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Tag Archives: manufacturing

Open letter to Simon Birmingham

The Weasel often writes letters to elected officials… as the dictum goes: If you smell something, say something.

The most recent pronouncement by our erstwhile federal education minister that creative careers were a lifestyle choice had a particular odour. The lack of response from the reigning opposition parties also left much to be desired. So while the intended recipient for below missive was originally for Mr Birmingham; I encourage you, good reader, to freely appropriate the text and send to all those elected officials you believe would benefit from my educational inquiry.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dear Minister Birmingham  [or insert name of senator or MP here]

I am writing to you regarding recent comments [by the Federal Education Minister] that described creative careers as a lifestyle choice.

I would like to enquire why the government of the day is ignoring the actions of most other technologically developed nations. In the UNESCO Science Report: towards 2030, creative industries are identified as key drivers in revitalising manufacturing sectors, and on-shoring production or services that in previous decades been shifted to less expensive markets.

The U.K., France, South Korea, and Germany all have policy that explicitly links creative industries to programs designed to build or enhance innovation; and gain competitive advantage in the shift to Industry 4.0. Many countries now have dedicated creative industry hubs to create and enhance networks and connectivity between creative professionals and other industries.

To state that creative careers are a lifestyle choice ignores the essential function of cultural events in our society. It ignores the economic contribution. It ignores the contribution to the expression of the Australian character by thousands of actors, painters, dramaturges, designers, editors, architects, writers. Finally, it ignores the contribution that trained creative’s deliver in innovative thinking to thousands of Australian businesses. You can read more about how vibrant and vital creative professionals are on the AusTrade website.

If the current government is truly serious about innovation, then engagement and investment in creative careers and industries is essential. Design thinking is inherent in all creative pursuits, and those are exactly the structured innovative skills Australia needs to regain economic strength.

In the new knowledge economy, superior creative thinking can conquer limitations of scale or distribution. The emerging decentralised, interconnected, and data-rich manufacturing landscape has opportunities waiting to be discovered and exploited; and it is creative professionals who are best positioned to think outside the box, make use of limited resources, and take advantage of connectivity to drive innovation.

In light of all this, I would like an answer to the following questions:

Why does the Education Minister consider creative careers non-essential to the Australian economy?

How does the government plan to succeed with an innovation agenda without using design thinking, or input from creative professionals?

I have included links to some of the sources to which I refer in this letter. I encourage you to investigate them further.
I look forward to your reply

Yours Sincerely

The Weasel

 

austrade.gov.au: Creative-Industries

thecreativeindustries.co.uk/

creative-industries-worth-almost-10-million-an-hour-to-economy

Deutschland creative industries

UNESCO Science report: creative industries driving innovation

https://en.unesco.org/USR-contents

forbes.com: what everyone must know about industry 4.0

World-leading

2015, even at this early stage, has been a year of superheated politics and partisan disagreements. Labor, along with much of the rest of Australia, has been horrified by the Government’s approach to fiscal management. The cruel and heartless policies that are the inevitable result of considering vulnerability and need as moral failings, combined with the protection and mollycoddling provided to the rich and powerful – in the Liberal worldview, the morally superior – have disenfranchised large proportions of the Australian electorate.

In return, the Coalition continues to accuse Labor of profligacy and economic vandalism, of an inability to execute on policies and an amorphous raft of conspiracy theories about union corruption. They fudge figures and misrepresent data to support their contentions. As if Australia’s struggles with productivity and international trade competitiveness were not bad enough, the Coalition chooses to repeal taxes and forgo revenue and call it “Labor’s debt trajectory” when they don’t also remove the associated spending measures. [See, for example, the comments to this article.]

Misrepresentations and political rhetoric aside, there are indisputably economic headwinds in Australia’s future.

At the core of the political wordstorm is a simple cruel fact. Australia is not globally competitive. In a globalised world of trade – the world that Tony Abbott and the government are hell-bent on plunging us into via as many free trade agreements as possible – Australia cannot compete.

