By Dr Jim Stanford
The COVID-19 pandemic has reminded Australians of the importance of being able to manufacture a full range of essential equipment and supplies. And the COVID recession has created a large economic void that a revitalised manufacturing sector could help to fill in coming years.
The Centre for Future Work has released a new report, A Fair Share for Australian Manufacturing, arguing that manufacturing can play a critical role in rebuilding the national economy after the pandemic.
Australia will desperately need the investment opportunities, the innovation, and the high-quality jobs that are associated with manufacturing.
The report describes the strategic importance of the manufacturing sector to Australia’s future prosperity.
It provides an inventory of policy tools that could help rebuild the sector to a size proportional to our domestic needs for manufactured products.
And it sets an ambitious but reasonable target for the sector’s future revitalisation: suggesting that Australia should aim to produce, in aggregate, as much manufactured output as we consume.
While the report documents the decline of domestic manufacturing in recent years, it also reveals the enormous potential benefits that would be generated by rebuilding manufacturing back to a size proportional to our national needs.
The report suggests that if Australia’s manufacturing output matched its annual purchases of manufactured goods, several key indicators would show tremendous and badly-needed growth: including $180 billion in new sales, $50 billion in additional GDP, and over 400,000 new jobs.
Other key findings of this research include:
- Australia ranks last in manufacturing self-sufficiency among all OECD countries. Australians use $565 billion worth of manufactures each year, however, we only produce $380 billion. Therefore, Australia produces only 68% (just over two-thirds) of what we use: less than any other OECD economy.
- The COVID-19 pandemic has highlighted the strategic importance of domestic manufacturing capacity. Disruptions in global supply chains and protectionist trade policies by foreign governments have increased risks we might not be able to access essential products (like health equipment and supplies) when we need them.
- Manufacturing is not just ‘another’ sector of the economy. For several concrete reasons, manufacturing carries a strategic importance to broader national prosperity and security.
- Australians purchase and use more manufactured goods over time; and manufacturing output is growing around the world. Allowing domestic manufacturing to decline, while our use of manufactured products grows, undermines national economic performance.
- Manufacturing is the most innovation-intensive sector in the whole economy. No country can be an innovation leader without a strong manufacturing base.
- Manufactured goods account for over two-thirds of world merchandise trade. A country that cannot successfully export manufactures will be shut out of most trade.
- Manufacturing anchors hundreds of thousands of other jobs throughout the economy, thanks to its long and complex supply chain. Billions of dollars’ worth of supplies and inputs are purchased by manufacturing facilities, supporting many other sectors of the economy.
- Manufacturing offers high-quality jobs, full-time hours and above-average incomes. And thanks to strong productivity growth and the capacity to apply modern technology, manufacturing offers the prospect of rising incomes in the future.
If we rebuilt a manufacturing sector that was broadly proportionate to our needs, our manufacturing industry would grow by almost 50 per cent – generating enormous benefits in jobs, incomes, innovation and exports.
The full report can be accessed at the Centre for Future Work: A Fair Share for Australian Manufacturing: Manufacturing Renewal for the Post-COVID Economy.
Jim Stanford is an economist and Director of the Centre for Future Work.
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