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The Forum > Article Comments > Now here’s a shock - manufacturing exporters do have a future > Comments

Now here’s a shock - manufacturing exporters do have a future : Comments

By Tim Harcourt, published 4/12/2006

Manufacturing has come a long way in Australia after having to escape the shackles of its protectionist past.

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Very interesting information.
I like many others thought we were on a manufacturing down spiral.
However I wonder what the labour content is in many of these products ?
Perhaps dividing the invoice prices by the number of workers involved
in the manufacture of the goods might tell an interesting story.
A friend of mine wanted to manufacture an electronic device and the
Chinese factory use price was 50 cents an hour and the Australian quote
was $25. This might well have been a labour intensive job, but it is
the basis of my above question.
Posted by Bazz, Monday, 4 December 2006 10:55:49 AM
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Hmmmm lets see:

Left hand (Australia) $25/hr... Right hand (China) $0.50/hr. Yep.. I was totally wrong in holding up my 'BLAME CHINA' sign at the IR laws rally, and I was wrong about suggesting we TAX 'slavery' at customs...because we have now been 'liberated' from the 'SHACKLES' of protectionism...right ?

I challenge anyone to find out how much a builders laborer gets paid these days !

When was the last time Australia paid 50c an hour to a factory worker ? Probably back in the "Pounds Shillings and Pence" era when Pies cost tenpence.

"Shackles...of protectionism." I struggle with this. Some silly badly managed, stubborn industries would be inefficient, but they have gone. The only ones left, (and probably spiralling down) are as efficient as they can be I'd bet, and they are just waiting for China to look at the smorgasbord of 'Things we can make' to say ah-HAH... now 'that' looks like a good seller... we'll copy it and make it here and flood the world with it.

Because, at 50c an hour you can simply choose which industries in other countries to destroy at will. Its like ducks in a shooting gallery.

The authors optimims is not supported by reality in my view. He cherry picks a few innovative industries and declares the war over....

-Call centres (India)
-Customer service. (India & Asia)
-Sales (ditto)
-Engineering (India)
-Software design (India)
-Hi volume manufacturing. (China)
-Increasingly higher tech manufacturing (China)

CHANGE IS NEEDED.

1/ 50c an hour is virtual slavery TAX slavery at customs.
2/ DON'T allow a full deduction for overseas outsourced labor to businesses. (add a field on their tax returns for this)

The phrase "free market" is meaningless. NONE are free... only the stupid and ignorant have totally free markets because such serves only SOME interests rather than all.

Knock Knock..is Mr Rudd available ?
Posted by BOAZ_David, Monday, 4 December 2006 12:52:24 PM
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Very interesting article. The reality is that we cannot compete with 50c/hour labour and why should we? Sooner rather than later that number will change either from worker pressure for higher wages, or demand for labour, particularly skilled from employers. I was at the recent Manufacturing Technology in Focus exhibition in Melbourne, and was fascinated at the innovation and entrepeneurial attitude of those exhibiting. I made a point of raising the China issue and competition issues with them. The replies were illuminating... very good at the beginning when the new plant is first installed.... But, as soon as wear and tear, improper handling by low skilled workers, accidents etc. start to occur, as they do, there are not enough skilled fitters, mechanics, electronic and instrument fitters, software engineers etc. to fix them, so the whole thing grinds to a halt. And the phone calls go out to overseas to fix it, an expensive and dilatory way of operating.

We are only 20 million, but we punch way above our weight in innovation and IP, just watch the ABC's "new inventors"; we have no choice but to cherry pick niche markets in ETMs where price is not the issue, particularly price of labour. Concentrate on nanotechnology,new materials, better smelting technology, clean coal, start public backing of solar energy, where ANU and the UNSW have world leading teams. Get a handle on what the EU is doing in biomimicry research, Euro53billion, EPBIO Program. We should be heavily involved it would transform the Bush.

Richard42
Posted by richard42, Monday, 4 December 2006 1:54:43 PM
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Recently the Chinese manufacturer just next to me,moved back to his parents country of origin.He has spent his time in Australia learning about all our manufacturing techniques that produce quality products.He told me that labour will cost 50 cents per hour and there will be a hundred workers waiting outside the factory gates,eagerly waiting to take their jobs if they falter.