Australia – Expensive one day, dirt-poor the next

Australia cannot compete on the basis of manufacturing consumer goods. There is truth to the contention that our industrial relations regime is a drag on business competitiveness. Australians have quaint ideas about fair pay, about the importance of holidays, about the necessity of workplace safety. The hard truth is that the regulations in other countries are not as rigid as they are here. Manufacturing clothes in Bangladesh, as a pertinent example, is far cheaper than making them here. Australians generally feel that sweatshop conditions of virtual slavery are inappropriate for workers and should not be supported. Most of the time, we buy the cheaper clothes anyway. Occasionally a fire in factory makes the news and prompts Australians to check the origin of their goods, but these are temporary distractions.

Australia cannot compete on the basis of services. In a world where India and China, the heavyweights amongst a multitude of other nations all struggling to match America’s prosperity, are likely to have over a billion new entrants to the middle class in the next decade or two, there will always be someone overseas happy to provide the same services an Australian could provide, and for much less remuneration. Australia’s education market is currently competitive, but this cannot be expected to last. If Australia’s status as a prosperous nation were to flag, how long would an Australian university degree remain a desirable achievement?

In a global environment, goods and services can be sold either to a domestic or an international market. The important factor to consider is the trade deficit: the imbalance between goods and services produced by Australians and sold to the international market, and the goods and services produced by international markets and sold into Australia. The trade deficit at present is historically bad – and growing worse. This is the true unsustainability in Australia’s economy.

Australia’s current economy is underpinned by the resources sector. The ‘mining boom’ might be over but resources industries and royalties still bring in a large proportion of Australia’s revenue – at the expense of skills, resources, manpower and economic support to any other part of the Australian economy. The Coalition government is well aware of the imbalance in Australia’s output, and is determined to support the mining industries just as long as anyone, anywhere, is still willing to buy the raw materials we dig up. The deleterious effects to manufacturing, to refining, to science and non-mining industry, are well known, but the Coalition’s forward thinking appears to stretch no further than one or two elections ahead.

With a chronic trade deficit, with an economy utterly reliant on mining industries where the terms of trade are deteriorating with a concomitant effect on the country’s revenue and budget position, Australia is in critical need of a differentiating benefit. Australia has little to offer the world, but Australians have plenty they want to buy from the world. That’s a recipe guaranteed, over time, to make this country the “white trash of Asia”.

Neither major party appears to have a good solution in mind for this need. Politicians mouth about Australia being the “clever country” – whilst presiding over consecutive cuts to science and technology research, removal of subsidies to innovation and cuts to schools and universities, over a long time frame. It is true that science and technology are the underpinning of a progressive and prosperous nation. Unfortunately science and technology are the easy targets for a largely ignorant populace easily turned against “ivory tower academia”.

Labor has at least espoused some piecemeal policies aimed at diversifying Australia’s economic base. Its broadband policy (the original NBN plan) was a critical national infrastructure project intended to support the internet requirements of a country in a globally-connected world. Income from the MRRT was intended for an across-the-board cut to the corporate tax rate for small to medium enterprises. Australians are ruefully aware of the fate of these policies. In their place we have ongoing subsidies to fossil fuel industries and the active efforts of senior politicians to secure international venture funding for new mining projects regardless of the environmental cost. The Coalition is fighting a rearguard effort, a vain attempt to prop up the resources industries in this country. A generous evaluation indicates that they are fully aware of Australia’s weakness in every other area of the economy; but if this is the case, a wishful-thinking approach that hopes that Australian manufacturing can recover if we only pour more resources into non-manufacturing industries seems short-sighted, at best. Without a forward-thinking plan to provide Australia a new economic base, the future appears grim.

This author would like to suggest one possible set of policy priorities that could set Australia up for a useful participation in the 21st century global economy.

