Bobby. wrote on Aug 13^th, 2024 at 3:31pm:


I worked in the UK 1977-1979. It was a terrible place with poverty and rubbish blowing about on the streets.

UK families could not afford roast dinners of any kind, including road kill.

Uk Wage growth from 1973 to 2024 did no more than match inflation. So UK citizens did not move ahead for 50 years.

"Throughout the late 1960s and 1970s, the United Kingdom was sometimes characterized as the "sick man of Europe", first by commentators, and later at home by critics of the third Wilson/Callaghan ministry due to industrial strife and poor economic performance compared with other European countries."

Joining the EU in 1973 saved the UK from total economic collapse:

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Government fund won’t stop Australian manufacturing’s structural decline
6 Oct 2020|David Uren

The federal government sees the revival of Australian manufacturing as a matter of economic sovereignty, yet the annual national accounts highlight the enormity of the task it confronts.

The government is establishing a $1.3 billion fund to cover up to a third of the cost of expanding a manufacturing plant to achieve economies of scale and up to half of the cost of projects to integrate products into global supply chains or bring new research into production.

While there have been numerous government subsidy programs for manufacturers over the years, the investment fund concept is new and appears to be modelled on the Clean Energy Finance Corporation which has supported the expansion of solar and wind energy projects.

There is déjà vu in the six priority sectors identified by the government that will be eligible for the new funding, which encompass resources, food and beverages, medical products, recycling and clean energy, defence, and space.

The Abbott government’s 2014 industry plan established ‘growth centres’ for food and agribusiness, mining equipment, energy resources, medical technologies and advanced manufacturing.

Indeed, the revival of manufacturing has been an ambition of successive governments. On being made leader of the Labor Party in 2007, Kevin Rudd memorably declared, ‘I don’t want to be a prime minister of a country that doesn’t make things anymore.’

As it happened, the Rudd government’s first year in office in 2008 marked the peak for manufacturing output, with the sector contributing $119.5 billion to GDP. The annual value of manufacturing production has dropped since then by $14.2 billion (after allowing for inflation).

Manufacturing has been falling as a share of the economy for a lot longer than that, having peaked at more than 25% in the 1970s compared to just 5.5% now, but it’s only over the past 12 years that the sector’s actual output has dropped. Manufacturing was 40% larger than the resources industry, measured by its value added, in Rudd’s first year, but is now only two-thirds its size.

The decline is destined to continue because investment has not even been keeping pace with the depreciation of existing plant and equipment, let alone providing a base for future growth.

The value of machinery and equipment owned by manufacturing companies has fallen by $20 billion, a drop of 26%, since 2008 (again after allowing for inflation). This includes a 14% fall in IT hardware and a 32% drop in other electronic and electric equipment.

This collapse has been precipitated by the iron law of market economies that says money and labour will flow to where the returns are greatest. And, over the past decade and a half, that has been to the resources and services sectors.

The gains from the China-fuelled resources boom are obvious, but a perceptive comment by veteran industry analyst Phil Ruthven highlights the advantages of the services sector over manufacturing:

The money exchanged from the time of production to consumption is much quicker, so there is a multiplier effect. You pay for breakfast in the morning, the waiter spends it visiting a doctor, the GP pays to get his lawn mown, and the gardener goes to the cinema that night. Try making and selling goods four times in a day.

Manufacturing in Australia suffers from inescapable problems of distance from major markets and lack of scale, which mean it cannot overcome the disadvantage of its high labour costs, as do manufacturers in countries like Germany and Japan.

Australian manufacturers are not hooked into the value chains that have reshaped global industry, with components made or assembled in different countries. The iPhone, for example, draws on components produced by 785 suppliers in 31 countries. As much as half of the value of China’s exports is generated in other countries which sell to China for assembly or further processing. For Australia, the import content of our exports is less than 20%.

OECD research shows that to the extent Australian manufacturers form part of global value chains, they provide only the first links, exporting processed raw materials. Businesses do not send goods to Australia for further processing.

The OECD says, ‘Australian manufacturing stands out as overall being less competitive’; it has an edge in only a small number of niches, such as non-ferrous metals, pulp and woodchips, and food and beverages—all low-technology industries.

Competitive high-technology industries in Australia, such as pharmaceuticals, reflect multinational enterprises establishing local content in part to gain access to government procurement. ...

