The Place of Manufacturing Industry in the Australian Economy - Coursework Example

Australian Economy: Manufacturing Industry Name Institution Date Australian Economy: Manufacturing Industry Introduction The Australian economy determines the strength of Australia as a country. The country has very solid growth, low unemployment rates, low public debt, inflation that has been contained and a financial system that is strong and stable. In 2012, Australia had experienced a steady continue economic growth of an average of 3.5% for 20 years. According to the World Bank, Australia has the second fastest pace when starting a business. In 2013 and 2014, the economic growth rate was lower than the trend but this situation will change by 2015 according to Reserve Bank of Australia (RBA, 2014). Economic contribution of the manufacturing industry The role of the manufacturing industry in the Gross Domestic Product cannot be undermined. According to the Australian Bureau of Statistics (2012) the manufacturing sector was the second largest contributor to the Australian Gross Domestic Product after the financial and commercial services sector. In 2011, it contributed about 9.1% of the GDP. In 1991-92, the total production of the manufacturing industry reached a peak of $116 billion which was an increase of about 37% in comparison to the preceding year. There was a decrease in the production of the manufacturing industry in 2008-2009 due to the global financial crisis which recovered in 2010. Currently, the contribution of the manufacturing industry in Australia has been decreasing. According to Szanto (2014), the drop in the contribution of the manufacturing industry to the Australian is exhibited by the fact that the number of the people employed in the sector is decreasing. In addition to that he continues to note that some companies are slowly closing shops. The most recent examples are the announcements of Ford, Holden and Toyota to cease manufacturing of cars. Ford plans to case manufacture by 2016. The rail transport sector has started exporting Chinese wagons as hopper wagons used for mining are also being imported. In 2012, the manufacturing industry contributed about 27% of the Gross Domestic Product and employed about21.1% of the total Australians that are employed. In the period between 2005 and 2010, the average contribution of the manufacturing industry to the GDP was about 9.1%. In 2006, it contributed 9.5% of the GDP. In 2007 and 2008 the contribution from the industry was the same. The manufacturing also contributed about 8.7% of the GDP in both 2009 and 2010.in 2011, the GDP increased by 2 %. In 2014, there are reports that the manufacturing industry is expanding but at a slow pace (ABS, 2012). The main manufacturing industries in Australia are food manufacturing, textile, clothing, wood and paper products, printing and recorded media, petroleum, coal, chemical and rubber products, nonmetallic mineral products, metal products and machinery and equipment. The top three manufacturing industries are food manufacturing, followed by metal products then the machinery and equipment manufacturing industry. According to territories, Tasmania and South Australia were the largest producers of manufactured goods at 11.7% in 2010, followed by Victoria then New South Wales. The Australian Capital Territory was the lowest contributor of manufactured goods for producing only 1.1% of the total production. Most of Australia’s produced goods are consumed locally while some are exported. According to the Australian Bureau of Statistics (2012), the largest export destinations of the manufactured goods in the period 2006 to 2010 are Japan, United States of America, New Zealand, United Kingdom and India. The manufactured goods that were exported the most between 2009 and 2010 were textile fiber and textile fiber wastes, followed by cereals and cereal products, then petroleum and petroleum products. It is important to note that more products are exported. Despite of this, Australia is also a major importer of specific, manufactured goods. It is through the exports that the manufacturing industry is ensuring the economic growth of Australia by contributing to the Gross Domestic Product. History of Manufacturing Industry in Australia The Australian manufacturing industries development has had various changes. In earlier years, between 1788 and 1820 when the Europeans had settled, there were limited industrial and commercial activities because the population of Australia was too small and too unskilled to promote prosperous individual enterprise. The government was the main producer and consumer and produced the most basic necessities like flour, candles, leather products, blacksmiths products and domestic items. After this period, the transformation of the industry become visible(ABS, 2012). In the years between 1820 and 1850, the manufacturing industry was enhanced by the growth of agriculture which led to an increase in wool production and exportation. The pastoral industry had started exporting more than half of its wool to the British markets. The increased import led to the development of manufacturing industries and other industries such as commercial sectors. This situation changed in 1840s when there were fluctuations in the British export prices which stalled the economic expansion that was happening in Australia. There was a decline in industrial activities. Despite the decrease in industrialization due to less demand for wool, New South Wales underwent an industrial between 1820 and 1850. The industrial growth was attributed to rapid population growth, which rose by 167000 between 1815 and 1851, increased population diversity, increased skills due to influx of skilled people and the spread of settlement. A characteristic of population increase is that it leads to greater demand for food, drinks, transport, construction and communications. Manufacturing activities in Tasmania did not grow in similar way but primary produce manufacturing was emphasized to meet the needs of the small population. With advancement of time, several activities were done including ship making and flour milling. In other Australian areas such as Victoria and South Australia other manufacturing activities like flour milling, brewing, tanning and metal smelting were established. At the same time, some regions such as Western Australia and Queensland did not have any manufacturing activities. In the 1850s there was little