Importance of Manufacturing to Productivity

Some industry leaders have been blaming the Fair Work Act for not helping Australia’s rate of productivity and calling for deregulation of the labour market. I believe this is misguided view and misses the real issue.

The key to improving our productivity performance is a vibrant and innovative manufacturing sector in Australia, not a race to the bottom which sees offshoring of our manufacturing.

The economist Dani Rodrik has said that countries that ignore the health of their manufacturing industries do so at their own peril. He says that in the United States the fall of manufacturing's share of employment has been damaging to productivity because labour productivity is substantially higher in manufacturing than in the rest of the economy. The bulk of new employment in the United States has come in personal and social services, which is where the economy's less productive jobs are found. The migration of jobs down the productivity ladder has shaved 0.3 percentage points off US productivity growth every year since 1990.

In their book Seeds of Destruction, Glenn Hubbard and Peter Navarro, say:

“A strong manufacturing base spurs the technological innovation necessary to boost productivity, wage growth, and consumer purchasing power.”

Susan Helper of Case Western Reserve University, Cleveland, for the Brookings Institution, a think-tank in Washington, DC says manufacturing provides better-paid jobs, on average, than service industries, is a big source of innovation, helps to reduce trade deficits and creates opportunities in the growing “clean” economy, such as recycling and green energy.

These are all good reasons for Australia to engage in manufacturing. Manufacturing must be part of Australia’s future if we are to keep a balanced economy that does not rise and fall solely on commodity prices. By contrast the Coalition would slash investment in manufacturing, sending jobs offshore and reducing our research and engineering base, hurting our productivity and ultimately our national independence.