Manufacturing decline not always as analysed

Posted on June 18th, 2016 in Economy,Ford,Holden,Mitsubishi,Opinion,Toyota by Julian Edgar

I have just finished reading a book on the manufacturing decline that has occurred over the last 60-odd years in the UK. It’s called The Slow Death of British Industry and is subtitled A Sixty Year Suicide 1952 – 2012. It covers, decade by decade and industry by industry, the decay in making things in what was once a great manufacturing country.

The industries it covers include car manufacture, ship building, aircraft design and construction – and also more obscure industries like pharmaceuticals. It describes the companies that fell by the wayside, were absorbed by others, or ended up being split into so many entities that their whole reason for existence simply disappeared…

Companies like Dorman Long (builder of the Sydney Harbour Bridge), Parsons (the inventers of the steam turbine) – and car brands like Wolseley, Triumph and Jowett.

The book catalogues in excruciating detail the union bloody-mindedness, the inept management, the worthless interventions of government, the confusion in direction and execution.

And visiting Britain’s wonderful technological museums (as I have done) where you can see Concorde; the SR.N4 hovercraft; the remains of one of the crashed Comets; the beautiful Jaguar E-type; the fastest steam locomotive in the world (the Mallard); the world’s first code-breaking electronic computers; the Sinclair electronic calculator – it makes this whole story of UK manufacturing success and decline come alive.

But there are some things missing in the analysis. They’re the same things missing in many analyses that occur here in Australia of our similar (but smaller scale) decline in domestic manufacturing.

Firstly, quoting massive reductions in the share of employment that manufacturing comprises in the economy is to miss the point that such changes have occurred in all first world countries. For example, that’s the even the case in countries like Germany and France that are often cited as manufacturing powerhouses we should be emulating.

In much the same way as primary industry (farming and mining) once dominated employment, these days, tertiary (service-based) industries now create most employment. That decline in the share of employment held in manufacturing jobs is exactly what you’d expect with greater mechanisation, use of robotics and so on. We wouldn’t want to be hand-building all our cars, one at a time, as was once done. Productivity would be terrible and cars would be unaffordable. So, of course machines will replace people, manufacturing productivity will improve and employment in the sector will decrease as a proportion of total employment.

Secondly, ignored is that the decline in local manufacturing is based entirely on a reduction in demand for those goods. If the pubic, the buyers, choose not to buy locally made goods – and instead buy imports – then of course (unless they are competitive in exports), local manufacture will decline.

In other words, to be brutal about it, uncompetitive domestic companies go broke. They may be uncompetitive in technology, in branding, in price, in innovation – in all cases, consumers vote with their wallets.

So we hold a major collective responsibility for manufacturing in our country declining. The person who blames the Federal Government of Australia for the loss of car manufacturing in this country – that is, the loss of Toyota, Ford and Holden – often has a Nissan Patrol in their driveway, or a Honda, or a BMW. The person who complains that the last Australian-built washing machine recently came off the production line is the same person who has never bought an Australian-made washing machine.

Thirdly, and as an extension of this idea, globalisation, free trade agreements and geographical shrinking of the world through information technology has increased the flexibility with which consumers can make choices. I source electronic modules on eBay from China; they’re bought from either the manufacturer or wholesaler of these products. I can remember when some such modules, able to be sourced only from local retailers, cost me over ten times as much and would take a month to be delivered.

I can very much empathise on a technological history level with the loss of once great companies, once great manufacturing enterprises.

But that’s a completely different perspective from saying that we should all have paid more for inferior goods– and so on a societal level have had a lower standard of living – to prop up manufacturing companies that had become uncompetitive.

I think that in the future, commentaries on the decline of manufacturing will appear to be as relevant as those that bemoan the fact that most people no longer till farms for a living.



5 Responses to 'Manufacturing decline not always as analysed'

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  1. Ben Powell said,

    on June 19th, 2016 at 1:58 pm

    It’s a shame really. I’m fine with having a service based economy, but not having local manufacturing (even mechanised with low employment factor) means there’s a LOT of profit that disappears into the ether.