One possible solution

The first thing to note is that this is unashamedly a spending policy. It has to be. The old maxim is that you cannot tax your way to prosperity (a debatable proposition at best that I have only ever heard espoused from fiscal conservatives); equally, you cannot save your way into prosperity either. Labor understands this: you need to spend – otherwise known as “investing” – in order to reap greater benefits later. The Coalition also reluctantly admits this, but their approach is to acquire the required investment funds by selling things, and then to “invest” in a hands-off manner and hope that the economy will somehow grow just because there are more roads. The Coalition has taken some baby steps in this direction but it is likely that a hands-off approach will not be sufficient.

Funds are required for every useful investment. For this proposed policy, a significant amount of funding would be required. I don’t propose here to mandate a particular way to acquire these funds. Progressives might understand the value of borrowing the required funds, but if government borrowing is too poisonous a political concept at present, then there are a multitude of ways for further revenue to be secured. Let’s just posit a slight adjustment to the levels of superannuation tax breaks, earning $10bn a year. This mid-way figure might be able to appease those who argue against the abolition of the tax breaks while still reining in some of the worst rorting of the system. $10bn p.a. would be plenty of resources to fund the Future Industries Fund.

The Future Industries Fund – the FIF – would be tasked to identify and then intensively support six to ten high-value fields of scientific and technical research. These would be fields of endeavour where Australia has research capability or a natural advantage. As an example, we have almost squandered our natural advantages in the field of renewable energy: with our huge land mass, abundant sunshine and wind and low population, we have been and should be a world leader in this field. That we no longer are is a sad indictment on the policies of both sides of the spectrum. We could reclaim a world-leading position – if we wanted to.

There is the key phrase. “World-leading”. If Australia is going to compete in a global market, it needs something it can sell. That means something only Australia can or will make, or it means making something cheaper and/or better than others. We have already established that Australia cannot both make things cheaper and retain current standards of living for its people. If standard of living is a priority, we must aim to excel either by finding industries at which we can excel – such as the French making wines, or regions of Italy making shoes – or build new industries that put us ahead of the pack.

The proposed policy, the Future Industries Fund, would aim for the latter goal.

Because any spending fund is susceptible to gaming and fraud, the first priority for the FIF would be to establish an oversight group. This group would first be tasked to identify and report on the best industries for the fund to support. Renewable energy might be a logical choice – but we should not take the opinion of a blog author. Clear and firm criteria would have to be met, covering Australia’s current capability in the field, the state of each identified field in the rest of the world, and the potential for the field in creating and sustaining new saleable industries.

Having identified the areas of interest, the fund would transition to supporting scientific and technical research in these areas through a range of grants and subsidies. Obviously, this would include a re-funding of the CSIRO and of University research. Potentially, the government could take part ownership in the technologies which arose from funded research. Any revenue from this should be directed back into the FIF.

It’s not enough to be world-leading inventors and researchers. Research and development only employs a small proportion of the workforce. The FIF would also be tasked to support, again through grants and subsidies, industries that arose to capitalise on new technologies. In the hypothetical example of new solar energy technology, this would include not only the energy companies that build the solar farms, but also the artificers which build the parts for new solar energy projects; the engineering firms that build them and maintain them; the infrastructure companies that carry the energy to the people; and even the resellers that onsell the technology to the rest of the world. The FIF would also support university or TAFE courses that specialised in teaching the new technology, or provide scholarships in specific fields.

It’s not enough to establish a world-leading industry. As soon as you start selling the technology into the rest of the world, the clock starts ticking, and it will not take long before you have competitors in your market. Continued prosperity requires the FIF not to rest on its laurels. Having established an industry, an infrastructure, an educational framework, it needs to continue to support the research and technology that created it. It is necessary to keep pushing the envelope.

There would, of course, be failures. Any new scientific or technical research runs the risk of dead ends, the chance that new technologies developed would be too expensive or too difficult or too ahead of their time to be marketable. Soemtimes, financial support can address this. Renewable energy technologies used to be hugely expensive; with time and continued government support across the globe, the cost has fallen to the point that solar and wind are becoming cheaper than coal, at least in some markets. The FIF would not rely on “the market” to build a new technology up to scale; if the aim is to push the envelope then artificial support is required.

