29 March 2012
Sector makes its case
The Australian Financial Review
Dick Warburton has never been a man to mince words. He insists that Australian manufacturing is "fighting for its life'' and that radical change is urgently needed for it to survive.
The screams from the manufacturing industry have been growing louder for some time – especially as it is squeezed by the toxic combination of increasingly high costs, high regulation and a high dollar.
But Warburton and a group of chief executives from seven major manufacturers are trying to put together a more coherent, sophisticated policy agenda to address some key problems.
Whether this will lead to a coherent and sophisticated response from Canberra – or indeed from companies – is still dubious. Aid for manufacturing companies in Australia has too often consisted of emergency packages, neatly packed up in good intentions and promises of major reform which rarely eventuate. Hands up the car industry. Complaints from manufacturing have often – rightfully – been dismissed as calls for help to avoid adapting to a world where companies must offer something special.
The debate over the impact of the resources boom "hollowing out'' the rest of the economy is the latest version of this. Manufacturing now employs just over 8 per cent of the workforce and represents less than 10 per cent of GDP. It still claims, correctly, to be a strategic industry, critical to Australia's long-term capacity to develop the sort of skilled employment and innovation that spills over to all other sectors.
But the resources industry too is a very skilled sector that is also encouraging the development of high-tech mining services and products, some of which can be designed and made in Australia to be globally competitive and innovative.
None of this indicates that Australia should rely on its limited ability to keep manufacturing a range of mass market products that can be made more efficiently and cheaply elsewhere. Likewise, the idea that unprofitable manufacturing companies or sectors should be supported to somehow return in glory "when the mining boom ends'' or the currency falls is an expensive illusion.
But it is true that manufacturing has been struggling with too many problems not of its own making.
Manufacturing Australia – where Warburton is executive chairman – insists that the group's four-point plan unveiled yesterday is not asking for a bailout. He acknowledges that the usual approach of having companies in trouble rushed into intensive care to be patched up with taxpayer subsidies is simply not sustainable.
But his argument is still that the manufacturing sector is the "value-adding lifeblood of a balanced economy'' and must be supported by a co-ordinated approach by governments and regulators.
Manufacturing Australia is hardly a low-level group itself. Apart from Warburton, it includes the chief executives of BlueScope Steel, Boral Cement, Capral, CSR, Incitec Pivot, Rheem, Amcor and Dow Chemical, headed by the Australian-born Andrew Liveris who is also a key adviser to US President Barack Obama on advanced manufacturing.
The group is concentrating its efforts on four areas of reform: improving the industrial relations climate; strengthening anti- dumping regulations; rolling back costly, inefficient and inconsistent levels of regulation; and requiring gas producers to allocate a percentage of their gas for domestic users at below world prices.
The most contentious will be the last option.
This would overturn decades of Australian thinking in terms of the benefits in adopting competitive world pricing for resources, be fiercely resisted by the exporters and leaves itself open to rorting and distortion of the market. But it is one of those national debates worth having, if only to clarify hidden costs – including from Australia's version of the free market model.
The manufacturers' call for better anti-dumping regulations and customs enforcement will also meet with scepticism about the real aim being a desire to restrict cheap imports. The risk is the disadvantage to other important sectors of the Australian economy – including consumers.
More evidence is needed that greater attention to enforcement of anti-dumping regulations would produce worthwhile results for the national economy. Even so, it is worth looking harder at whether individual examples constitute a larger problem.
In contrast, the need for a better industrial relations system is a standard call as the stultifying effect of the new industrial relations laws becomes more obvious. But the laws have a particularly damaging effect on manufacturing, where a co-operative and innovative workplace culture is essential to withstand the global trading forces arrayed against it.
Manufacturing Australia says that the direct relationships with all employees are undermined by providing avenues for third-party intervention – unions – and extending enterprise bargaining well beyond issues directly related to employment.
Boral's Mike Beardsell lamented yesterday it was now a lot easier for a company to say it would shut up shop and move overseas rather than talk about co-operating to make a factory more efficient.
Nor is it just on land. James Fazzino of Incitec Pivot says it is getting to the point where it is more cost-efficient to send its fertiliser from Townsville to India than to Melbourne.
A less obvious but equally damaging problem for manufacturing companies is the myriad overlapping and often contradictory state and federal regulations. Matt Sexton from Rheem says his company employs 90 engineers in research and development and that now more than 50 per cent of their time is spent on compliance – up from 10 to 15 per cent a few years ago.
And let's not even start on the impact of the carbon tax combined with the impact of all those renewable energy targets. No wonder Dick Warburton isn't going to let up.