With right reforms, we’ll have it made in Australia

The global order is being remade by the coronavirus pandemic, with a retreat from free markets and open trade. State intervention is in vogue, a steady hand on the tiller of a nation’s destiny in a crisis. Scott Morrison, Josh Frydenberg and Reserve Bank governor Philip Lowe have conjured $320bn, or 16.4 per cent of national output, in financial support to get companies and workers through the calamity of shutting down commerce and social life to suppress COVID-19. Almost 60 per cent of workers are on state income support. Supply chains are ruined, trade and capital flows disrupted. One coping mechanism for governments and voters has been the idea of sovereignty. In a ravaged world, simplicity, self-sufficiency, security and control are on a unity ticket: Australia first.

Sheltering from the economic storm is understandable, but building a wall against the world is a losing strategy for a nation reliant on foreign capital for its expansion and a liberal trading order to earn its livelihood. Look at the harm China is doing to itself through tariffs and import bans. Wounded by global derision, it is lashing out at Australia. Beijing will realise that in such delicate matters there’s no such thing as a free punch. Because of China’s unreliability, if not caprice, our political and policy class is seeking to build up capacity to produce goods that are strategically vital. In case of medical emergency, it is wise to stockpile ventilators, personal protective equipment, sanitiser and medicine. Do we need to make our own? Only if we can do so at reasonable cost. Factories should be able to switch equipment and labour to meet demand for other items outside of crises.

“Made in Australia” runs deep into our national psyche; it’s there in the reptilian part of the brain, keeping us feeling safe. Populist politicians go there, speaking of Holdens and Dunlop Volleys, evoking a country that “makes things”. Of course, we are a country that makes things, and sells them to the world. Manufacturing is a major employer. In the 12 months to February last year, average employment in the sector was 918,000; only five of 19 industries used more people. One in 10 men work in the sector; only construction employs more males. While that’s a huge fall from the protectionist 1950s, even 80s, manufacturing has critical mass and durability. It is now geared to high-quality products and exports. Last year our manufactured exports were worth $54bn, led by aluminium, copper, pharmaceuticals, medicines, aircraft and parts, and telecom equipment. We are adding value to raw materials.

Manufactured exports grew by 17 per cent last year, no doubt helped by a low dollar. But the post-virus world will bring much weaker demand for traders; competition for all goods and services will be intensified. We need to get our baseline right to thrive in this era by cutting taxes and red tape. Industry and Science Minister Karen Andrews told the National Press Club on Wednesday that a factory can be proposed, approved, built and operational in the US in less time than it takes to jump the very first approval hurdle in Australia. The lesson for our governments from the pandemic was to facilitate, not overregulate. Wisely, Ms Andrews rejected a push to nationalise industries or create government-owned entities, declaring history has proven “the folly of that approach”.

What’s good for manufacturing applies to business generally. Life during shutdown has seen greater
co-operation between governments, unions and employers in redesigning work. That flexibility, which enterprise bargaining was meant to encourage, should carry on in recovery. Antiquated rules and flawed agreements add unnecessary costs and discourage hiring. So, too, do payroll taxes. More broadly, an uncompetitive company tax rate hinders investment and expansion. That is a clamp on training skilled workers, especially apprentices, and developing new products. As well, infrastructure provision needs to be priced properly, and procurement should not be tilted to locals, as tempting as that must be on major projects. Australia first, whatever the cost, as Labor and unions would have it, will leave taxpayers last.

A robust manufacturing sector needs lower energy costs. Perhaps the biggest national policy fail we’ve had in a generation has been to botch energy policy. We are an energy superpower, with abundant coal, natural gas, uranium and renewables. But we have squandered this competitive advantage in myriad ways, including through political dysfunction. Pragmatic union leaders are calling for the fast-tracking of gas projects to sustain our industrial base. State government bans, rural landholders and urban-based zealots hinder new projects. The Morrison government’s preferred path out of the energy morass and through the climate wars is via the technology investment road map. On Wednesday it issued a discussion paper, seeking to accelerate hi-tech projects to commercial status while supporting a lower-carbon economy. The investment needed depends on getting many other settings right — from tax to red tape, industrial relations to skills — to make our way beyond the virus wreckage.