But in some cases, the technologies just might not work. It might require more funding than is worthwhile to find economies of scale. It must be accepted that sometimes a field of research initially seen as promising might turn out to be a failure. Competitors in other countries might make breakthroughs that put them years ahead of the pack and relegate FIF projects to also-rans. In such cases, the FIF must be prepared to redefine its areas of interest and write off the funding already provided.

A progressive vision

Conservatives will likely look at these proposals and choke on their tea. This proposal is for a taxpayer-funded bureaucracy with a whole raft of administrators, where research if funded with no clear business case or projected return on investment, where the government takes an active role in picking and supporting winners. All of this is anathema to the Liberal worldview. Unfortunately, we’ve seen the Liberal worldview, and we’re starting to see where it leads.

This is a simple proposal from a single blog author. There is no Treasury behind this idea. The Universities have not provided expert opinion. But if one hack author can design a set of policies intended to address the fundamental problem facing Australia’s economy, how much more could a progressive political party with the resources of government behind it achieve? I put this proposal forward for discussion. Let’s start reframing the conversation and hope that the political machine is listening.

Solving the real problems

 

We have a budget problem.

It’s not a budget emergency. Everyone agrees about that… at least, everyone who understands about national finance and economics, which is unfortunately only a minority of the voting public, and none of the current Coalition government to hear them tell it.

By current standards, by any measures you care to name, Australia is currently doing very well compared to every other nation in the G20. Taking all of the various factors together, it’s impossible to deny that Australia is in the best economic state in the world.

The justification for immediate, sweeping, deep cuts to government expenditure is looking pretty shaky.

With that said, it is prudent for us to realise that Australia does face some severe fiscal challenges in the coming decades. Some of these are the result of demographics. Some are historical, and some are being wilfully ignored or exacerbated by the Coalition government’s policies.

As many commentators have argued, the problem with Australia’s economy is not currently on the spending side of the ledger; despite the Coalition’s rhetoric of “profligate spending”, government expenditure increase was slower under Labor than the previous Howard government. Rather, the challenge is with the decline in revenue. This decline is not going to be fixed by a short-term “deficit levy”. The decline is driven by demographic change as the large baby-boomer demographic leaves the ranks of the taxpayers and is replaced by smaller cohorts of Generation Y and Z. Simply put, we’re an ageing population and that leads to declines in tax revenue. Revenue is further driven down by reductions in the terms of trade for coal, iron and other exports, as international economies both encounter financial headwinds of their own, and bring competing sources of these resources online. And depressed spending in the domestic market, particularly in big-ticket areas such as housing, has been driven by the “near-miss” that was the GFC. When the Australian population saves, there is less money in circulation for the government to take in tax.

The future is looking even more bleak. The already declining revenues from coal and fossil fuels, for so long a mainstay of the Australian economy, are likely to collapse with the increasing push towards renewables and international concern about climate disruption. The brand-new 2014 National Climate Assessment in the US is just the most recent in a long succession of dire reports to the world’s largest economy, and the boulder is
slowly but inexorably starting its downhill roll. As climatic disasters continue to reinforce the immediacy of climate disruption, and as economies like America adopt increasingly stringent carbon-abatement policies, the demand for Australia’s coal and gas is likely to dry up. Many fossil fuel oligarchs are likely to go the wall, a fact that will not provoke a lot of tears, but it’s likely to take Australia’s budget position with it.

An ageing population is one with decreasing health, so just as people drop out of the workforce and stop contributing tax, they start requiring more medical attention and putting more weight onto the healthcare system as well as pensions. Multiple reports are clear that on the current trajectory, over the coming decades the share of government expenditure that social security and healthcare will encompass will increase substantially and unsustainably. Left unchecked, this is the budget emergency of tomorrow.

