depth, that ‘it’s only when the tide goes out, can you see whose been swimming naked’.
The one thing the Coronavirus has done above all else, is focus the collective minds of Australians and hopefully our political class on the exposure of our supply chains because ever since the signing of the Lima Agreement in 1975 by the Whitlam Government, regarded by many as the greatest act of economic self-harm and economic vandalism that a nation could possibly do to itself, manufacturing in Australia has been in terminal decline.
Like Buffett’s ebbing tide analogy, the Coronavirus has simply exposed just how embarrassingly naked and dependent we are on others, particularly China. All it took was an invisible virus.
The results that flowed from the signing of the Lima Agreement all those years ago has been no accident. It’s worked exactly as designed.
It was a deliberate act, to encourage manufacturing to move out of Australia into third world countries to help them develop and lift them out of poverty and started with the surrender of our textile and footwear industries.
The idea was that developed first world countries like Australia would gradually shift our economies to the service industry sector — soft industries, like the tourism and education sectors, particularly universities with overseas paying students.
Then in the 1980’s and 90’s Australia hooked up with globalism, free trade and the dismantling of tariffs which to be fair has its upsides as well as its downsides, that treated the world economy as one big market bizarre so it really didn’t matter where your stuff was made as long as it was a mutually beneficial arrangement.
In this case, the third world got the turbo-charge to their economies and we got the benefit of the cheap labour of China, Vietnam, Indonesia and India reflected in the cost of our imports.
By way of example. the upside has been the vast array, choice and availability of the sixty four different cars we can buy today at a relatively cheap price and of higher quality compared to the five or six local makes and models back in the seventies. You could buy an imported car but with very heavy tariffs designed to protect our local car manufacturing.
The downside apart from the now exposed reliance on others and the tenuous supply chain, has been the loss of our own uncompetitive car manufacturing and the associated industries and trade skills down the production line.
Everything from steel, to windscreens, tyres, glass to even the headlight manufactures.
Now, apply that same outcome and multiplier effect of the car industry to the many other local manufacturing industries and the problem begins to crystallise.
That is how we got to where we are today. And now there’s yet another government inspired roadblock and impediment.
Into the 2000’s and on top of the Lima Agreement, globalism and unfettered free trade, over the last ten or fifteen years as part of the push for green energy, we’ve seen the deliberate surrender of our comparative advantage in energy costs and the push away from cheap, available and reliable coal fired power to subsidised renewables and as a consequence our power prices have sky rocketed.
This in turn has caused those remaining local manufactures to reconsider their positions and arrive at the conclusion that manufacturing in Australia is uncompetitive and just too expensive and so they have either closed down, moved off shore or switched to importing and distributing the very things they used to manufacture.
But now in 2020, with the Coronavirus, a whole lot of chickens are coming home to roost from a whole out of different directions which presents the government with a nightmare dilemma in that if we want to bring back manufacturing to Australia to reinforce and embed our supply chains, the government is going to have to address energy costs and make them attractive once again by very delicately threading the political needle between the cost of renewables versus the cost of coal-fired power.
Renewables are and always have been, niche and boutique at best and can’t compete with coal without taxpayer subsidies.
If the government is serious about lower energy costs to attract manufacturing the choice for available, reliable and affordable electricity is abundantly clear and involves going all in on coal fired power at least in the short term while nuclear is ramping up over the longer term.
It should be a no brainer.
There are no other choices and the Dusty Springfield option of ‘Wishin’ and Hopin’ is no choice at all.
Make no mistake, this Hobson’s choice, this dilemma, has been created over fifty years solely by our political class.
As Professor David Flint observed several years ago:
“..It’s hard to think of even one of today’s problems which, if it weren’t created by government, they’ve made them significantly worse. From replacing the lowest energy costs in the world with the world’s highest, today’s politicians have hardly earned our confidence..”
Dear Jim,
A few remarks on Holden, manufacturing and a lack of willpower to make anything here.
It is indeed sad that Holden has finished manufacturing in Australia. For $35000 you could get a Commodore with all the bells and whistles. GMH dropped the price on its top-of-the-line Caprice from $64000 to $59000. They were indeed value for money with the Caprice having a longer wheelbase for ample rear leg-room. Something that was only available on cars such as the Mercedes S-Class with long wheelbase.
People did not want even a $35000 car with all the bells and whistles. People opted for far more expensive Audis, BMWs and MBs even with a 15% luxury tax for cars over $65000. People also chose to drive SUVs such as Toyota’s RAV4 and Mazda’s CX5 which are also more expensive than the bells-and-whistles $35000 Commodore.
Demand for Commodores in the 1990s have peaked at over 110000 cars. Since the GFC, demand for Commodores has trended down to 20000 per annum. Had the trend continued before Mr Abbott and Mr Hockey pulled the plug on subsidisation, it may have downtrended to very Commodores sold.
