Give and take: a prosperous Australia for a declining manufacturing industry?

The same thing has happened in every other high-income country. It is only in those countries where manufacturers have been successful at exporting – such as Germany – has manufacturing shrunk as a share of GDP by less than the average for all industrialized countries.

Because Australia has a larger mining sector than other rich countries, it must have a smaller manufacturing sector than other rich countries. And it is similarly a matter of arithmetic that the manufacturing sector, and those parts of the services sector which are 'tradeable' (such as tourism, and – as a result of developments in information and communications technologies, retailing) will shrink further as a proportion of GDP if the mining sector is going to expand as a share of GDP.

Now if it were at all likely that the mining boom will turn out to be 'a flash in the pan', over and gone in a few short years, there might be a case to be made for 'holding back' the expansion in the mining sector in order to prevent what might then be wasteful investments and to preserve industries and jobs which might be needed again after a very short interval.

But I believe that, even on quite conservative assumptions China's demand for commodities will continue to grow strongly until at least 2019, and may not start to fall away until 2024; while in India, it is likely to continue well into the 2030s.

So for Australia to seek to restrain the expansion of the mining sector out of a desire to preserve jobs in other parts of the economy would be to forego an enormous boost to our national income over a long period of time. That income will instead go to other countries. We might as well regard it as an increase in our foreign aid budget.

In my view the only thing that governments can and should do by way of assisting industries which are under pressure as a result of some of the 'side-effects' of the mining boom, such as the strong A$, is to help them improve their productivity.

But governments should not seek to prevent structural change from occurring – for example, by trying to prevent the Australian dollar from rising, or by 'heavying' the Reserve Bank into setting interest rates at lower levels than the Bank's own judgements suggest are appropriate.

It should not try to force Australian consumers and businesses to pay higher prices for manufactured goods by denying them access to imports, which is no less a form of 'protectionism' than the more traditional versions such as tariffs and quotas.

Talk that the 'playing field' is not 'level' ignores the fact that countries which keep their exchange rates artificially low, or which impose high tariffs on imports, are actually imposing costs on their own people or businesses: and the fact that other governments are willing to disadvantage their own people in order to advantage selected industries or businesses isn't a good reason for us to do the same thing.

That's not to say that manufacturing isn't important: it is. It still accounts for about 9% of Australia's GDP and a similar proportion of total employment, and it creates additional income and employment both 'upstream' and 'downstream'. However I don't accept that there's anything intrinsically nobler about manufacturing than other forms of economic activity, including in particular, services.

Australia's long-term interests are not well-served by the deriding of services sector jobs as "taking in each other's washing". Indeed, it's highly likely that parts of the services sector – in particular, aged care – will play as important a role in providing employment opportunities for people with limited education or skills as manufacturing did in the now somewhat distant past.

Nor do I mean to suggest, when I say there is no point in seeking to restrain the expansion of the mining sector in order to preserve jobs, that we shouldn't be seeking to ensure that the Australian people derive an appropriate share of the income generated from the exploitation (by privately owned corporations) of finite natural resources of which they are the ultimate owners.