The pandemic has revived the arguments over the future of Australian manufacturing and self sufficiency. But some warn it can’t degenerate into a rationale for costly protectionism.

Seismic shift
Industry Minister Karen Andrews believes there has been a seismic shift in business and consumer attitudes that will drive much greater willingness to look for locally made products and procurement.
This happy narrative includes reciting inspiring stories of small manufacturers pivoting within a few weeks to provide reliable sources of personal protective equipment like masks and gowns and medical technology like ventilators.
But beyond that, theres less agreement on the sort of modern manufacturing base that is realistic for Australia despite the ministers insistence manufacturing is front and centre of the economic agenda.
According to Innes Willox, chief executive of the Australian Industry Group, manufacturing has received more public and political attention in the past few weeks than it has in a generation.
Even so, he says skills and energy remain the two biggest challenges for local manufacturing both before and after COVID-19.
Australia, he says, has learned hard lessons about over reliance on single sources of imports but greater resilience wont come from insulating itself.
We should not forget the wealth we have accrued generated as a trading nation, he points out.
Reconciling the competing pressures lies in understanding what is strategically important and in valuing diversity of supply and flexible capacity underpinned by solid foundations in innovation, science, engineering and basic manufacturing nous.
Niche skills
Overall costs will still be key if not perhaps quite so dominant for businesses and consumers alike. And as Chinas complaints about Australian steel tariffs demonstrates, one countrys economic sovereignty is another countrys protectionism .
The appeal of translating that into virtuous economic patriotism never disappears. But Australia should not attempt to become completely self sufficient, Andrews maintains.
Nor does she advocate any return to traditional mass production lines like car manufacturing. Instead, it’s about niche advanced manufacturing using technology, skills, ingenuity and innovation.
And while she concedes Australia can never be low cost, the cheapest price cannot be the only determinant.
We need to compete on value not on cost, she told the National Press Club on Wednesday. We need to identify our areas of both comparative and competitive advantage.
Obvious examples of such advantage she cites are mining and agricultural technologies, critical minerals processing and food and beverage manufacturing.
She also suggests other areas of national priority could include pharmaceuticals and med-tech, defence, energy technology, waste and recycling and the fledgling space industry.
More hope than practice
Yet Australias ability to develop or retain other than small businesses in most of these areas have so far remained more hope than practice. Its why globally successful companies like CSL and Cochlear are still exceptions.
Manufacturing currently represents less than 6 per cent of Australias GDP and around the same percentage of jobs although more than 26 per cent of business spending on research and development.
A new survey of post COVID-19 employment prospects by Deloitte Access Economics says jobs in manufacturing, as well as in mining and agriculture, will never return to even the limited numbers of early 2020 reflecting long-term trends of declining employment those sectors.
What Andrews calls the building blocks for a healthy manufacturing industry also sound like the usual formula for higher economic growth and business investment more generally.
Lower energy costs, a highly skilled workforce, reduced red tape, greater collaboration between research and industry, better commercialisation of ideas, improved access to export markets all underpinned by lower taxes and a stronger economy. Details all to come, of course.
Manufacturing Australia cites the fact that a factory can be proposed, approved, built and operational in America in less time than it takes to jump the very first approval hurdle in Australia, she said. “Thats simply not good enough.
No indeed. And perhaps the economic crisis created by COVID-19 will actually provide the sort of brave policy leaps and economic reforms required after so many years of frustration and delay. Perhaps.
Tough love
Andrews still argues manufacturing growth should be enterprise and industry driven rather than from Canberra.
She includes a new $215 million manufacturing modernisation fund set up post election to help businesses upgrade their technology and skills, with the minister declaring such taxpayer assistance only accounts for about one quarter of the cost.
History demonstrates the “folly” of nationalised industries or government owned entities as the way forward for Australian manufacturing, she says.
(Presumably the minister is tactfully overlooking the defence manufacturing industry including the tens of billions of dollars for future submarine building slowly underway in South Australia.)
But manufacturers shouldnt count on more R&D tax incentives. These just need to be more effective and targeted according to the minister, given the government invests $9.6 billion annually supporting science, research and innovation.
Think of it as tough love.