Friday 15 October 2010

How manufacturing declines impoverish the majority of the working population

Making a big mistake
John Legge
October 15, 2010

To accept the decline of manufacturing in Australia is to ignore history and threatens to condemn our workers to a low-wage future.

THE Treasury ''red book'' advises the Gillard government to suppress manufacturing in order to balance the growth of the mining industry. Many economists, including at least two members of the federal cabinet, don't need excuses to applaud the decline of manufacturing in Australia: they consider the move of manufacturing to low-wage countries inevitable and that the sooner the process is complete the better.

Few economists study history, and fewer realise how critical manufacturing industry was and is in creating a relatively just and harmonious Australian society. Before the rise of manufacturing the major occupations were farm labourer and domestic servant: hard work for little pay. Manufacturing provided jobs for ordinary people with ordinary backgrounds and modest educational achievements.

It paid vastly better than farm labouring or domestic service, and diligent workers who were prepared to accept responsibility could earn middle-class wages as leading hands and foremen. Even production-line workers in some industries could earn middle-class wages: high wages made the discipline and boredom of production-line work tolerable.


Complex manufacturing offers opportunities for men and women with no more than high school education to earn real middle-class wages because they are going to be responsible for expensive precision machinery and the production of complex, valuable products. Most of the simple, repetitive tasks have been automated; humans are used where skill and judgment are needed. Adam Smith famously visited a pin factory (or on some accounts read about a pin factory and described it as if he had visited it). Few economists have crossed a factory threshold since; most seem to believe that nothing has changed since 1776.

Economists have noticed that as manufacturing declines, the majority of the working population gets relatively poorer (or in the case of the US, absolutely poorer) while well-educated professionals continue to enjoy rising living standards. Most economists draw the conclusion that it is the higher educational level achieved by these professional workers that accounts for their higher incomes. They argue that better educational opportunities and higher school retention rates will halt the increase in inequality.

Unfortunately, the orthodox explanation is, at best, oversimplified.

Better education means nothing in the job market if the jobs for well-educated people aren't there. Much, possibly most, of the employment in modern manufacturing enterprises isn't on the shop floor at all. Manufacturers need engineers, designers, programmers, marketers and accountants; the robots need maintenance and setting up; specialist craftsmen must make the tools and dies that the production machines use. Software has become incredibly important: a single modern car has more computer power in it that was available to the Apollo mission to the moon.

Some economists seem to believe that only the physical part of the manufacturing process will be moved to China: the professional tasks will continue to be performed by Australians in Australia. These views can only come from a fundamental misunderstanding of the way manufacturing industry works. It also assumes that the Chinese are incapable of training their own engineers, designers and programmers. Finally, the idea that China's apparent cost advantages will continue requires the assumption that Chinese workers are prepared to spend their working lives making goods that they cannot afford themselves.

None of these assumptions is supported by facts. While Australia spent the Howard years cutting higher education and loading young engineers and scientists with penal HECS debts, the Chinese poured public money into education at all levels. China now produces more engineering and science graduates annually than the number of graduates Australian universities produce each year in every discipline.

Chinese workers are no longer prepared to work long hours for low pay in order to make toys for Westerners. Foxconn, the Chinese company that makes iPhones and iPads among many other familiar products, has raised production-line wages by half over the past year and the process is not going to stop. The Chinese regime is oppressive by Australian standards but Chinese workers are not slaves: they can and do switch jobs when offered improved pay and conditions. As wages rise, Chinese companies will automate more; and, with more sophisticated machinery and higher responsibilities, wages will rise still further.

The low wages favouring China for manufacturing are transient; the created competitive advantages of a skilled workforce backed up by an experienced cadre of engineers, scientists and marketers are permanent.

Australia's mining boom is transient, as all booms are; but should we destroy our manufacturing industry, the loss of competitive strength will be almost impossible to reverse. Do we really want Chinese pundits in a few years' time promoting Australia as a country with a docile, low-wage workforce prepared to do work that Chinese workers disdain?

John Legge is a Melbourne-based educator, author and consultant.

http://www.smh.com.au/business/making-a-big-mistake-20101014-16ly7.html

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