The reality is that unless China has some miraculous growth in real living standards for their masses,our living standards will continue to decline.

As far as business a goes,the Chinese have got the western world snookered.
Posted by Arjay, Monday, 4 December 2006 8:01:30 PM
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Tim wrote "First, most focus has been on manufacturing imports not exports. But people forget that it’s a two-way street and we need both imports and exports to grow and prosper." and "In short we need to import to export." This is hardly the full or most important story.

Why do we export? Because importing goods and services which can more effectively be supplied from abroad raises our living standards. But we can only buy imports with income generated by exports. Protection of non-competitive (or any) local industries negates the very reason we trade in the first place, and lowers our living standards. The influx of low-priced Chinese goods raises our living standards, and frees up local resources for activities in which we have a relative advantage.
Posted by Faustino, Monday, 4 December 2006 9:55:39 PM
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Fausti.... now lets deconstruct that little effort of yours :)

[Protection of non-competitive (or any) local industries negates the very reason we trade in the first place, and lowers our living standards.]

Lets look at the other side of this coin.

GUILTY as CHARGED.
If we knowingly support the inhuman and expliotative near slavery practices of other countries such as China, we are culpably guilty of colluding with them in this behavior.

SLAVE BASED PROSPERITY.
If our prosperity is based on the degrading and abusive treatment of others, we are guilty of immoral conduct.

Lets look at a couple of other terms used in your 'economics 101' lecture :)

"our" national interest/living standard etc.

Who...is 'our' ? Is it the 200 Ajax workers who are sitting at home glazed eyed just before Christmas wondering what the future holds ?
Or..is it possibly the Graziers and Miners who are salivating over the juicy sauce they will be pouring on the oversized turkey they and their families will be enthusiastically enjoying at a warm family get2gether.

Whenever Politicians use the term 'our' + National interest, they are in reality meaning the interests of those who have donated to their party and who support them politically.

So, "Protecting" is the right word to use, but the object is incorrect. It is better put as follows:

"By protecting the humanity and dignity of Chinese laborers, we can enjoy our smaller sized but still tasty Chicken and leg of lamb Chrissy dinner with a family which has a clear conscience."

TAX SLAVERY AT CUSTOMS.
How do we protect that dignity ? Simple. we TAX their products UNTIL the government legislates for better wages and conditions.

So, we are not protecting our industry we are protecting Chinese workers.
Posted by BOAZ_David, Tuesday, 5 December 2006 6:58:23 AM
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I am pleased to hear that Australia has a vigorous level of manufacturing exports. I note the author's credentials as head an Austrade functionary and then apply a dose of salt.

I was surprised when I bought my new fully imported car that the air conditioning unit was fitted to the vehicle in the storage yeard in Australia within 30 minutes of me ordering the vehicle. Then someone said that when they bought Mac computers in England the Mac shop pulled the computer off the shelf. The Macs sold in England are fully built in China. Macs sold in Australia are built to order in Sydney. I think these are 2 examples of corporations doing final assembly in Australia for tax breaks, export credits etc.

As I have said in previous posts, while we continue to tax corporations on their profit rather than their turnover then corporations are going to continue exporting production overseas so that they can take their profits in a low tax country like Nauru.

This will not stop Chinese working for peanuts, but how can Australians live in our cities if workers are paid peanuts? Do you see employers building barracks for workers?

The sad reality is that we import twice as much as we export - and we are now importing food.
Only Aldi is sourcing more food from Australia, probably because
- the food manufacturers are very competitive as Coles and Woolies import food
- the Aldi brothers can write off the losses on their Australian subsidiary against their parent company profit
Posted by billie, Tuesday, 5 December 2006 7:22:28 AM
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It must say something about our respective characters that I tend to respond more to your posts than any other, Boaz, but I simply cannot help myself.

You say

>>If we knowingly support the inhuman and expliotative [sic] near slavery practices of other countries such as China, we are culpably guilty of colluding with them<<

and

>>If our prosperity is based on the degrading and abusive treatment of others, we are guilty of immoral conduct<<

The fact that these countries pay their workers a lower wage compared to ours does not imply slavery. As has occurred in many other countries within living memory, economies are built gradually over decades, beginning with labour-intensive activities and graduating to higher value-add processes. China is no different in this than post-war Germany, post-war Japan, South Korea, Malaysia, Thailand Philippines, VietNam and many many others.

