Tuesday, 31 January 2012

Mirabella Misunderstands Manufacturing

Shadow Industry Minister, Sophie Mirabella, has come out and bagged the Government for its policies on manufacturing.

According to Ms Mirabella:

“If Ms Gillard had a genuine interest in the car industry, in manufacturing or in innovation, then she would never have:

  • broken her promise not to introduce a carbon tax – a $460 million burden on the industry; 
  • broken $1.4 billion of car industry promises;

  • dumped manufacturing from Cabinet; 

  • crippled government support for business research and development; or

  • shown complete ineptitude in failing to stem the worst rate of manufacturing job losses in Australia’s history. “

With those comments in mind, it is interesting to have a look at how manufacturing has performed over the past 35 or so years under each side of politics:

Let’s start with the Fraser years from 1975 to 1983. In those 7 years, manufacturing output fell at an average annual rate of 0.1%. As a share of GDP, manufacturing crashed from 16.0% to 13.3%, an average loss of 0.4 percentage points of GDP per annum over 7 years.

Under the 13 years of the Hawke and Keating Government’s from 1983 to 1996, manufacturing output grew at an annual average rate of 2.7%. Not too bad, but it still fell as a share of GDP to 11.5%. that’s an average loss of just over 0.1 percentage point of GDP per annum over those 13 years.

In the 11 ½ years of the Howard government to 2007, manufacturing grew at an average annual rate of 1.5%, roughly half that recorded by manufacturing under the Hawke and Keating years. As a share of GDP, manufacturing slumped to 9.0% of GDP, losing 0.2 percentage points of GDP on average per annum under Howard.

With the Rudd and Gillard Governments since the end of 2007, manufacturing output has fallen at an annual rate of 0.3% - and as a share of GDP is has dropped to just 8.2%. That’s an average loss per annum of around 0.2 percentage points. This is effectively the same relative performance as was achieved over a longer time frame of the Howard government, a vastly superior to the record of the Fraser Government, but lagging well behind the quite impressive results under the Hawke and Keating Governments.

And guess what?

The best performing years were when tariffs, protection and largesse were slashed. A bit of tough love goes a long way.

But whatever the policy shortcomings relating to manufacturing right now, Ms Mirabella is barking up the wrong tree.


  1. Not to mention that the car industry is nothing but a leech in this country - the only thing they do well is extract $$$ from governments around the world via 'jobs blackmail'.

    1. True, but who will make our tanks and jeeps when WW3 starts. Oh wait. America. Just like last time...... (see history of the Sentinal Tank AC-I to AC-IV, the best tank never to fight WW2)

  2. Bigad - that's a little harsh... but only a little. SK

  3. Do you mind sharing your calcs? I have just looked at mfg output in ABS 5204.0, chain volume measures, and I get different figures for the H / K period.

    On my calcs avg growth in mfg during H / K is only 2.1% not 2.7%. That is higher than H / C but not hugely so. Also I would expect that mfg output would be heavily correlated to our dollar and AUD was high during later part of H / C.

    Indeed if you calculate the avg growth rate from 96 to 03, when the mining boom really started to kick off, you get 2.2%, basically the same as the H / K period.

    My calcs below. If they format ok.

    Jun-1983 70822
    Jun-1984 71897 1.5%
    Jun-1985 75570 5.1%
    Jun-1986 76051 0.6%
    Jun-1987 78132 2.7%
    Jun-1988 83343 6.7%
    Jun-1989 88143 5.8%
    Jun-1990 87105 -1.2%
    Jun-1991 85187 -2.2%
    Jun-1992 82660 -3.0%
    Jun-1993 84425 2.1%
    Jun-1994 88192 4.5%
    Jun-1995 90064 2.1%
    Jun-1996 92083 2.2% 2.1%
    Jun-1997 93558 1.6%
    Jun-1998 96153 2.8%
    Jun-1999 98020 1.9%
    Jun-2000 98791 0.8%
    Jun-2001 100842 2.1%
    Jun-2002 103020 2.2%
    Jun-2003 107174 4.0% 2.2%
    Jun-2004 108343 1.1%
    Jun-2005 107043 -1.2%
    Jun-2006 106647 -0.4%
    Jun-2007 108703 1.9% 1.5%
    Jun-2008 113062 4.0%
    Jun-2009 106363 -5.9%
    Jun-2010 107707 1.3%
    Jun-2011 107845 0.1% -0.1%

  4. I used quarterly data: Fraser Dec 75 to Mar 83: Hawke / Keating Mar 83 to Mar 96; Howard Mar 96 to Dec 07: Rudd / Gillard Dec 07 to Sep 11 (latest data) Cheers SK

  5. I still only get 2.57% not 2.7%. Using seasonally adjusted data of course.

    Are you calculating the arithmetic mean or the geometric mean. The latter is more reliable. There wasn't much difference between them in the annual data but there is when using quarterly data because it is more variable.

    So for example the geometric mean for H - K period is 2.49% on quarterly data. The geometric mean can be influenced by start and end point problems so you should look around those points.

    The two quarters before Mar 83 had big drops in mfg output. That has biased up both the arithmetic and geometric means for H - K period. The geometric mean falls to 2.15%. So I don't think the data you present tell much of a story at all.

    All in all because of the greater variability of quarterly data you should stick to the annual amounts.