Change and Diversity in Australian Manufacturing

Australian manufacturing has changed considerably over time and is a picture of diversity, according to a research paper being released by the Productivity Commission.

The Commission’s report, Trends in Australian Manufacturing, found that manufacturing output has quadrupled since the mid-1950s. The fastest growing activities have been those with links to Australia’s natural endowments, and products that are more differentiated, have higher skill levels and R&D intensities.

But employment in manufacturing has fallen (until recent years) and manufacturing’s share of the economy has waned with the rapid growth of the service sector. Manufacturing now accounts for around one in eight dollars of national output — half what it was in the 1960s, similar to the relative economic position it held in 1900.

The Commission says this relative decline is no cause for concern. Productivity Commission Chairman, Gary Banks said, ‘Manufacturing’s declining share of employment and output is testimony to its strong labour productivity growth and the growing importance of services as people’s incomes have risen. The story is similar in most developed countries. It is a sign of economic success, not failure.’

The Commission found many positives in the performance of manufacturing:

• Structural change had mostly been achieved without enduring effects on unemployment, though the effects have been bigger for some less competitive industries and regions.
• Manufacturing has become increasingly globally oriented, with sustained export (and import) growth and strong inward and outward investment links.
• Continuing growth in ‘intra-industry trade’ — exports and imports of similar products — suggest that Australian manufacturing can develop at least niche capabilities within most industrial activities, even those where competitiveness has generally declined.

The report probes many other aspects of manufacturing’s performance and role over the long term, including productivity, employment and labour market conditions, structural change and import competition.