Sure, much has been made of the working conditions in these places over the years, mostly by companies disadvantaged by the lower cost base of their competitors. But in the self-serving fuss that is made is a core truth; the workers themselves know that the discomfort they experience is merely a stepping-stone to greater individual prosperity. While no-one should condone cruelty of any kind, a greater cruelty would be to deny these folks the opportunity to drag themselves up by their own bootstraps out of their poverty.

Your protest, Boaz, is the natural reaction of a manufacturer disadvantaged by another country's labour costs. But please don't pretend that your concern is for the individual worker: they would, on the whole, rather be employed than not.

Furthermore, your solution (“TAX their products UNTIL the government legislates for better wages and conditions”) is pure protectionism, despite your protestation that “ we are not protecting our industry we are protecting Chinese workers”.

The increase in price will, presumably, make them less competitive with your product, and therefore reduce demand. How, exactly, does this “protect Chinese workers”?

Is it just me, or is this not just a tad hypocritical?
Posted by Pericles, Tuesday, 5 December 2006 2:26:23 PM
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Spot on, Pericles

BOAZ_David, how on earth do you think that taxing Chinese exports would make Chinese workers better off? Taxes don’t make societies richer, and nor does government legislation. A country’s standard of living is determined by the quantity and value of things it can produce. In China’s case, these have been expanding at an astounding rate for 30 years, since China began progressively opening itself up to the global economy.

The number of Chinese living in absolute poverty has fallen from 634 million (or 64 per cent of its total population) in 1981 to 212 million (or 17 per cent of its total population) in 2001. In other words, in one generation the number of people escaping poverty is more than 400,000 - approximately the same as the population of Western Europe. According to the ILO “A reduction in poverty on this scale and within such a short time is unprecedented in history.”

Of course, by our standards, most Chinese are still extremely poor; and the number still in absolute poverty is an awful lot. But given where China started from a few decades ago, their progress is stunning. And as Pericles says, they have every reason to hope that progress will continue, bringing them to near-western living standards within a generation, as Japan, Hong Kong, Singapore and others in Asia have achieved.

It is this process that you would bring to a halt if you succeeded in your plan for Western Countries like Australia to tax Chinese import prohibitively.
Posted by Rhian, Tuesday, 5 December 2006 3:30:07 PM
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Well said Pericles.

Economies run on one of two styles, the protected or the free.

The benefits of protection are supposed job security under the larger umbrella of the nanny state. Examples can be observed from most post WWII European economies and currently the sort of dysfunctional performance we see in France, which hankers after opportunity for free export whilst retaining protected markets for its significant domestic activities, most notably the hopelessly inefficient small peasant farmers.

The benefit of free trade is greater consumer access to competitive goods, rather than the uncompetitive, underdeveloped and protected output of archaic vested manufacturers.

Another benefit of free trade model is the enhanced exchange of views which come as a by-product of trade, a benefit not to be ignored in the veritable social revolution which is influencing China after decades of communist stagnation. Admittedly, the repression has not disappeared but does any one really think it will disappear faster if we isolate and ostracize China?

The benefit to Australian manufacturing is this, Instead of focusing in the Australian domestic market, as was the practice in years gone by, unable to consider exporting because of reciprocal duties, customs, quotas and tariff walls, under the free trade model Australian Manufacturers can look at a significantly larger market which dwarfs “local demand”.

A couple of other things,

Australia has a history of political stability. If I were investing in a sophisticated new manufacturing plant, I would balance the cost of manufacturing against the security of that investment.

Australia has a relatively corruption free social ethos, I would be happier leaving my private files and details with an Australian institution than letting them be bartered and traded out through unscrupulous Indian data traders, an event which will eventually ring out the death nell for Indian call and service centers.

For myself, I am happily developing products domestically which my partners and I will eventually launch internationally. All that Australian manufacturers need is the vision and anything is possible.
Posted by Col Rouge, Tuesday, 5 December 2006 8:10:57 PM
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BD, on this one you clearly confuse me! You claim to be a Xtian,
so when 2 billion people rise above past poverty and earn far more
then they ever did before, you are pissed off!

