What is Australia’s economic future?
With the announcement that Holden will cease manufacturing cars in Australia in 2017, it’s time to consider Australia’s broader economic future.
This week, General Motors’ Australian arm decided to surrender to a difficult market and close its factories in Adelaide and Melbourne, costing more than 2,900 people their jobs. The news of Holden’s demise was disappointing, if not unexpected. Just last May, Ford announced that it would close its factories in Broadmeadows and Geelong by 2016, thus destroying another 1,200 jobs and cementing 2013’s status as an annus horribilis for Australian car manufacturing.
The future certainly looks bleak. Toyota is now the only car company left that will manufacture cars in Australia and even they have said that Holden’s demise will put “unprecedented pressure” on their domestic operations.
It’s been reported for some time that manufacturing is under pressure, especially with a strong Australian dollar and problematically for the car industry, weak domestic demand for larger sedans. Even looking at the entire Australian manufacturing industry, the Australian Performance of Manufacturing Index is currently at 47.7 (where values above 50.0 represent an expansion of manufacturing activity and values less than 50% represent contraction). This doesn’t bode well.
Of course manufacturing is not alone when it comes to sectors of the economy under pressure. Tourism has been in a slump for years (also victims of the high dollar) and retail spending has been flat as consumers prefer to pay down debt or add to savings rather than spend.
Only a few weeks ago, Qantas announced that it has made a massive loss and will let 1,000 jobs go. The Australian Tax Office will get rid of 900 staff and CSIRO is also making massive cuts to personnel. It’s no secret that the Liberal/National government plan to get rid of 12,000 public servants and with the end of the mining boom looming, more jobs will go in Australia’s mining and resources sector. Even agriculture is struggling with 3 quarters of a million peach and pear trees set to be bulldozed in Victoria’s Goulburn Valley because SPC-Ardmona can’t export their tinned fruit and have had to halve their fruit buy.
In November, Australia’s unemployment rate rose to 5.8%. Such a number looks good internationally, but indicates a weak economy which seems to show little sign of recovering. All of this raises a question about what governments are doing to try to stimulate the economy.
The current federal government seems unwilling to intervene at all, almost goading Holden into leaving Australia. South Australian premier Jay Weatherill was furious, claiming that sections of the federal government were deliberately undermining the process to secure Holden’s future. Whether that is true or not, there’s a lot of talk of ‘sadness’ and ‘dark days’ but not much talk of the manufacturing sector’s future. Manufacturing now accounts for less than 9% of GDP when it was once as much as 27%.
This is a problem.
Ideologically, the Liberal Party is opposed to industry subsidy and the Australian car industry did receive a lot of government assistance over many years. It is therefore not surprising that the current government would object to handing any more money over to Holden (and in fairness they went to an election pledging this). Yet the Liberal Party is the party of business and capital and it seems odd that they would allow manufacturing to decline.
Yet the Labor Party – the party of working people that was in office for seven years – did nothing either.
It almost appears that there’s an unspoken bipartisan agreement in place to silently allow manufacturing to whither. There’s so much hand-wringing about the job losses when they’re announced and yet no-one asks the critical question: “Do we want a manufacturing sector in Australia?”. If the answer to the first question is in the affirmative, then the next question is “How do we help manufacturing to prosper?”.
I think that manufacturing is critical to our future wealth. I cannot think of another first-world country on earth that maintains its standard of living off agriculture and resources alone. I can think of plenty of third-world nations that do. A modern first-world economy must do more than grow or mine its wealth, although I don’t belittle the importance of those two sectors to Australia’s economy. But surely we can be more than a mine and a farm to the world?
We like to convince ourselves that we “punch above our weight” with our scientific research, but this isn’t true. Governments have been cutting funding for research in universities and departments for years and private research is a small fraction of output. Even where we do succeed, if there’s no-one domestically available to manufacture and commercialise our innovations, we lose. This happens a lot.
Education is another service that we like to convince ourselves is exportable to our Asian neighbours. The problem with that is that whilst most OECD nations (and big developing nations like China) are increasing education spending, our governments have been cutting and cutting. Old facilities, falling standards and a poor reputation in key markets have made an Australian education seem less appealing in Asia.
Tourism and hospitality are also suffering. A high Australian dollar combined with geographic distance makes this nation a very expensive place to visit. Tourism and hospitality are also subject to whim and fashion, so whilst they’re an important sector of the economy, they won’t pay the bills on their own.We need manufacturing to tie all these other industries together and to value-add so that we have something that we can export to the rest of the world without the rest of the world needing to come to us. At present there doesn’t seem to be any planning for this from government.
