Shoring up Australia's remaining industry an investment rather than bailout

Australia Broadcast Center

a day ago

As a nation, Australia often baffles the experts.
We rank amongst the world's richest nations when it comes to personal wealth but, in terms of our economy and particularly its complexity, we sit amongst the world's poorest.
It's a situation that is progressively getting worse.
According to Harvard University's index of economic complexity, Australia now has one of the world's least complex economies, ranking at 105th out of 145 nations.
We've now slipped behind Botswana but at least we're still beating Cote d'Ivoire.
Less than a decade ago, we ranked at 93 which, in itself, was no great achievement.
"Compared to a decade prior, Australia's economy has become less complex," the study found.
The reason? "Australia's worsening complexity has been driven by a lack of diversification of exports."
That's just in the past decade. But the devolution of the Australian economy began long ago.
From the 1970s, Australia became a poster child for free market theory and globalisation, capitalising on our natural advantages as a global food supplier and using our abundance of natural resources to provide the world with raw materials.
The end result? At just 5.1 per cent of GDP, we have the lowest level of manufacturing of all 37 nations in the OECD.
Suddenly, that's no longer celebrated. The global mood has shifted to one of self-sufficiency instead of specialisation. Protectionism and withdrawal, led by the US, have replaced openness and co-operation.
Whyalla, Port Pirie and possibly even Mount Isa.
The imminent closure of each of these basic metal processors has spurred federal and state governments into action.
Where once governments would have been happy to allow private enterprise to fail, they now are actively trying to salvage something from the wreckage.
When the South Australian government pulled the rug from under Sanjeev Gupta's GFG Alliance earlier this year, putting the Whyalla steelworks into administration, the federal government stumped up $2.4 billion to keep the operation afloat.
And this week, two state governments and the federal government rode to the rescue of Nyrstar and its ailing smelters in Hobart and Port Pirie with a $135 million lifeline.
Meanwhile, shipbuilder Austal joined forces with a federal government offshoot to become the nation's preferred strategic naval shipbuilder.
But reversing the long-term trend in our industrial decline will be no easy task. And should government be involved in directing funds towards bailing out failing industries?
University of Technology Sydney economist Roy Green argues these examples shouldn't be seen as bailouts but rather future co-investments in processing technologies.
"We, at the moment, have far too little invested in the value add of our unprocessed raw material exports, and a good case in point is lithium, where we produce 50 per cent of the world's production," he told ABC's The Business host Kirsten Aitken.
"We export 90 per cent to China and we capture only 53 per cent of its value.
"We can't do that with all the other metals and materials."
He points to products like antimony, which commands between $30,000 and $40,000 a tonne, and rare earths like germanium, a key component for touchscreens.
According to Green, the Nyrstar injection and the lifeline to Whyalla are likely to be the forerunners for what will be required in the future.
"This is a down payment on the future, and the future is not a world of free markets," he said.
The demise of Australia's automobile industry in 2017 was a defining moment in the national industrial make-up.
Established in the post-war era, a time when protectionism ruled the global economy, the likes of Ford and GM were shielded by 45 per cent tariffs on imported cars, effectively rendering them out of reach for ordinary Australians.
By 2005, however, the tariff had been cut to 10 per cent, and then it was halved just five years later.
That coincided with the global financial crisis and the great Australian mining boom, which sent the Australian dollar into orbit. It eventually hit $US1.10, delivering Australians unrivalled global buying power.
Imported cars flooded the market and rendered the three big local manufacturers — Ford, General Motors and Toyota — uneconomic, resulting in the loss of almost 400,000 jobs.
The exit of all three had far-reaching effects. It accelerated the demise of industrial designers and tool makers, along with specialist engineering and electronics industries, and a range of other valuable skills necessary for a broad industrial base.
It also coincided with a rapid lift in Australian energy prices as gas began being exported from the east coast, denuding local supplies and sending local energy-intensive industries to the wall.
And for all the economic rationalist talk about comparative advantage, China's huge subsidies in heavy industry — including the capture of raw materials processing — made it the price maker when it came to almost every commodity except iron ore.
Australian nickel production has all but shut in the past two years following Chinese interests turning Indonesia into the world's leading supplier and processor.
China dominates rare earths refining and has total control of the all-important heavy rare earths sphere. It is the biggest player in most other industrial metals processing.
"These are areas that are so heavily subsidised in China that if we don't match those subsidies, or at least pivot to future technologies so that we can do these processing operations more cheaply and cost effectively, we will be priced out of an area in which we are producing many of the materials that people want and yet we won't be processing them here," Green said.
He argues that Australia no longer can rely upon comparative advantage but should instead create comparative advantage in value chains.
Otherwise, he argues, China will be handed a monopoly in the metals and materials vital for the future.