The future of manufacturing in Victoria

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Professor Peter Gahan

Director of the Centre for Workplace Leadership.
Faculty of Business and Economics,
University of Melbourne.

During the last half century, Australian manufacturing employment as a proportion of total employment has been in long-term decline. In the last 20 years  manufacturing employment has halved, slipping from 14.2 percent of the workforce to just 8.2 percent – a fall of almost 50 percent – which has been most concentrated in the states of Victoria and South Australia.


Although many have predicted the eventual death of manufacturing – and some have even suggested it is inevitable – there are a number of reasons why policy makers, especially in Victoria, should invest in the future of manufacturing.

Punching above its weight?

In Australia, manufacturing has continued to deliver high-quality jobs, even in a period where it has been forced to undergo significant restructuring and reform. To begin with, the decline in the size of the total manufacturing labour force has in fact been far less dramatic than the overall decline in its share of total employment. In net terms, since 1994 employment in the sector has fallen from 1.1 million to approximately 950,000 workers – or a decline of around 15 percent.  In fact, manufacturing remains the fourth largest sector in the Australian economy in terms of total jobs, behind healthcare and social assistance, retail, and construction.


Perhaps most surprising has been the resilience in the quality of jobs generated by the manufacturing sector. The key indicators of job quality provided by the Australian Bureau of Statistics data are employment status and whether employees receive paid leave entitlements. In manufacturing, well over 80 percent of jobs are full-time, and the majority of these come with the full suite of employee benefits, including paid leave.


In other words, there has been a relatively low propensity to turn manufacturing jobs into less secure jobs through casualisation or the use of independent contractors. While these proportions have declined since 1993 – the sector has generally maintained a high proportion of standard jobs.


We can compare this situation to the quality of jobs created in those industries that have been responsible for generating enough jobs to absorb Australia’s expanding labour force. The retail sector accounts for around 11 percent of the labour force – or 1.25 million employees. Of these just over half are employed part-time (50.8 percent) or receive paid leave entitlements (53.4 percent). In construction, while the overwhelming majority of workers are employed full-time, fewer than half receive paid leave.


All in all, the evidence overwhelmingly suggests the Australian manufacturing sector has, even in a period of decline, continued to represent a core source of economic prosperity for Australia – and should continue to do so. In short, it has outperformed many other sectors in terms of its contribution to Australia’s sustained economic performance and its capacity to generate quality jobs. It still produces around 6.5 percent of Australia’s GDP.


The Australian manufacturing sector needs both market-based competition and concerted action from governments, industry leaders, unions and those cities and regions dependent on the health of sector for their future.


The Abbott government’s recently launched Industry Innovation and Competitiveness Agenda makes clear the national government will seek to grapple to the critical economic policy dilemmas - slow productivity growth, disruptive technologies, and the need to rework business regulation to meet the new policy environment post the global financial crisis – while implementing long-overdue reforms in the manufacturing sector.

Going for growth

Perhaps the core initiative, and the one that represents a significant shift from current industry policy settings, is the announcement to fund five “growth centres”. Modelled on similar initiatives in the US, UK and Canada, A$188.5 million will be spent to establish growth centres in five high potential industries for government support - food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing. This initiative recognises the importance of government working collaboratively with industry to locate areas of competitive strength.


They explicitly recognise that, alongside competition and well-functioning markets, innovation and competitiveness requires a degree of coordination and collective action among firms, government and other industry stakeholders to be able to develop a healthy industry level “ecosystem”. Markets alone will not create a sustainable competitive advantage for small and large firms.


Whatever form they take, growth centres will, in the end, need to meet two key tests to be successful – an economic and a political one.


The economic test will be whether they can truly spawn new industries and opportunities for job growth – particularly where the aim is to redirect government support away from failing industries towards firms that demonstrate potential to innovate and shift into advanced, value-added manufacturing.


Disruption will surely generate demands for protection and subsidies to avoid job losses or underwrite the costs of weathering economic restructuring that will surely follow. The reform process enables government to bring everyone along on what may be a rough ride with many losers as well as winners.

The role of state government

Beyond the big policy levers available to national governments, one can ask what possibly can state governments do to alter the course of manufacturing?


For one, whichever side is in power after the November 29 election, they will face the responsibility of assisting the manufacturing sector in transition.  State governments on this score will be evaluated using a different yardstick to that used to measure the success of national policy. 


National policy is about accelerating the change, ensuring that the sector can adjust to the new economic realities it faces as quickly as possible.  That of course will generate disruption and create clear winners and losers.  The state government will be judged not so much on how this transition occurs but how the disruption and loss is minimised at the local economy level. 


There are also great opportunities for Victoria’s next state government.  Whichever side wins government, they will need to articulate a clear vision for the manufacturing sector, and in particular what role the traditional heartlands of manufacturing – in Geelong and Melbourne – will play in that future. As the NSW government found following the departure of BHP steel operations from Newcastle and Wollongong it also presents a once in a 100 year opportunity to reshape the fundamentals of regional economies, perhaps in ways that will define electoral sentiment for some time to come. 


Just what that vision might be remains to be made clear by either side.


Peter Gahan is Professor of Management and Director of the Centre for Workplace Leadership at The University of Melbourne.