Australia’s economy after COVID-19

While the Morrison government now expressessentiment that Australia needs to restore its critical manufacturing sector somewhat so it is never again exposed to shortages in medical supplies such as personal protective equipment, is this enough?

Or, to put it another way, how realistic is it for Australia to once again have a much larger manufacturing sector, which has reduced from around 30% of Australian GDP in the early 1960s to 5.7% in 2018?

We could revitalise our manufacturing sector at a time when cheaper robotics is diminishing the impact of high labour costs to boost domestic production of goods rather than import them, albeit such production may mean that industrial robots outnumber the number of production workers.

The McKinsey Global Institute notes that higher-wage nations will get a greater productivity boost from robotics than lower-wage nations, even though installing such technologies will be less expensive in lower income nations. This is because a US company would recoup the added cost of a $US250,000 robotic investment within one year when replacing two workers given that annual total compensation for the average US manufacturing worker is $US72,000, compared to over eight years in Mexico where workers cost $US14,000, and 30 years for the Philippines at $4,200 per person.   

At present, China is again leading the way with its Robotics Industry Development Plan aiming to expand robot use tenfold by 2025. For example, Guangdong province is reported to be investing around $US135 billion. In 2017, around 75% of robot sales were concentrated in China, Korea, Germany, Japan, and the US.

Of course, revitalising manufacturing is no easy task, as the Trump Administration found out with its tariff war with China given that manufacturing comprised just 11% of US GDP in the second quarter of 2019, the smallest share of the economy of data going back to 1947 and far behind the near 25% level of the 1960s.

If we are to promote manufacturing, input cost factors must also be considered, a reality that would help all industries.

In the case of energy costs, given there are real concerns about global warming with insurance costs already rising, do we advocate a boom in renewable energy infrastructure to utilise our own minerals and create jobs rather than ship them overseas to be turned into metals, or do we also consider the latest and safest versions of nuclear energy? 

In terms of wages, while I support a decent minimum wage, I would agree that penalty rates should be streamlined further, perhaps to a maximum of 150% for overtime and work outside of normal hours. I currently get a 250% pay rate for working on public holidays.       

If we don’t boost our manufacturing sector, we may find it extremely hard to create enough jobs, and the necessary wealth to pay for a decent welfare system?

Already there is a strong argument for much more public housing given more and more Australians are struggling with rent and will retire without owning a home, while the cost of Australia’s public health sector is becoming more expensive with out-of-pocket costs rising as productivity growth in the healthcare sector tends to be lower than the rest of the economy.

No policy issue is beyond the need for extensive debate, at a time when developed western nations face “a sustained period of sub optimal growth checked by both excessive leverage and an ageing population”.