PERPETUAL MOTION

Australian investors have long had a weakness for fuel-saving devices.

Ever since Ralph Sarich appeared on the ABC television show The Inventors in 1972 and revealed a new type of engine, fortunes have been won and lost on assurances to revolutionise the car industry. Sarich's compact design promised more power, fewer emissions and significant fuel economy. The fact that his Orbital engine remained untested failed to dampen the resultant frenzy. Australia's largest company, BHP, formed a joint venture to develop the technology. Shares that once traded for 20 cents went to $24 each. Investors and analysts brimmed with confidence about the potential for lucrative multimillion-dollar contracts from big car manufacturers.

Governments got involved. During the 1987 federal election campaign, the then prime minister, Bob Hawke, announced that $500 000 of taxpayers' money would be used to assess the viability of an Orbital engine manufacturing plant. He was responding to fears that Australia would lose the project to foreign interests. But the inflated confidence overlooked a number of fundamental problems. Key components of the Sarich engine couldn't be cooled. Others couldn't be readily lubricated. The engine was susceptible to overheating and was eventually deemed too impractical.

By 2004, the Orbital Engine Company had accumulated losses of $480 million, and had defeated BHP, which unloaded its stock in 1998 and 1999 at prices below $1 per share. Sarich had been fortunate enough to get out sooner. He sold his shares for $3 each and did what every sensible millionaire does — he bought property in Perth's central business district.

But the perceived success of Orbital spawned a number of imitators. In 1988, another radical engine design began making headlines. Split-Cycle Technology also promised more power, fewer emissions and better fuel economy. Rick Mayne, the New Zealand inventor, had appeared in Australia two years earlier. He had previously made his living selling caravans and trailers built from second-hand parts, arguing that because the material he used was second-hand, no sales tax was payable.

Mayne sold shares to the general public in his new Split-Cycle venture without going through the usual step of listing on a stock exchange. Instead, trading in the shares occurred at the Split-Cycle headquarters on the Gold Coast and during sweaty revival-hall-style gatherings in packed hotel rooms. One story told by promoters was of the Split-Cycle dealer who made $139 000 running up and down between different floors of the Split-Cycle offices between buyers and sellers. Doctors, nightclub owners and accountants abandoned their careers to join the action, often contacting each other through newspaper advertisements, where the trading was perpetuated. An estimated 111 million shares changed hands.

Stimulating the interest were Mayne's confident assertions. In 1992, he said his engine would be powering its first car within eighteen months. Soon after, he announced the multimillion-dollar sale of development rights to a Slovakian company. He also unveiled plans for an ambitious multi-billion-dollar joint research venture with four major American universities.

The publicity-conscious Mayne enlisted the celebrity train robber Ronald Biggs as a representative, and hired three-time Formula One world champion Sir Jack Brabham to chair the company. At its peak, Split-Cycle was valued at more than $200 million. Mayne, as the biggest shareholder, was worth $50 million. In 1993, he was named as one of Australia's richest people, the owner of a string of exotic cars, including a $670 000 Lamborghini. That same year he was arrested when he returned to his native New Zealand for evading a $1 million tax bill on the caravans and trailers. The tax dispute was settled, but Mayne eventually shuffled off into the sunset, leaving behind thousands of empty-handed shareholders and a posse of frustrated corporate regulators.

Market governance failed to save investors in Red River Limited, once one of the most traded stocks on the Australian Stock Exchange. The company's share price went from 9 cents in December 1993 to $1.85 in early May 1994 after it released test results on a device that claimed to radically reduce petrol consumption using a common garden hose.

Red River had started life as a mining company, and its journey to automotive technology had involved prior stints importing waterbeds, trading confectionery and managing time-share properties. But it hit the big time when tests on its contraption the Econo Power apparently showed a 75 per cent fuel saving on a 1986 Holden Commodore driven over a distance of 1400 kilometres, without any loss of performance or other adverse occurrences. The Econo Power involved installing a separate water tank in the boot of the car, converting the water into vapour, then combining it with petrol before injecting the mixture into the engine. The company was expected to complete further independent trials with a major automotive company or university within four months. But only days after going public with the test result, the car burst into flames. ...

Bobby is right on the money about 'value adding'