Australia’s reliance on offshore manufacturing exposed by pandemic

There’s a sense of poetic justice surrounding Australia’s COVID-19 vaccine predicament. To succeed in a prolonged crisis, a nation needs capacity and capability. On both fronts we have been coming up short, a consequence of conscious decisions by the coalition government since it first came to office in 2013.

The signs of trouble were there in the early days of the pandemic in March last year, when Australians learned that in the entire country there was only a single factory left making medical masks. The business, Med-Con in Shepparton, had managed to hang on with just 17 staff and was supplying 5 per cent of the Australian market. Put another way, people in our health sector were reliant on overseas makers for 95 per cent of their medical masks.

At the start of the pandemic last year it was revealed that only 5 per cent of protective masks were made locally.Credit: AFR

With vaccines, we’ve found ourselves in a similar situation. CSL’s facility in Melbourne makes the AstraZeneca vaccine but that’s it. For the Pfizer and Moderna vaccines, we’re reliant on imports because Australia doesn’t have the facilities to manufacture them. In itself that should not surprise, given that the Pfizer and Moderna vaccines are breakthrough products, relying on mRNA technology.

What has been disturbing, though, is the federal government’s attitude to Pfizer and Moderna, which can be described as somewhere between sluggish and clueless, not just in the way it’s failed to buy enough of them soon enough but its casual attitude to the establishment of a local mRNA production facility. Just possibly, we’ll see one up and running in the first half of 2023.

How did we get here? Essentially, because of the attitude of the government: the traditional party of capital has progressively diminished its links with, and understanding of, the manufacturing industry.

Think back to the 2019 federal election campaign, when the government sought to lock in the so-called tradie vote by ridiculing Labor’s policy encouraging the uptake of electric cars. In doing so, the government was also ridiculing electric cars, which it felt it could do because it had previously hounded the remaining domestic car makers out of the country and thus no longer had to answer to any aggrieved local car makers. Will there come a time within the next 10 years or so when the bulk of new cars sold here are electric? Yes. Will Australia once again be a price taker rather than a price setter, relying in imports? Yes, but that’s a problem for later.

The coalition’s natural detractors might say it was always like this with conservative governments but that is not so. The Howard government had a dramatically different approach to industry, innovation and manufacturing. It was a big spender on industry support and implemented ambitious programs. In its 11-plus years of office, the manufacturing share of GDP did fall from 14 per cent to 11 per cent but the number of people employed in manufacturing barely changed. Today, the manufacturing share of GDP is 6 per cent.

John Howard is regarded as a holy figure of conservatism in today’s Liberal Party but in terms of policy you would struggle to find a greater contrast between his government and the current federal government than on industry policy. Over his four terms as PM, he had only three industry ministers. In the eight years of Abbott-Turnbull-Morrison, there have been six industry ministers and the portfolio is now serving as a ministerial retreat for the rarely-seen Christian Porter.

In my role as a visiting fellow at UNSW Canberra, I recently interviewed Howard and two of his industry ministers, Nick Minchin and Ian Macfarlane, as well as a former department head Mark Paterson, for a paper that examined the Howard government’s industry policies. They all told me that while it was clear in 1996-2007 that traditional manufacturing was in decline, this process had to be managed through innovation programs and not be subjected to disruptive policies or left to wither. Minchin and Macfarlane, both very solid conservatives, said this was because some industries had a strategic importance and, in the national interest, should not be fully exposed to market forces or ultimately punitive free trade agreements.

Their views were always contested vigorously inside the Howard government. Does the Morrison government even concern itself with policy arguments like that? The government admits in its $1.5 billion manufacturing program, Make It Happen, announced last October, that compared with other advanced economies, “our share of manufacturing compares poorly — and we can and must do better”. Incidentally, compare that $1.5 billion with the Howard government’s spending of $8.2 billion on its innovation programs in its last two terms.

The pandemic has highlighted how exposed we are to global supply chains, and offshore manufacturing and product development. It would take bold, unorthodox decision-making for the government to change direction, but you have to wonder just how much genuine understanding of how industry works actually lives inside the government now, populated as it is at the top with people from consulting firms, financial services and, yes, marketing. Maybe that’s why it finds it hard to roll out practical programs and to negotiate with pharmaceutical companies.

Shaun Carney is a regular columnist.