Business 21C - Published by UTS Business

If a country’s standard of living depends on its capacity to make, grow, or dig things out of the ground, how does Australia’s manufacturing sector rate in the global race to exploit new platforms and to elbow a path up the value chain, asks Senator Kim Carr, Federal Minister for Innovation, Industry, Science and Research.

In the wake of the financial crisis, there is a renewed understanding that a country’s standard of living ultimately depends on its capacity to make things, grow things, or dig things from the ground. A study of manufacturing status in developed and emerging economies reveals some startling parallels in the strategies that countries, including Australia, are adopting, as they attempt to invigorate their manufacturing sectors:

• to build competitive advantage by investing in skills and knowledge.
• to exploit the latest platforms, from nanotechnology to ICT.
• to elbow their way up the value chain.
• to race to the top.

Australians spend so much time worrying about competition from newly industrialising countries in the Asia-Pacific that we sometimes forget we are also competing against other developed countries. Manufacturing in North America and Europe may have fallen behind those of faster moving developing countries with cheaper labour costs, but it is modernising fast.

Of course, the newly industrialising economies are making changes of their own. None are planning on being a low-cost producer of low-value goods forever. They are all making their own push up the value chain, and some are making very rapid progress.

China, for example, has moved ahead of the European Union, the United States and Japan to become the world’s largest exporter of high-tech goods – aerospace equipment, armaments, ICT and other electronics, pharmaceuticals, scientific instruments, chemicals and advanced machinery. And that’s China minus Hong Kong, which itself ranks sixth among the world’s high-tech exporters.

Other emerging economies are catching up almost as fast – some with the benefit of government support so pervasive that British politician and Secretary of State for Business, Innovation and Skills, Peter Mandelson, characterises it as ‘state capitalism’.

So where does that leave Australia? Competing against the advanced economies at the top end of the market, competing against the emerging economies at the bottom end, and competing against China right across the spectrum, since for all its high-tech credentials, China is still capable of producing simple goods very cheaply – even India outsources manufacturing there.

We have old industrial powers closely matching our investments in innovation, and new industrial powers pursuing paternalistic policies. We can’t compete on price without cutting Australian living standards, and we can’t close our markets and turn our back on the world without cutting our own throat.

So, do we just throw in the towel?

No. The global contest for manufacturing sales and investment may be brutally tough, but we go into it with some very clear advantages.

• a million skilled and dedicated workers.
• a manufacturing sector that generates a tenth of our GDP.
• a sector that, according to the Australian Industry Group started expanding again in August after fourteen months of contraction.
• an increasingly outward-looking and export-focused manufacturing sector – with exports worth more than $92 billion last financial year
• manufacturers who understand the importance of innovation, accounting for nearly a third of all business spending on R&D.

Beyond manufacturing itself, we have outstanding public sector research capabilities, which rank well inside the world’s top twenty on the standard measures of research output and impact. That’s pretty good when you think we rank 55th on population, but I believe we can do better. We should be aiming for top ten.

One thing we have not had historically is strong links between public researchers and private sector research and development, but there are currently initiatives to fix that:

• mission-based funding compacts with universities to give them a clearer focus on innovation and industry engagement
• encouraging closer collaboration between industry and public research agencies
• introducing specific programs to support collaboration as part of the Federal Government’s Powering Ideas innovation strategy.

The Federal Government’s blue print innovation strategy, Powering Ideas – which I have to acknowledge is my own baby ­– should be considered in any account of advantages that Australia has over other nations in its endeavour to compete as a global manufacturing force.

Powering Ideas, is a long-term strategy for reform backed by an immediate injection of $3.1 billion in new investment over four years. Powering Ideas includes a range of initiatives from financial incentives, such as the R&D Tax Credit (the most significant reform to business innovation support in more than a decade), to support programs, notably Commercialisation Australia designed to assist talented researchers, entrepreneurs and innovative firms take their ideas to market. Commercialisation Australia will begin operating in January 2010. The Commonwealth will spend around $8.6 billion on research and innovation this financial year, 25% more than in 2008–09.

It is important to include in this discussion of Australia’s advantages the extraordinary resilience of the Australian economy. Australia has come through the global recession in better shape than just about any advanced country. Credit must go in part to the flexibility and goodwill displayed by workers, unions and managers in the manufacturing sector, which has been instrumental in keeping people employed – even if it is, in some cases, on short time. This has been great for workers and their families, who still have pay packets coming in each week, but it is also great for the industry. It means that as the global economy recovers, firms will be ready with immediate access to the skills and experience they will need to make the most of an upturn.

We have come through the recession with:

• a strong and growing economy
• levels of unemployment which, while still unacceptable, are nevertheless low by international standards
• productive capacity intact
• a sound financial system – even if it needs a kick in the pants to get it investing in manufacturing again.

These are real positives, but the edge they give us will diminish as the rest of the world bounces back. We should make the most of them now, while we continue to work on our long-term strategy. After all, you cannot build a future on the Bradbury Principle ­– play safe and hope your competitors fail.

The Federal Government’s long-term strategy for manufacturing strength is expressed in a range of Federal Government initiatives: Powering Ideas, Enterprise Connect, the Education Revolution and the National Broadband Network. It is to lift Australia’s innovation capacity and performance by increasing connectivity and collaboration, by recognising and rewarding creativity and stimulating the production and application of new ideas – ideas that will one day form the basis of new industries.

If other countries are following similar strategies, we have to work harder and smarter. We have to be quicker on our feet, bolder in our thinking, and braver in the face of risk.

If we do things, we can win – without waiting for others to fall over. If we fail to do them, we have nothing to look forward to but declining living standards and global irrelevance.

That’s the choice Australia faces. That’s the choice we should hold before us as we deliberate on the way forward for Australian manufacturing – today, tomorrow, and beyond.

Abbreviated from a speech by Senator Kim Carr, Federal Minister for Innovation, Industry, Science and Research, to the Manufacturing Alliance Australia Manufacturing Roundtable, 28th October, 2009, Federal Parliament, Canberra.

You can also leave a response, or trackback from your own site.