Will the mining boom send manufacturing bust?
Aug 24, 2011
Professor Goran Roos a 2011 Thinker in Residence in South Australia.
An international expert has diagnosed Australia’s manufacturing sector with a severe case of the notorious Dutch Disease - where a booming resource sector creates economic conditions that hurt all other industries.
Speaking to the AMWU News in July, Professor Goran Roos, the head of the highly respected Technical Research Centre for Finland (the equivalent of Australia’s CSIRO) said the country’s rampant resource sector was driving up the currency exchange rate to the detriment of its tradable goods sector.
“In almost every developed economy, manufacturing is expanding. Australia is the exception. And I’m sorry to say it’s because you are developing a case of Dutch Disease.”
The term ‘Dutch Disease’ was coined after the near collapse of the Netherlands’ manufacturing sector in the 1970s and 1980s, off the back of an oil resource boom that drove up the exchange rate, inflation and made tradable goods uncompetitive.
Symptoms of the disease are mass job cuts and the loss of skilled and semi-skilled employment to the booming resource sector.
Earlier this week BlueScope Steel announced job losses of 1000, to join OneSteel, SPC, Heinz and Caterpillar who have all made substantial cuts to their workforce over the last 12 months. All have blamed the high Australian dollar.
Professor Roos says Australia faces a bleak future unless action is taken by government to keep the economy balanced.
“If you kill one manufacturing job it will kill between two to five other jobs. This is frequently forgotten. That is really important to consider, because of the consequential losses.
“A case can be made that the cost of regaining a lost competitive manufacturing sector can be higher than the net gains from the resource boom.
“This is due to the relatively lower speed of technology growth in the booming resource sector and the non-traded goods sector as compared to the traded goods sector.
“Once you’ve lost your skills and knowledge base they’re very difficult to get back. You’ve really shot yourself in the foot.”
Professor Roos argues the Commonwealth government should start by slowing down the appreciation of the real exchange rate. By quarantining the mining boom revenues in a sovereign wealth fund, similar to those created in oil rich Norway and East Timor.
He believes increasing the international competitiveness of Australian manufacturing is essential through investment in education aimed specifically at the manufacturing sector and investment in infrastructure that benefits those sectors.
“Manufacturing is completely misunderstood. Being a country that makes things is critical. But ‘a country that makes things’ is different today from yesterday.
“You need to be prepared for that.”
Professor Goran Roos is a 2011 Thinker in Residence, a state government program to bring new ideas into South Australia and translate them into practical solutions to improve the lives of South Australians.
His final public lecture is on Tuesday the 27th of September at the Adelaide Town Hall, King William Street, Adelaide.
For bookings or more information visit www.thinkers.sa.gov.au/Thinkers/Roos
Contact Email: news(at)amwu.asn.au