Friday, 2 January 2015

Some thoughts on industry policy in Australia

Shortly before Christmas 2014, Bernard Salt wrote an excellent column in The Weekend Australian titled ‘Nation may need to look after itself’.

He discussed the gradual loss of key national capabilities that may be seen as vital to an island nation that depends upon exports for its prosperity, and mentioned the importance of ‘retaining core capabilities for strategic reasons’. I wrote to tell him I couldn’t agree more, but I believe the issue goes well beyond the defence sector.

As a nation we are losing our ability to design and manufacture things. The economists would have us believe that we shouldn’t build anything that we can buy cheaper, but this (only relatively) sensible view seems increasingly to get mis-interpreted and re-stated incorrectly as ‘We shouldn’t build anything at all’.

A friend of mine, Peter Smith, has begun researching a doctoral thesis at the University of South Australia that partly addresses this topic. Peter has spent a lifetime in the aerospace and defence industries and recently made an excellent presentation at the University of Sydney’s 75th anniversary aeronautical engineering conference. He makes the point that government shouldn’t do for industry what industry should do for itself, but government must do for industry what industry can’t do for itself, citing the example of Canada, a country with a comparable population and level of technological development.

Government policy in Canada, which is designed to facilitate the development of a sustainable aerospace industry, has resulted in a sector that turns over $22 billion a year (Australia turns over $4 billion); employs 66,000 trained engineers and technicians (Australia employs 14,000), and exports 80% of its output (Australia exports 25%, at most). What a contrast in economic outcomes!

The University of Sydney likely has a copy of Peter’s presentation, if you’re interested.

The attitude of Australian officialdom to the manufacturing sector is extremely dry; it does not appear to be moistened by much in the way of insight or understanding. Yes, commodity-style goods such as cheap cars, consumer electronics and paper clips may best be imported from low-cost producers. But relatively high-cost producers such as Australia, Canada, Sweden and the UK can and do compete on value, not cost (though the distinction is sometimes ignored within policy-making circles), in areas such as aerospace, defence equipment, biotechnology and other high-end technical sectors.

Highly educated Australians are in demand overseas, working in these and other sectors such as Formula 1 motor racing. Why do we educate and train engineers and scientists, and complain loudly that not enough students are studying STEM subjects at school and then at university, if government policy, by a lazy or ignorant default, is to allow the manufacturing sector to wither and die in any case?
Is it government policy that the manufacturing sector should eventually fail? Do the policy makers actually understand what goes into creating and sustaining a credible industry capability, in any sector? And do they understand the benefits we as a nation will forego if our manufacturing industry is allowed to fade away? 

Peter Smith highlights the contrast between Australia’s aerospace industry policy, on the one hand, and the UK’s aerospace and high-technology industry sector policies, on the other, and finds us badly wanting, both in terms of policy development and the measurable economic benefits that flow from an enlightened policy position.

As a nation we’re not taking a mature, joined-up approach to this problem, and what debate there is in this country isn’t getting enough exposure on the air and in the public prints.

Sincere thanks to Bernard Salt for raising in a national newspaper an issue more people should consider in detail, not just comparing sound bites and the volume of the primal screams from some of the participants in what has been so far an unenlightened and unenlightening debate. 

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