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Why the fuss about the manufacturing industry?

By Ian McAuley - posted Monday, 26 September 2011

The decision by BlueScope Steel to shed 1000 jobs, and the more recent release of ABS labour force data showing a loss of 40 000 manufacturing jobs in the last three months, have understandably re-ignited debate about trade and industry policy.

Can our manufacturing sector survive when it is threatened by high exchange rates? Have we really benefited from free trade policies pursued by successive governments, Labor and Coalition?

Without downplaying the impact of these job losses on those involved, and on the Wollongong community, it is useful to put them into some perspective.


Our labour force is constantly churning: every month about 40 000 full-time employees become unemployed, and a roughly equal number of unemployed gain full-time employment. Of course this process is not painless: for many it involves the anxiety of a period of joblessness, the devaluation of skills and the wrench and expense of re-location.

Also, our loss of manufacturing employment is not a recent development. Both in terms of its share of the economy (percentage of GDP) and share of employment, manufacturing has been steadily declining over many years. In 1984 manufacturing accounted for 17 percent of employment and 14 percent of GDP. By now, it counts for about 8 percent of employment and 9 percent of GDP.

The rapid decline in employment almost certainly results from increasing capital intensity, as labour-intensive activities such as light metal fabrication and clothing manufacturing have shifted offshore, prompted by the wind-down of tariff and related assistance. Also, this decline is probably over-stated, because many manufacturing firms over that period have contracted out some of their activities, such as payroll management and transport, thus leading to different statistical classifications.

These figures are about manufacturing's share of the economy. But what may come as a surprise is that in absolute terms, manufacturing was on a growth trajectory until around the turn of the century – a period of vigorous tariff reductions – and has held its own since.

So, the detached observer may ask, why the fuss? And why are we particularly concerned about manufacturing?

Kevin Rudd gave us part of the answer, when, in his election campaign, he said "I don't want to get to a stage where this country doesn't make anything anymore." Ever since the industrial revolution got underway, manufacturing has been symbolic of modernization. In a process that was not always benign, industrialization was the path from feudalism to capitalism, and it aided the rise of a prosperous middle-class.


This process was particularly important to the labour movement, because factories were concentrated sources of union members. Also, the idea of making something, of working with physical materials, rather than sitting in an office shuffling paper or pixels on a screen, is one we hold dear. Just ask any home handyperson, amateur chef, or enthusiast who restores an old car.

Yet, in thinking about manufacturing as the only sector that makes things, we may be too influenced by statistical classifications. Our construction sector, for example, is about making things – houses, skyscrapers, bridges – and, being so dependent on the whims of fiscal and monetary policies, has a much rougher ride than manufacturing. That sector takes the relatively simple commodities of manufacturing such as steel and cement and transforms them into high value-added structures.

Nor is making things the only ways we use high-level skills – think of surgeons, pilots and computer scientists. We too readily accept the "flipping hamburgers" portrayal of the service sector.

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About the Author

Ian McAuley lectures in Public Sector Finance at the University of Canberra and is a Centre for Policy Development Fellow.

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