development in terms of manufacturing activities because it was a period of gold mining. It led to change in focus from improvement of the manufacturing industry to the gold rush. This situation was however resolved in 1860s when manufacturing industries started to pick up as the gold rush led to population increase which led to the increased manufacturing activities (ABS, 2012). According to Australian Bureau of Statistics (2012), the gold rush also had effects on the development of manufacturing industries. The population growth led to an increase in demands for food, housing and employment. The manufacturing industries focused on the manufacture of building materials and equipment that was used to mine gold. The economic growth between 1860 and 1900 was steady. There was an increase in manufacturing industries at the same time in most of the Australian regions except Victoria and New South Wales that started to experience a decline in the manufacturing. The manufacturing industries became a source of employment and in 1861, it had contributed about 4% of the Australian GDP. In the 1800s, the largest boost to the Australian Economy was the increased public activities. The Australian government started reinforcing tariffs in Victoria in 1867. This move of protectionism raised funds that were used in the development of roads and rails. In the late 1800s, the British governments awarded loans to the Australian government to use in developing of rails. These led to an increase in manufacturing industries that were focused on manufacture of building materials. These developments however, came to a stall when the funding that came from external sources was stopped. The lack of funds stalled the development processes but industrialization had increased. The manufacturing industry continued to grow in early 1990s and was greatly enhanced by the need for war equipment and materials. Before the war, the main economic activities in the country were agriculture and production of natural production. The onset of the war led to disrupted shipping which reduced exports and imports into Australia. It was at this point that Australia grew from primary production to secondary manufacturing industries that dealt with steel products. This was mainly done in Newcastle area of the New South Wales. This industry was boosted with the onset of World War II which led to diversification of the industry due to the demand for machinery, equipment, aircraft, ships, chemicals and so on(Friedman, 1996). Labor protectionism In Australia, protectionism was introduced before the first and second world wars. Protectionism is defined as an economic policy that advocates for high import rates, this helps in the advancement of domestic industries. It is aimed at enhancing the market of locally produced goods. This is enhanced by governments that provide companies with subsidized production costs and set tariffs that foreign tariffs must abide to. The greatest drawback with this is the fact that other countries will impose similar tariffs on their products. This results in poor exports and imports and poor economic growth because of limited trade (Chmielewski, 2011). Apart from subsidized production costs for local companies and high tariffs for external producers, the protectionism can be enhanced by imposing of quotas on goods that have been imported. This method ensures that foreign countries are not able to ship more goods despite a subsidized production cost for the country. Lastly, protectionism can also be implemented by the deliberate action of a country to lower its currency value. This may be achieved through a fixed exchange rate or by creating too much national debt. This method works well but in some cases it may lead to a currency war. The advantages of protectionism are that they allow new companies to rise in the country without competition from various countries. The company is able to develop goods efficiently. It is a source of employment for local residents. This is because the tariffs, subsidies and quotas limit the company to hire locally. The main disadvantage of protectionism is that it weakens the industry after a while. This is caused by poor competition and hence lack of creativity and innovation to enhance the product. This eventually slows the economic growth(Borland, 2001). In Australia the protectionism was first introduced in Victoria in 1967. It was through tariffs that were used to raise money that was used for infrastructure development. More protectionism was introduced between 1901 and 1930. These included changes in the manufacturing industry that eliminated custom barriers between federations but came up with tariffs. The tariff led to the growth of the industries because the foreign countries were not allowed to sell their products. The government of Australia saw the need for self-sufficiency and hence in 1921, the Greene tariff was used to increase protection. This tariff was aimed at protecting new and established industries. In 1921, a tariff board was established and its main function was to be an advisor of the government on matters that related to tariffs. In 1927, the Brigden committee was set up so that it can inquire on the economy of the tariff. The two committees suggested that the tariffs were sufficient and more protection will be needed after more careful scrutinizing. In spite of this, the government went on to enforce more protection laws in the next ten years. The benefits of these tariffs were improvement of the manufacturing industries and consequently led to economic growth. On the other hand, it led to products that did not have competition and may be of poor quality. Neo-liberalism Neo liberalism is the trade method that is comprised of privatization, free trade, deregulation and reduced government control so as to enhance the private participation in the economy. Free trade on the other hand is one of the methods that is currently embraced by developing worlds. It involves agreements between nations to drop import barriers and hence allow foreign goods and products to compete with those that have been made locally. In Australia these policies have been embraced since 1980s by the governments of the Liberal party and Labor party. This has been done by privatization of government corporations, reduction of trade protection, floating of the Australian dollar and deregulation of factor markets. The neoliberal reforms have had several negative impacts. Firstly, it