    I have a dream about manufacturing recumbent trikes and velomobiles in Australia, and looking around there is the odd manufacturer that can at least stay afloat. But the ones overseas can make trikes *so much cheaper* (we currently have the cheapest velomobile in the world before freight though). My biggest fear (that isn’t design related) is that someone overseas will see what I’m doing and do it cheaper.

    Are the overseas trikes a lower quality product? Are Australian manufacturers tacking on too much profit margin? Or is it truly economies of scale? You’ve actually had some experience with this industry (and have made a trike or three), so I hope you can help explain.

  2. Julian Edgar said,

    on June 19th, 2016 at 4:03 pm

    I haven’t been following recumbents for a while (though just today my 11 year old son got one of mine down from the high storage in the shed) but I know even Aust manufacturer Greenspeed was getting some of their trikes made off-shore.

    I can’t see Australia being competitive EVER AGAIN in terms of manufacturing. The brains behind the product and its development – sure.

    I don’t see the point of lamenting this – instead, we should be developing fantastic new products and having the donkey work done by others who, for a whole range of reasons, can do it much more cheaply.

    As a tangential example, take the submarines. Having seen what happens in an advanced Western democracy when the government lets one of its cities fall by the wayside (see Detroit, USA), I don’t bemoan Adelaide getting lot of money to build submarines. But I bet that we could have got a better final product at a lower cost built offshore. So let’s be honest about it – we’re spending money in SA for social (and therefore political!) reasons, not economic ones. It’s not about establishing a manufacturing industry (or maintaining one), it’s about spreading our wealth more evenly.

    Rather than the government pretending that manufacturing will continue in Aust, it would be better for them to fast-track manufacturing deals between Australian ideas industries and Chinese (as an example) manufacturing industries.

  3. Philip Armbruster said,

    on June 19th, 2016 at 4:19 pm

    In Australia’s case I believe that the Government had a big role to play in the demise of Australian manufacturing by allowing the “enclave” of mining to drag the Australian dollar to ridiculous levels eg USD1.10 in the last couple of years.

    If the Government had slowed down the mining boom by increasing export taxes the dollar would not have reached such levels .
    An example comparing say a Commodore to a Mazda 3. Would the Mazda 3 still be the most popular private car in Australia if it cost say $5000 more than a Commodore. I think not.
    In addition some of the Government regulatory actions are just plain dumb. How about giving Ford hundreds of millions to develop a 4 cylinder Falcon, and then disqualifying it from Government tenders as it was not Green enough by 0.5 of a point.
    How about governments at all levels buying token Priuses and then giving them to the least desirable areas and letting Shopping centre owners squeeze up parking spaces even though this is forbidden by law, making drivers think that a Falcon or Holden is just too big .
    How about letting the fuel companies rip with fuel pricing with no oversiight?
    How about having tax breaks that allow buyers of Twin Cab utes to claim all mileage as business and be tax deductable. Its no wonder that this is the fastest growing segment in the car industry.
    I could go on but what is the point? I am becoming a cranky old man
    Regards Philip Armbruster

  4. Ben Powell said,

    on June 19th, 2016 at 5:43 pm

    My main question is: Why is it that Australia is uncompetitive in manufacturing?

    On a slightly related tangent, what *does* Australia produce? As in we are an island nation surrounded by not-really-allies. The political world could change, China could become unfriendly, and there goes the ability to get half (pulling number out of thin air here) our stuff.

    On your last point in the main post: I don’t see the two as really comparable. Food is still grown locally, just by less people. What we are doing with manufacturing is similar to sourcing all our food from overseas and not exporting any ourselves.

  5. doctorpat said,

    on June 22nd, 2016 at 2:23 pm

    But are we actually producing less manufactured goods? The employment is way, way down of course. But in terms of commercial value of production we are at an all time high. (This is likely to dip when the car factories all shut at once.)