Lets face it, anyone in Aus who wants a job, can find one if they
try. In Karratha for instance, you are battling to find pizza
delivery boys, under 35$ an hour.

Next thing, how many of Australia's poor, benefit from the global
economy? I would say huge amounts! Go and look in Bunnings as to
who is buying power tools for 35$, something they could never dream
of. The same applies to clothes and many other items.

As a Xtian, you should be thrilled that poor people have higher wages
then they ever had before, that poor people can buy goods cheaper then ever before, whilst Aussies have never had it so good.

So why really do you have your testicles in a tangle? I really
don't know.
Posted by Yabby, Tuesday, 5 December 2006 9:19:34 PM
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We in Australia have something to worry about the future... our income (GDP) is primarily mining resources and agriculture and both have a shelf life, both fundamentally use a resource we did not create but exploit, and when that eventually starts to be depleted we are going to be stuck, essentially a desert with only us Australians as the 'resource source'.

However, even blind freddy can see that silicon industry is going to keep growing and eventually become the largest revenue creating, and spending industry...cost of hardware and software will always be healthy...

We have to compete here, start like all other giants in this area like silicon valley in US did, start with the circuit boards, then to make simple chips for devices, until natural progression will lead to products that will compete with the microsofts and intel...For a start we can support this industry by buying their products over exports...

You want to see real world protectionism, not just lip service for the image, if our industry is ever 'allowed' to be created and start becoming successful, watch what the ones with the control of this market do here, eg. buy the patents and move the industry off shore, yeah to their shore...

Sam
Posted by Sam said, Wednesday, 6 December 2006 6:57:48 AM
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These discussions do not take into account the oil depletion effects.
The global market will be significantly affected. Air freight and travel
will be nonexistant or at best used for high value low weight & volume products.
The cost of energy will be so great that the pay
scale differences will not be anywhere near as important.
Freight and energy costs will cause a much greater use of local manufacture.
There is another factor. The increasing demand for liquid fuels and
energy in oil exporting countries will reduce the export availablity.
This will bring the effects of oil depletion earlier than otherwise would
be the case.
Road transport costs will also encourage local manufacturing. The only
alternative will be electric railways after conversion of the existing
railways to interstate electric traction.
Trucks use 6 to 8 times the fuel per km/ton than diesal trains.
Posted by Bazz, Wednesday, 6 December 2006 1:46:37 PM
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An article by an economist that really makes sense. (I new it could happen).

I once worked for a company in Switzerland for a few years. Most Swiss going into their shops see very little that is made in their country. But their biggest industry is manufacturing! What they make are not relatively simple consumer procucts but sophisticated machines that others buy to make the products they produce. They are amongst the few nations with the abilities to produce these machines.

Not to say that there is not an unemployment problem there. But this is something separate, we do need mechanisms to help us through a transition to a greater sophistication. But to call off globalism with all its advantages because of a problem would be short sighted.

What the article showed is that despite doubts we do have a healthy industry. Yes unemployment is too high but we are moving in the right direction. The public as a whole does not see the performance of these earners because their output is not seen in the home, but it is still there. Even with call centres we do have growth in that area in the field of multilingual centres where we have a core of people all with perfect English language skills but each with a perfect command of a parent language. These centres can charge a premium rate for their services, and yes they operate internationally.

As a “hidden exporter” myself I am well aware of what is being achieved, and can be achieved if we work on our natural human resources.

I recently enjoyed a lunch with a perfect salad dressing, a high grade olive oil and a magnificent balsamic vinegar. I often enjoy an excellent Porter beer. All Australian made. Problem I can't buy any of these items in the supermarket who only sell cheap imported junk or at licensed restaurants who think a beer is only good if it is imported and refuse to stock the great Aussie beers made by the little breweries.

The problem is our attitude.
Posted by logic, Thursday, 7 December 2006 12:31:47 PM
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logic wrote: "I recently enjoyed a lunch with a perfect salad dressing, a high grade olive oil and a magnificent balsamic vinegar. I often enjoy an excellent Porter beer. All Australian made."

You are talking about expensive boutique products which are normally bought by a small minority of Australia's, and the world's, population. With an astonishingly unequal world, there is no way most of us can expect to be able to compete with workers from low wage economies.

