The major economic reforms no one voted for
by Bernard Keane

Australian manufacturing is now in its longest period of decline since 1990s recession, and there’s no evidence the decline is about to end.

Until early 2009, despite declining as an overall employer, Australian manufacturing had maintained a base level of jobs; there were peaks and troughs, but the sector had not undergone the sort of huge drop seen in the early 1990s as the recession struck and tariff reform got under way. The early 1990s reversed the strong growth of the late 1980s, and manufacturing as an overall employer fell, but the sector maintained a level of about 1.1 million jobs thereafter.

Australian manufacturing jobs 1984-2011



From early 2009, the sector went into territory it had never been in before in modern times, plunging below 1m jobs and well below 10% of the workforce.

Like the fall in manufacturing jobs in the early 1990s, this is economic reform at work. That’s partly because a high exchange rate is the consequence of floating the currency in the 1980s (and the automotive tariff reduction process is still ongoing, with tariffs falling to 5% in 2010 and scheduled to be eliminated in 2015). But the key reform driving the collapse in manufacturing isn’t one determined by Australian politicians, but by Chinese politicians; the China-driven resources boom that is hammering our manufacturing sector is a giant example of offshoring our economic policy.

Unlike the reforms of the late 1980s and early 1990s, however, this time there are other jobs to go to for manufacturing sector employees; indeed, the bigger problem in some areas is too few workers, not too few jobs — the sort of outcome that would have been the cause for wild celebration in the 1990s.

With such a rapid and persistent decline in manufacturing, even the wilder forecasts of the likes of Bluescope Steel about the impact of a carbon price are likely to be a blip compared to the longer-term reform started by Deng Xiaoping and continued by his successors.

So the oft-made comparison between a carbon price and the GST is probably irrelevant; neither really stack up in terms of impact, not to tariff reforms or the floating of the dollar, and not to China.

While manufacturing is the industry most visibly hit hard by the higher dollar, the currency has combined with another long-term reform our politicians had little to do with, the internet, to put growing pressure on retailers and supply chains. Online retailing is now exposing the significant mark-ups enjoyed until now by Australian retailers; the Australia Institute recently produced data on a range of goods showing an average mark-up by Australian retailers of 65% — well above consumer expectations — and in some case ranging up to 140%. The availability of the same goods overseas for often a half or a third of the price before shipping is already being blamed by retailers for sluggish growth, but as online retailing grows it will put more and more pressure on retailers’ mark-ups and, eventually, force retailers to in turn pressure suppliers and distribution networks to reduce prices.

We may not reach the stage of one world price for goods, as Ross Gittins has considered — you only need to open iTunes on the nearest computer to see that retailers and suppliers will try any scam to rip Australians off. But in Australia, where retailers, manufacturers and wholesalers have long profited from our isolation from world markets and consumers’ willingness to pay higher prices — usually because we didn’t know any better — the consequences of the shift to online retailing will ripple through the economy for decades, squeezing out inefficiency and anti-competitive practices in a way competition law will never be able to.

And all from a technology our politicians have, until the Rudd government committed to the NBN, tried in equal amounts to stymie as well as to encourage.

Meanwhile, another economic change is slowly unfolding, one with limited impacts now but major impacts in decades to come. Having linked economic growth to carbon emissions, we’re heating up the planet and changing the climate and Australia is particularly exposed to its impacts. They’re harder to pick from the data now than, say, the extended slide in manufacturing jobs.

For a lot of politicians, simply sitting back and letting things happen is the lower-pain option. Reacting — inevitably with expressions of concern and offers of assistance for the losers from change — is the lower-risk play than being proactive, which requires more policy nous and risks attack from the media and potential losers.