Until relatively recently, producers were the heroes of the Australian economy. Now they are considered to be expendable.
Consider the recently-announced closure of Bluescope’s tin-plating mill in Port Kembla. Two hundred and fifty workers will lose their jobs, and in addition, it is likely that there will be knock-on effects, not only for Wollongong but for the economy as a whole.
Manufacturers of steel cans will lose a local source of supply, and in turn fruit and vegetable canners will be more likely to import cans, or as seems more likely, will themselves retreat further before growing imports of canned food from Asia and the European Union. In their turn, growers of vegetables, already under pressure from imports, will find more of their market is taken from them.
Once policymakers would have intervened to try to stabilize the situation but now, such a move would be unthinkable. In these situations, the interests of consumers almost always come before those of producers.
The rationale for doing this is clear. Economics, the dominant policy science, enshrines the interests of consumers. Whatever is good for the short-term interests of consumers, is good for the country. So while there might be adjustment payments for those affected, nothing will be done to influence the forces that determine the location of production in a global economy.
These forces are overwhelmingly about price and profit. Australian manufacturing lacks the scale and cheap labour that countries such as China can offer and without policy support, either relocates or goes out of business. As a result, over the past thirty years, we have farewelled most of the labour-intensive parts of our manufacturing sector.
Finding an Australian-made product in a department store (other than furniture) is a rare event. Almost all of what we wear is manufactured in China or other parts of Asia. Now, the effects of restructuring are spreading to more capital-intensive forms of production such as food processing, and beyond those activities, to upstream agricultural production.
You might think that producers of services (and that is the overwhelming majority of us) are immune from the process, because service-based industries enjoy a degree of natural protection from imports. But these industries, too, are feeling the pressure. Ships and planes are mobile, and can be serviced offshore. Teaching can be undertaken over the Internet. Call centers can be outsourced to Delhi or Mumbai.
Should we care about the structure of the economy, provided it is performing well (which means it is generating jobs)? The conventional wisdom in this country is that structural change should be left to market forces. If that means we have no industries but mining, tourism and home renovation, so be it. But is that really the kind of economy we want? Over time, the combined effects of market forces and market power, can lead to the decline even of highly efficient industries in which we might appear to have considerable comparative advantage.
We have grown used to the idea that we do not ‘do’ manufacturing. But most Australians would be surprised to learn that, over the past 30 years, the decline (relative to total output) of Australian agriculture has been even more striking than that of manufacturing.
In 2005, agriculture constituted 4% of total production, as compared with more than 9% in 1975. In 2003-04, we imported nearly $6 billion worth of food, an odd statistic for a country so plentifully endowed with land. Imports of food (both fresh and processed) have roughly doubled since the early 1990s.
For most countries, self-sufficiency in basic foodstuffs is regarded as a strategic necessity. The prevalence of import-restrictions in agricultural produce is testimony to the strength of this conviction. If you have been cut-off from your source of supply, the experience tends to stick in the memory.
In this country, where almost all of what we eat is home-grown, self-sufficiency might appear to be the least of our worries. My point is that, if we are blind to the effects of restructuring in one sector of the economy, the likelihood of unanticipated consequences in others increases.
The loss of a tin-plate mill in Wollongong potentially affects producers in many other parts of the country including, ultimately, growers of fruit and vegetables, many of whom are already under pressure from imports. As more growers leave these industries, rural and regional economies are adversely affected, too.
Fruit and vegetable growers – and mill-workers – complain bitterly about their fate, but apart from some ‘restructuring’ initiatives, no one, at least in government, appears to be listening. The prevailing wisdom is that, no matter how unfair the competition, if producers cannot match it, they will receive short shrift from policymakers.
We have become so used to believing that ‘markets rule’, we no longer give much weight to the interests of producers when policy calculations are made. That is unfortunate, not just for the producers themselves, but for the longer-term structural balance of the economy.