One final brick in the wall up against which is Australia, is the decline of the manufacturing industry. Whether it’s cars or fruit or sneakers, the past decade has seen a constant flow of manufacturing businesses, large and small, leaving Australia for sunnier climes. This is not driven by a lack of capability or resources, which Australia has in plentiful supply, but rather through things that Australians value, such as a decent working wage and appropriate employment conditions including leave and penalty rates. There is only so much that Australian governments can do to reduce administration costs and provide tax breaks to encourage businesses to set up here or remain, and so long as we live in a globalising world with logistics chains that can get goods to the shelves regardless of being produced in Geelong or Kuala Lumpur, all other things being equal companies have little incentive to stay. This contributes to a loss of manufacturing potential and an over-reliance on the mining and minerals sector, and puts Australia at even greater risk. The next two decades will be critical. Employment ministers like to talk up Australia’s other growth area of employment, the services sector, but there’s a limit to how many service jobs an economy can support if there’s nothing being actually manufactured.

To its credit, Labor is aware of the challenges ahead and had productive policies in place over their past two terms of government, and in their election policies in 2013, despite a growing populism and desperation in the face of Tony Abbott’s attacks. Unfortunately Labor has proven to be absolutely inept at message management and communication to the electorate, resulting in the Coalition defining the terms of discussion for every area of policy debate. This resulted, too often, in Labor watering down its message or arguing on the Coalition’s ground, rather than making the case for their own vision.

There are no simple or foolproof solutions to these problems; after all, Australia exists in competition with a myriad of other nation-states who would love nothing better than to see us fail if only to bolster their own chances of success. There are, however, strategies and approaches that can be taken to address the issues, and it is my belief that Labor, at least until the last year of its term of government, had decent and well-considered approaches to these oncoming difficulties. It was just a pity that they were not able to clearly explain their policies in terms of the problems and their intended solutions.

Take for example healthcare. Labor recognised the burgeoning costs of healthcare for an ageing population early on its first term. Kevin Rudd’s grand plan for a revised health compact with the States combined an increase in the role of the Federal government in return for more funding, a new method of costing hospital procedures to standardise and optimise costs and processes, and a range of measures intended to increase pre-clinical healthcare. Throughout its two terms, Labor instituted GP Super Clinics to relieve the pressure from hospital emergency departments and to improve chronic and preventative healthcare. These same super clinics are now under threat from Tony Abbott’s oncoming budget of scalpels.

Improving overall health via preventative care, relieving hospital pressures by increasing the availability and ubiquity of medical care and standardising and optimising costs would not, in and of themselves, solve the healthcare problems Australia faces into the future, but they are a determined approach and a good start. By contrast, the Coalition does not believe in centralisation or group operation, feeling that competition and the holy dollar give the best results. The Coalition does not believe in federal involvement in healthcare beyond what is necessary. The Coalition does not believe in providing government assistance to those in need of healthcare, preferring instead to encourage further involvement of private health in Australia’s healthcare system. This does not address the nation’s healthcare funding problem; it simply shifts the burden onto ordinary people.

Or you can look at manufacturing. Labor’s approach to Australia’s two-speed economy was best encapsulated by the MRRT (Minerals Resource Rent Tax) and its preceding RSPT (Resources Super Profit Tax). Labor intended to marginally increase the amount of tax revenue gained from those resources companies with unfeasibly large profits and pour the resulting funds into support and resources for businesses in other sectors of Australia’s economy. A true case of “all boats will rise”, Labor intended to lower the company tax rate across the board, a move that would have been particularly of benefit to small businesses and retailers across the country. The mining tax would not apply to resource businesses in their normal course of operations; no extra tax would be taken during investment and building of a mine, nor even during moderate production. But when a company got into windfall territory, rapidly depleting a source of minerals and making huge short-term profits, the government felt that the Australian economy should get an extra cut. The philosophical merits of placing an extra tax burden on companies that already paid taxes may be debated; the politics of imposing this ‘levy’, as we now know, turned exceptionally poisonous. (Incidentally, the RSPT and MRRT were intended to replace royalties, so all claims that ‘they already pay royalties to the States’ are furphies.) But it was an attempt, successful or not, to take the benefits of a short term economic boom on the back of mining and use them to strengthen Australia’s performance in other areas of the economy.

