Manufacturing (Still) Matters

by Jim Stanford

The problems in Australia’s manufacturing sector are well-known, and many Australians have concluded that the decline in manufacturing is inevitable and universal: that high-wage countries like Australia must accept the loss of manufacturing as an economic reality.  But international statistics disprove this pessimism.  Worldwide, manufacturing is growing, not shrinking, including in many advanced high-wage countries. 

Australians are purchasing more manufactured products, not less.  Manufacturing is not an “old” industry: it is in fact the most innovation-intensive sector of the entire economy, generating better-than-average productivity growth, good jobs, and exports.  Most importantly, manufacturing possesses several key structural features that make it vital to the economic success of any economy – including Australia’s.  This study documents the damaging decline of Australian manufacturing, a decline that has accelerated in recent years.  It explains the unique features of manufacturing (including innovation-intensity, productivity, income-generating capacity, export-orientation, and complex supply chains) that endow it with a national economic importance.  It shows that Australia has done much worse than other high-wage countries (even smaller more remote ones) at maintaining manufacturing: in fact, manufacturing employment is now smaller as a share of total employment in Australia than in any other advanced country (even Luxembourg!). 

The paper lists ten key policy levers that have been invoked in other countries to support manufacturing – and which could play a positive role here, too, so long as government gives the sector the attention and priority it needs to succeed.  The paper concludes with public opinion research showing that Australians agree, by very large majorities, that manufacturing is crucial to the national economy, supports good jobs and high living standards, and should be a national priority for policy-makers.

Full report