If it weren't for all those stupid cock-sure economists who so stridently denied this self-evident reality with such deafening loudness for these past three decades, many of us would have shaken off our complacency about this long before now.

---

Bazz (http://forum.onlineopinion.com.au/thread.asp?article=5218#64276), you are spot on about oil. Large scale International trade will simply not be possible in a few years time. Why are our most vocal economists too sttupid to see this?

Besides, in a healthy world economy, only a relatively small proportion of each country's output would be traded and the rest would be consumed locally.
Posted by daggett, Sunday, 10 December 2006 4:27:17 PM
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Ahh Yes Daggert, to quote Kenneth Boulding;

Anyone who believes that expotential growth can go on forever
in a finite world is either a madman or an economist !
Posted by Bazz, Sunday, 10 December 2006 7:18:07 PM
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Dagget
The facts disprove your argument. If we can't compete with China, how come our real (after inflation) average earnings are at record highs, and our unemployment rate is at 30-year lows?

We don't maintain our living standards by trying to compete with China at the things they do well. We maintain them by producing the things we are better at and exchanging some of them for the things China produces better than us . Win-win. That's always what trade is about.
Posted by Rhian, Monday, 11 December 2006 9:57:16 AM
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Rhian,

I dealt with 'our real (after inflation) average earnings are at record highs' on a thread in response to Peter Saunders' article "Redefining Poverty" at http://forum.onlineopinion.com.au/thread.asp?article=3737#12173

My point is that measures of inflation omit many significant factors which have increased the cost of living for ordinary Australians. The most blatent fiddle in inflation figure is the omission, since 1999, of the cost of housing. There are many other ways, which have not been measured in inflation figures, in which the overall increasing complexity of of life has increased the cost of living in recent decades.

The simple fact that at least two incomes are almost always necessary to pay the cost of living for a family instead of one should cast enormous doubt on claims of rising real incomes.

In one sense it is true that real incomes have 'risen'. We are on average consuming vastly more of the earth's non-renewable natural resources at the expense of future generations, but I would dispute that this has resulted in a better quality of life for us on average.

As for 'low unemployment' figures, I suggest you look at the kinds of jobs that many Australians, many with degrees and qualifications are forced to work in, in comparison to the jobs that their parents had. I know of cleaners who have computer science degrees. How would you like to be forced to earn your living as a telemarketer, a junk mail deliverer or a traffic controller, nearly all on low rates of pay with no predictability as to what hours they will be working from one day to the next? I suggest you read Elisabeth Wynhausen's "Dirt Cheap" which shows just how bad things were even before Howard introduced his decreprd "Work Choices" legislation.

And, don't forget that, now, if you work for more than one hour per week, you are considered to be 'employed'.
Posted by daggett, Monday, 11 December 2006 10:30:09 AM
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Dagette;
You said;
The simple fact that at least two incomes are almost always necessary
to pay the cost of living for a family instead of one should cast enormous
doubt on claims of rising real incomes.
end quote:

There is a factor that is always ommitted when housing prices are discussed.
When the financial institutions were forced to lend on two incomes the
housing market reacted exactly in the way that anyone with half a brain
should have expected. What happens when you put double the money into
any market ? Prices rise to meet the amount of money available.

It is so obvious that it is incredible that it has not been reccognised
by all in sundry.
What would happen if the rules were changed so that loans could only
be granted on one income ?
The prices would fall to meet the amount of money available.
Posted by Bazz, Monday, 11 December 2006 10:56:54 AM
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Bazz,

Also, don't forget that loan periods are being extended. Some lending institutions are talking of loan periods of 40 or even 50 years. A generation ago a typical mortgage repayment period was 20 years or less. You should have read Alun Breward's talk of 3 April 2005 on ABC Radio National's Ockham's Razor program at http://www.abc.net.au/rn/science/ockham/stories/s1335462.htm

This talk shows how economists employed by the AMP and the Commonwealth Bank fiddled figures in order to 'prove', against most peoples' own experience, that housing was far more affordable than it actually was back in 2003.

Yet another example of why we should regard with extreme skepticism any claims that real incomes are rising. This is the card that Howard apologists such as Rhian use in an attempt to trump all the other very serious objections to the way John Howard is running the country.
Posted by daggett, Wednesday, 13 December 2006 1:45:47 PM
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