Except that the Coalition and the resource oligarchs together conspired to corrupt the public discussion. The average Australian, by the time of the 2013 election, probably thought that the MRRT was going to push prospective mining projects out of Australia and cost thousands of jobs. The truth, of course, is that mining employs a mere fraction of the workforce (and far less than manufacturing and retail), that no companies have realistically been driven from our shores by a tax specifically intended only to be levied when a company was doing excellently, and that the mining companies had won a range of concessions about the methodology of valuing assets that depressed the overall take of the tax in any case. In a world environment where resource prices are declining and the Australian mining boom is largely over, the MRRT has been a disappointment in terms of revenue raised, and whilst it might have been more successful in the latter half of the 2010s as mining companies moved from building phases into full operation, the Coalition is very likely to be able to dismantle the MRRT before it reaches any kind of real success.

Taking even a decent amount of super profits tax from the big miners and using it to reduce operating costs for all businesses across the country would not, in and of itself, solve the problems facing Australia’s manufacturing sector. But it was a good start and a valid approach. The Coalition’s alternative approach of continuing to subsidise and promote Australia’s resource industries will have marginal short term benefits to revenue at the expense of Australia’s ability to transition away from resources into more sustainable and modern forms of production.

On the front of climate disruption, an emissions trading scheme is widely regarded by environmentalists and economists alike to be the best approach to the problem. Labor’s ETS has its detractors, but in this as in so many other areas of Labor policy, the message has been lost in the noise. It is certainly fair to say that even were an ETS to reduce the nation’s carbon footprint to zero it would make minimal impact on the world’s climate. It is definitely true that trading schemes have been gamed in some jurisdictions, that corruption can ensue, and that some people are liable to make a lot of money. It is even fair to say that during the short life of Australia’s ETS, there has been little to no measurable impact on the country’s climate. These objections ignore the bigger picture: that participating in an effective carbon trading scheme would assist Australia to meet its climate commitments and would position Australia to participate in global carbon trading markets without fear of sanctions and tariffs; that the revenues raised from the carbon trading scheme would be ploughed back into successful research and development programs in renewable energy and other carbon-abatement technologies, thus increasing the country’s export markets, renewable energy business and employment, and technological expertise; and that by leading the way for the world, we improved Australia’s standing and encouraged other nations to improve their carbon footprints as well.

By contrast, the Coalition does not appear to believe in climate change/disruption. They are seeking to dismantle a market mechanism to address this global problem, in the process removing Australia’s ability to participate in growing international carbon markets and making us a pariah amongst other nations. They have already dissolved bodies whose remit was to provide impartial and scientific advice on this issue, and are seeking to remove the revenue-generating successful Clean Energy Finance Corporation. In place of these approaches the Coalition is promoting its fig-leaf policy of Direct Action, which has been definitively shown to be incapable of meeting Australia’s stated environment goals, let alone the significantly increased goals that would be required to keep Australia on an even footing with other nations.

Labor’s ETS would not, in and of itself, save the planet from anthropogenic global warming, but it’s the ideal and almost universally respected approach, with many benefits for Australia’s economy and environment, at minimal cost. The best that can be said for the Coalition’s approach is that Direct Action might possibly be of some benefit, but it’s certainly neither the most effective nor efficient method.

On all three of these confronting issues, Labor had successful or worthy policy approaches. Whatever can be said about Labor’s ability to deliver on its policies (either through poor planning or the incapability of the public service), and putting aside the well-publicised leadership contentions, Labor’s main weakness was its inability to get across the message of its approach to these problems. On all three of these issues, judging by policies taken to the election and recent media speculation, our current Coalition government would appear to be taking Australia in exactly the wrong direction. With the Coalition’s first budget mere days away, we will soon see if the government has any valid approaches to these issues beyond the slash-and-burn approach already adopted, but the signs are not looking promising when Tony Abbott and his team will not even be honest about the problems we face. This insistence on a “budget emergency” is a farce and the Coalition’s determined intent to preserve the status quo is not the way to head off the economic emergency that is really oncoming. But of course politics is cyclical, and it’s likely that Labor will be in power by the time these problems become too big to ignore.

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