The Federal Government’s announcement yesterday must be seen as a start and only a start to reversing many years of neglect and complacency in relation to the role of manufacturing in a modern economy.
And it is a start to developing a coherent and effective national industrial strategy for Australia comparable with other advanced economies.
How did we get to the point where manufacturing has declined from 30 per cent of GDP to less than 6 per cent, the lowest proportion of any OECD country?
Tariff reductions in the 1980s and 90s were supposed to accelerate the transition from vertically integrated mass production industries to ‘smart specialisation’ by small and medium enterprises in global markets and value chains.
And they did so to a large degree, but the high dollar associated with the mining boom made even our most efficient manufacturers uncompetitive. And then we had the Global Financial Crisis.
Manufacturing decline was compounded by the Government’s failure to support Australia’s research and innovation system.
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R&D as a proportion of GDP fell from 2.25 per cent a decade ago to 1.79 per cent now, well below the OECD average of 2.4 per cent and countries like Germany, Switzerland and Korea with over 3 per cent. If manufacturing is to compete in global markets on value rather than labour cost, investment in research and innovation is key.
So how does the Morrison Government‘s package measure up?
$1.5bn is nowhere near where the public funding commitment should be when other countries are committing multiples of billions, but it’s a welcome first instalment in restoring past funding cuts and setting a new direction for the economy.
Earlier arguments for a post mining boom transition to a more dynamic and knowledge based economy were ignored up to now, but Covid-19 exposed our vulnerability and provided a ‘stress test’ for economic orthodoxy.
We now have the prospect of a coordinating focus for industrial strategy through an enhanced Industry, Innovation and Science Australia agency and a network of major collaborative industry projects and clusters to translate research to commercial outcomes.
Over the next few months to the May Budget, the idea is that we must land on a new structure for the implementation of industrial strategy, and from there further co-investment with industry, universities and CSIRO will have a more coherent, evidence based operating model.
Yes we have been here before with the Howard Government’s ‘action plans’, the Rudd-Gillard ‘innovation partnerships’ and the more recently devised ‘industry growth centres’.
And there’s still a lot missing, not least the development of world class workforce and management skills. Will this time be different? The scale of the challenge we now face suggests it must be.
Professor Roy Green Roy is Emeritus Professor at the University of Technology Sydney and Conjoint Professor at the University of Newcastle. He is also Chair of the Advanced Robotics for Manufacturing Hub and member of the Board of the Innovative Manufacturing CRC and Research Committee of the Centre for Policy Development. He is also Chair of the Port of Newcastle and a member of the editorial advisory board of @AuManufacturing news.
This article was first published on the AuManufacturing website.
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Fully endorse Professor Roy’s views. In fact Pandemic emergency period was a very good ‘blessing in disguise’ opportunity for Australia to create 2 to 3 Fully 100% liberal Economic Zones in the coasts or inland for firms to fully determine wages and labor laws for boosting manufacturing. There are still few sectors where the country manufacture various products as there is innovation and knowledge base in CSIRO and universities. Secondly, for a number of products the country should get into networking mode of dispersed innovation with manufacturing outsourced in Asian countries like India and Vietnam. At the end of the day this is the Apple model. USA only has a design and creative centre and all 80% of manufacturing and assembly is completely outsourced to some dozen countries in the world. Thirdly, Australian business mindset should go out of digital and ICT based software and begin thinking of hardware manufacutring.