has led to increased inequality. This is seen in the unequal distribution of post-tax income due to less progressive tax systems and tax systems that are not generous. Secondly, it creates competition as they worry if their productions can be sold internationally. Thirdly, it increases employment insecurity as companies opt for outsourced staff. This will also lead to loss of jobs for some people. Neoliberalism gives such a gap between the mangers, high skilled workers and the le skilled workers. It has allowed employers to hire and fire at will which poses financial insecurity for the employees (Quiggin, 1996). Regulatory institutions and effects of deregulation One of the regulating bodies that relate to manufacturing industry is the tariff board which was established in 1921 and changed the name to Productivity Commission in 1998. Its main function is to provide advice to the government on industry policies, regulation and various environmental and social issues that relate to the manufacturing industry.. It is also in charge of research, reporting, investigating and analysis on matters that relate to the manufacturing industry and productivity. It advices the government when making decisions and long term policies that will be used to enhance the economic growth of Australia and are based on productivity and industry(Productivity commission, 2014). A significant body that is found within the productivity commission is the Australian Government Competitive Neutrality Office which delivers the Australian government competitive neutrality. Competitive neutrality is aimed at promotion of efficient and healthy competition between private and public companies. Another significant contributor to the Australia economy is the industry policy that controls manufacturing company. In the last 40 years it has undergone many changes. Since the embracing of neo-liberalism, the tariffs have continually decreased as Australia hoped to attain the goals of Asia-Pacific Economic Corporation of free trade in its nations by 2010. Australia has signed six Free Trade Agreements (FTAs) with other countries and has eight FTAs that are under negotiation. This is an embrace of neo-liberalism. It has also made commitments that regard tariffs, subsidies, tariff quotas and domestic support for the products of agriculture. Import restrictions are implemented by Australian Customs and Border Protection Service. These import regulations are detailed on factors like government regulations, permits, quarantine, import taxes and permits. Neo liberalism is enhancing the economic growth of Australia due to increased neutralized competition. As it embraces neo-liberalism, Australia has to be careful so as to enhance free trade and create industry and trade policies that will lead to economy growth (Lai, 2012) The move from the era of protectionism to the era of neo-liberalism has had significant effects on the economy and industrial performance of Australia. It has been noted that although there was a rise in industrialization during the world war there was later a steady decline of the sector of manufacturing industries as other sectors became greater contributors to the GDP of Australia. Neo liberalization not only improves the quality of product or service due to the increased competition, it also expanded the available market of the available goods. It therefore eased the process of exports and also increased the quality of manufactured goods. Markets were further increased by the signing of free trade agreements which eased trade and marketing of the products. Neo liberalism also led to privatization of many government run industries. Privatization allows the company to be run without government control. This allows the companies to decide on where to trade and expand depending on the needs. The biggest gains of free trade markets are the globalization, the economic growth and improved global relations. The main disadvantage of neo liberalization is the inequality that is experienced by employees that are skilled on different levels. The managers earn a lot more than the low skilled people(Lai, 2012). Conclusion The neo liberalization in Australia has had very positive effects on the manufacturing industry and hence the economic growth of the country. Initially, there was lack of competition on produced goods due to the import tariffs and high regulations that discouraged foreigners from participating in the Australian economy. However, the deregulation has changed and led to the growth of the manufacturing industry for Australia. It has been noted that the key industries that contribute to the GDP has also changed from primary manufacturers to secondary manufacturers. The government has taken the role of regulating the manufacturing industries. References ABS. (2012), Value of goods and services produced by the Australian industry. Retrieved 26 August 27, 2014 from < http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%2 0Features~Value%20of%20goods%20and%20services%20produced%20by%20Australia n%20Industry~240> ABS. (2012), manufactured commodities. Retrieved 26August 27, 2014 from < http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%2 0Features~Manuf actured%20commodities~148> Australian government (2011) Australia a wealth of opportunities, benchmark report. Australia. Tariff Board. (2008). In Trove. Retrieved August 27, 2014, from Borland, J. (2001) Microeconomic reform in Australia – An introduction, university of Melbourne Chmielewski, T. (2011), Free trade vs. protectionism. Retrieved 27 August 2014 from < http://smallbusiness.chron.com/trade-vs-protectionism-3830.html> Dyster, B. & Meredith, D. (2012) Australia in the Global Economy: Continuity and Change. Cambridge university press. Friedman, M. (1968), ‘The role of monetary policy’, American Economic Review 68(1), 1—17. Lai, S. (2012) the Case for Protectionism and the Subsequent Revolution. Retrieved 27 August 2014 from Quiggin, J. (1996), Globalization, neoliberalism and inequality in Australia. Retrieved 27 August 2014 from Productivity commission (2014). The role of the commission. Retrieved 26 August 2014 from< http://www.pc.gov.au/about-us/role> Reserve Bank of Australia, about monetary policy, Reserve Bank of Australia, n.d Szanto, F. (2014). The end of Australian manufacturing. Retrieved 27 August 2014 from < http://www.abc.net.au/radionational/programs/ockhamsrazor/the-end-of-australian- manufacturing/5478190> Read More