The deindustrialisation of the Australian economy

The evidence suggests that the Australian economy has undergone quite profound structural changes over this period, with the shift toward services and the decline of traditional labour-intensive manufacturing. Australia has experienced the classical symptoms of negative deindustrialization. The present policy focus is essentially agnostic towards the current account deficit.

Within the neoclassical literature, the issue is simply ignored as a short-term problem of exchange rate adjustment. On a more fundamental level, however, structural change in the Australian economy over the past two decades has led to quite profound sectoral shifts. The continued dependence on commodity exports means that the terms of trade will not be favourable in the long-term. Furthermore, the pivotal role of manufacturing has been downgraded and neglected over the past three decades.

Although one should acknowledge the shift towards a knowledge-based economy, the myth that this implies a post-industrial society should be debunked.

Indeed, it is the knowledge-intensive sectors of manufacturing that exhibit the fastest growth rates and exports, while manufacturing accounts for over 50 per cent of productivity growth in total private sector output, even though it represents less that 12 per cent of total employment (Toner, 2000, p.24). The expansion of industrial exports would therefore contribute to overcoming the balance of payments constraint on future growth.

This brief analysis re-affirms the pre-eminent role of manufacturing and the capital goods sector as the primary catalyst for growth in the economy as a whole. In contrast to the static, unrealisticassumptions which govern conventional neoclassical accounts, this analysis is based on the “stylized facts” that manufacturing acts as the “engine” of growth in the economy as a whole.

The implications of long-term structural change are far more pervasive and profound than the traditional welfare losses due to static misallocation of resources as a result of monopoly power and tariffs. Unfortunately, the present focus of public policy in Australia is still on the latter while the former has been neglected.