Whether the closure of Holden will mean the closure of Australian car manufacturing, time will tell. The flow-on damage that the Holden factory closures will have an an already struggling Australian manufacturing industry will be considerable.
Without wishing to sound hysterical, I do seriously wonder what plans are in place to ensure Australia’s standard of living is maintained? What are we going to sell to the world in the future?
The standard remedy in times like this is to stimulate domestic building via infrastructure projects or boosting housing construction. Yet as economic growth continues to decline and unemployment slowly rises, people feel insecure and become reluctant to spend or borrow. This reduction in consumer confidence reduces business confidence and the problem compounds. In any case, construction booms do nothing to generate the export revenue that Australia’s economy depends upon.
It really is time that the Commonwealth government (and the states) have a serious discussion with the public about the role of manufacturing in the Australian economy as well as Australia’s economic role in the 21st century. Once that’s had, it’s time for everyone to roll up their sleeves in a fair and equitable manner and make those plans a reality.
None of this is easy, but as a community we simply cannot afford to sit back and watch our industries decline into oblivion.
Comments
3 responses to “What is Australia’s economic future?”
I very much agree and I am quite fearful for our future. Just to add how our economy is partly propped up by high levels of population growth and supplying the increasing numbers of people with housing and services. Reliance on a high population growth to keep an economy healthy is not sustainable.
I think it may be better to leave Australia – the reality of our future is even worse than we could imagine – we are getting stupider as a nation. Even the people that run the place have become stupid over time. We are getting lazier too. It has been years now since I have met a hard working Aussie. I am so sad over the state of this country. I am moving to Germany in December and I am looking so forward to a new start. I know of 7 others who are shifting from here to other countries too. It was so easy to get a job overseas too. I still remember the time I went to Brisbane for 2 months and could not get a job to save my life. Farewell you guys and hope life improves for you all. Hope is all you have left.
You don’t have to be an economist and you don’t need to ever have studied economics to understand that Australia is headed in the wrong direction and that the economic future of Australia is very bleak. You only need to consider two basic things to realise that this is true:
1) Once the mining boom is over and the manufacturing industry has shut down, Australia will not be producing anything of value that it can sell to the international market.
2) The Australian people are lazy, complacent and stupid. No one really cares about this as they only care about going through their private day to day lives and earn money from the Centrelink as if they are entitled to earn it. The Centrelink/Medicare systems are vastly unsustainable, especially if employment is rising. If more people become unemployed, then there will be less tax revenue and hence it will be impossible to provide Medicare and Centrelink.
Australian universities keep glorifying lawyers, doctors and finance people but these people will not create money for anyone other than themselves (and large corporations by finding legal loopholes to rob people). What will increase the money of the country is products and services we can sell, like resources, manufactured goods, technology, financial services, etc.
The House of Parliament is a zoo. On paper lawyers and doctors are very well educated and civilised people but put 150 of them in the same room and you have something worse than a zoo. Instead of focusing on the problem and trying to solve it, they instead criticise each other for the benefit of no one. If you go on websites like Whirlpool Forums, you see the exact same thing, numerous users with 20,000+ posts arguing and criticising each other endlessly. Unfortunately for them, those countless houses they spent debating on Whirlpool Forums aren’t good enough resume credentials to help them find a job in this economy.
I will leave this country, I will go to Asia, Europe, Canada or the USA, or anything really. Yes, Australia has a great standard of living, but it won’t last for ever whether you like it or not. The USA’s economy took a hit but it is recovering now, because their government is slightly more intelligent than ours. Europe and Asia on the other hand have a great future because they focus on activities that have value like manufacturing and technology. Here is Australia society views manufacturing and technology as worthless, they even go as far as saying that the internet is a “video streaming service.” The Europeans don’t view “trades” as second class citizens but they push their young to learn to make things and start working at great companies like Volkswagen, BMW, etc. at a young age and have the option to continue their education later. Here in Australia, we push them to become money loving, heartless doctors or useless lawyers and financial analysts.
Considering that there are only around 23 million people in Australia, one expects that unemployment is zero but the people are too stupid to make use of this massive land.
You talk to people and they say “we have natural resources and they won’t run out in our lifetimes so there is nothing we have to worry about.” With that attitude I don’t think there is an easy solution to the economy of Australia so I will gladly leave.