A startling report released by the Australia Institute has revealed that Australia is ranked last among its global peers of ‘developed nations’ when it comes to measuring a nation’s manufacturing self-sufficiency, with struggling global supply chains dramatically hindering the nation’s security and resilience.
Across the globe, the post-Second World War economic, political and strategic order appears to be in tatters, the impact of COVID-19 exposing over-dependence on global supply chains, asymmetric security threats, and political warfare combined with myriad challenges are all serving to impact the security and sovereignty of many nations, including Australia.
Further compounding these challenges is a growing sense of societal unrest and upheaval across many of the West's leading nations, from the US and UK to France and even in the streets of Australia's own capital cities.
Each of these individual factors have served to demonstrate the limitations of traditional statecraft and, perhaps most concerningly, have shaken the Australian public's confidence in the public policy status quo.
While we are far from the end Australia's first recession in nearly three decades, the impacts are beginning to be felt and despite the best efforts of both state, territory and Commonwealth governments, it will force a major restructuring of the national economy and Australia's relationships with both the broader global community and, more critically, our Indo-Pacific partners.
All of this combines to form one absolute realisation: Australia's record period of economic stability and prosperity, buoyed by the immense mineral and resource wealth, combined with the benevolence of the post-Second World War political, economic and strategic order, is at an end – it's time to adjust accordingly.
Industrial decline has a dramatic impact on national security
This predicament is further reinforced by a recent report conducted by the Australia Institute has revealed that the nation ranks last in manufacturing self-sufficiency among the membership of the Organisation of Economic Cooperation and Development (OECD) member-states.
Explaining this, Tom McIlroy, writing for The Australian Financial Review, reveals some rather troubling details about the nation's declining economic and industrial diversity and, critically, its impact upon Australia's national security and sovereignty:
"As the COVID-19 pandemic highlights problems with global supply chains and gaps in Australia's manufacturing capability, the report released by the Australia Institute's Centre for Future Work shows renewal of the sector could generate as much as $180 billion in new sales, $50 billion in additional GDP and more than 400,000 jobs.
"It blames failures of trade and industrial policy for undermining domestic manufacturers’ success in doing business with key global markets, producing 'dangerously lopsided patterns' in overseas trade.
"Manufacturing jobs make up about 6.9 per cent of Australia’s workforce, but more than 26.4 per cent of all research and development spending. Total employment in the sector has dropped by 9.6 per cent since 2010, the report shows."
McIlroy added, "With manufacturing output worth US$270 billion ($378 billion), Australia ranks below all other Organisation for Economic Co-operation and Development economies, including countries producing more manufactured output than they consume, such as Germany, the Netherlands, South Korea, Sweden and Japan."
The growing importance of local, competitive manufacturing capabilities was further explained by author of the Australia Institute report, Dr Jim Stanford, who said, "As Australian governments and business leaders realise the importance of manufacturing in rebuilding the national economy after COVID, this research shows that Australia now has the smallest manufacturing industry relative to domestic purchases of any OECD country."
While this economic, political and strategic turmoil is in some ways 'unprecedented', the favoured catchphrase of many a media personality seeking to describe anything from the bushfires that devastated swathes of the landmass, the economic impact of COVID-19 or the societal upheaval sweeping the West, Australia does its best work when its chips are down.
Time to reignite the fires of Australian industry
Australia as a nation, like many Western contemporaries, has been an economy and nation traditionally dependent on heavy industries – capitalising upon the continent's wealth of natural resources including coal, iron ore, copper, zinc, rare earth elements and manufacturing, particularly in the years following the end of the Second World War.
However, the post-war economic transformation of many regional nations, including Japan, Korea and China, and the cohesive, long-term, nation building policies implemented by these nations has enabled these countries to emerge as economic powerhouses, driven by an incredibly competitive manufacturing capability – limiting the competitiveness of Australian industry, particularly manufacturing.
Recognising this incredibly competitive global industry and the drive towards free trade agreements with nations that continue to implement protectionist policies buried in legislation, Australia needs to approach the development of nationally significant heavy industries in a radically different way, recognising the failures of the past and the limitations of Australia's past incarnations of heavy industry.
Identifying these industries is the first step in building a cohesive, long-term plan as part of a broader National Strategic Industries Act – using the legislative power of government to counter-balance industry development policies of allied, yet still competitor nations like South Korea.
Such a concept leverages the industrial development policies of export-oriented industrialisation (EOI) to develop its economy into a major economic and modern, advanced manufacturing powerhouse – focusing on the global marketplace, allowing for economies of scale to provide a lower cost, high quality, value-add manufacturing industry in Australia, with the Australian public benefiting from access to such consumer goods.
Think long-term, plan, communicate, manage expectations and deliver
It is often said that much of Australia's public policy-making decisions are based on the comparatively short election cycles across the various jurisdictions and this is a challenge faced across the democratic world – however, the grand irony is, if governments and oppositions planned for the long term they'd be more likely to be returned.
In light of this, it is time for Australia to plan for the next 15 to 20 years, not the next term of state, territory or federal government, providing policy consistency, vision for the public and surety in a period of global and regional turmoil.
This approach requires more than vanity programs, which can be best left to local government or private developers, rather it requires a strategic approach to a number of highly visible, big impact public policy areas, including:
- Infrastructure development: Addressing the critical links between hubs of economic prosperity including regional hubs and metropolitan centres – such as improved, faster and more reliable road, rail and air transport links.
- Water security: Australia is a continent of extremes, "droughts and flooding rains" yet we do little to adequately channel and store the vast quantities of water that falls – now is the opportunity to promote economic stimulus through infrastructure investment while supporting Australia's agricultural industry and drought-proofing the continent.
- Energy and resource security: Addressing the nation's lack of strategic resource and energy supplies has come to the fore during COVID-19, preparing the nation for such challenges whether natural or man-made should be of paramount priority – this requires less ideology and more pragmatism.
- Strategic industry development: COVID has stirred many within the Australian public to question why Australia isn't manufacturing more of the critical – it is clear that Australia requires a concerted policy initiative in the form of a Strategic Industries Act to develop a robust, globally competitive Industry 4.0 oriented manufacturing base.
Each of these contribute to the nation's sovereignty and security at a time when many of the principles that Australia's post-Second World War public and strategic policy is based upon coming under threat – serving to make Australia a more reliable economic, political and strategic partner amid a period of great power competition.
Furthermore it serves to make Australia more resilient to man-made and natural shocks, resistant to coercion, economically competitive and robust at a time when the Australian public are calling for leadership, forward planning and vision.
Australia is defined by its economic and strategic relationships with the Indo-Pacific and the access to the growing economies and to strategic sea lines of communication supporting over 90 per cent of global trade, a result of the cost-effective and reliable nature of sea transport.
Indo-Pacific Asia is at the epicentre of the 21st century’s era of great power competition and global maritime trade, with about US$5 trillion worth of trade flowing through the South China Sea and the strategic waterways and chokepoints of south-east Asia annually.
For Australia, a nation defined by this relationship with traditionally larger yet economically weaker regional neighbours, the growing economic prosperity of the region and corresponding arms build-up, combined with ancient and more recent enmities, competing geopolitical, economic and strategic interests, places the nation at the centre of the 21st century’s “great game”.
Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.
Australia is consistently told that as a nation we are torn between our economic relationship with China and the longstanding strategic partnership with the US, placing the country at the epicentre of a great power rivalry – but what if it didn’t have to be that way?
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific and what you would like to see from Australia’s political leaders in terms of shaking up the nation’s approach to our regional partners.