Yes it’s true there is a multiplier effect when manufacturing cars such as employment in the various component makers and suppliers to GMH. As the demand for Commodores dropped so too is a corresponding lower demand from its suppliers.
The demise of GMH is not the fault of the worker. Rather it is the fault of the decision makers in Detroit who assumed that Australians will purchase a big car. GMH had put its eggs in one basket with the Commodore, a car that was not in less demand by the savvy Australian buyers.
The Commodore a car that in less demand based on the halfwit decision makers in Detroit.
By the way, GM’s Thailand plant has been on a downward trend in demand since 2015 finally closing its doors in February 2020. GM’s Thailand plant was staffed by people on low wages! Same thing, GM produced goods that people did not want.
In regards to manufacturing in Australia, it was nearly 45 years since the Lima agreement, yet we still manufactured cars till 2017 for a product a that people did not want even though it was reasonably priced compared to other cars.
However, slowly over time, there were products made in Australia that are not made anymore. Items such as toasters, TVs, radios, pots and pans, screws and nails (remember “Sydney Cooke” fasteners in a dark-green box), shoes and socks.
Then there are products who are continued to be made in Australia but sourced with components and materials for overseas. That includes food (made in Australia with x% Australian ingredients), pillows with its materials sourced from overseas to name a few. In this situation, I was watching the “7:30 Report” in 1987 on a soup manufacturer.
The alarm bells rung in me when the accompanying dialogue to footage of a machine filling a packet of soup, the narrator said “….the dried onions come from China….” That was 1987.
We could go on with stories how the dwindling number of Australian-sourced components has decreased. Go to the supermarket, look at the fine print of all the peanut-butter supposedly made in Australia and the main component, the peanuts are not from Kingaroy.
Similarly, look at a label on a can of tuna, and it’s sourced outside Australia. Yet there is still a viable tuna industry in SA. Why aren’t our cans of tuna from SA filling cans of tuna?
Is it necessarily high wages to blame for the demise of manufacturing? Maybe, but let’s not forget a $35000 Commodore mentioned earlier and people were opting for more expensive Audis, BMWs and MBs.
Also consider that we’ve stopped refining fuel except for Kwinana WA, and we’re still paying higher extortionate prices than when fuel was made here. Let alone the Australia’s fuel security at risk depending on ships sailing in politically sensitive areas. Go buy sports shoes made in SE Asia, and the low wages would have to be a small proportion of the sale price.
Another issue is that if manufacturing was to continue in Australia, where is the land to hold these factories? Once Alexandria was one of the largest manufacturing hubs in the Southern Hemisphere. Like many industrial estates in the inner west, south west and north of Sydney these estates were converted into apartment blocks and cafes.
Instead of converting old types of factories to new types of workplaces we’ve made people travel longer to their workplaces whether it is an office or factories jamming up the roads and public transport.
Stupid planning decisions without consequences!
The difficulty is that if we had a resurgence in local manufacturing, where are these manufacturers going to locate that is close to transport infrastructure and ports?
Finally, I wish to mention the lack of willpower to manufacture locally in Australia by government and industry groups. It is not enough that a few Federal MPs rumble about local manufacturing resurgence.
If you want to see willpower in action, look at the Harbour Bridge, built between 1929 and 1932. Most of the steel was imported from the UK by Dorman & Long. Around this time, It was cheaper to import steel from overseas than Australia. Despite the cheaper cost of overseas steel, BHP Chairman, Sir Essington Lewis had the willpower to build Australia’s steel industry and he succeeded.
Similarly, the “it could not be done” attitude in Australia was prevalent during WWII. Sir Lawrence Hartnett in his book “Big Wheels Little Wheels” wanted to make optical sights for guns during WWII. They said to him, “….the best optical sights are made by our enemy Germany….we cannot make these sights…” The “it could be done” result was achieved by marshalling the experts from the CSIRO. By the way GM’s Melbourne facility converted its car-making talents towards the war effort. GMH is gone due to the ineptitude of Detroit’s managers. One less factory to convert its facilities for the current pandemic.
The Sir Essington Lewiss and Sir Laurence Hartnetts of today are lacking in today’s industry bodies. That is the lack of willpower.
In conclusion, while some local manufacturers are making PPE equipment and ventilators, will that mean there will be the impetus to encourage a resurgence in local manufacturing? The willpower to do local manufacturing starts now, not when the pandemic ends. When the pandemic ends, will it be normal trading resuming as soon as possible and the idea of local manufacturing put in the dustbin? Methinks so.
Thank you,
Anthony of exciting Belfield
Dear Jim,
A typographical error in the 4th paragraph. Where it says “….it may have downtrended to very Commodores sold…..” it should be “….it have have downtrended to very few Commodores sold….”.
Thank you,
Anthony of exciting Belfield