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Thursday, 24 November 2016
Some jobs are going but it's automation, not free trade, that's the problem
We need to face up to the fact that the 30 year receding tide of the manufacturing sector won’t be turned if only we had more trade barriers
‘You can’t expect to have the benefits of paying the same for a car as you did 25 year ago and also expect to have a thriving local car industry.” Photograph: Oli Scarff/AFP/Getty Images
There has been a lot of talk of late – especially fired up due to the US presidential election – over the loss of manufacturing jobs. It is not a new phenomenon, after all Bruce Springsteen was singing in 1984 that “these jobs are going boys and they ain’t coming back”. And while the blame is easily laid at the feet of trade, figures from the USA show that the bigger reason is automation – and it will not be limited to manufacturing.
One of the problems with Trump’s narrative that free-trade agreements have been the major cause of job losses and the gutting of the manufacturing industry is that the USA manufacturing industry is actually doing quite well.
The problem is not the manufacturing industry is shrinking, but that the output is more and more driven by technological improvements, not increases in labour.
An article published last week by Mark Munro in the MIT Technology Review noted that since the 1980s USA manufacturing output has increased, but employment has declined: And more importantly since the recovery from the GFC, USA manufacturing output has surged, but employment has not. The reason isn’t trade, but, as Munro notes, the “highly automated nature of the sector’s recent revitalisation”.
It’s not surprising manufacturing workers, both current and former, believed Trump’s spin – after all a drowning man will clutch at a straw. And it’s not surprising that we have heard similar rhetoric here in Australia, because the story here from the 1980s through to the GFC is remarkably the same as in the USA – increasing output, and flat/declining employment.
During the 1990s Australia’s manufacturing output rose in sync with that of the USA (though not by as much) and our employment remained similarly flat.
The difference was employment in the USA manufacturing industry began to fall in the early 2000s after it suffered a recession, whereas Australia entered a boom period: Just prior to the GFC in June 2008, Australian manufacturing output was 50% higher in real terms than it was in 1987, but employment was 1.5% lower.
But the problem is since the GFC, both employment and output have fallen – a point that is made clear when looking at output and employment since 1987 relative to where it was in June 2008: In the USA, manufacturing output is now back where it was prior to the GFC, whereas here in Australia manufacturing output is now lower in real terms than any time this century.
In the eight years prior to the GFC, Australian manufacturing output grew by 15% - just below the 17% growth achieved by the USA manufacturing sector in that time. But while the output growth was much the same, our employment held up much better – it fell just 2% compared to a 20% fall in the USA: But in the eight years since the GFC, while the USA’s manufacturing output has recovered, employment remains poor – 10% lower than it was before the GFC. In Australia, output is down 14.5%, and employment in the industry is down 16.5%.
Thinking that an increase in manufacturing output will solve things is however shown to be a mirage. Since the bottom of the GFC in June 2009, USA manufacturing output has surged 32%, but there has been a mere 2% increase in employment.
This is bad news for manufacturing workers in the USA, but especially here in Australia.
The problem for Australia is that we are much more affected by loss of output though trade as well as the shift towards robotics.
The USA remains easily the largest economy in the world. Even with the ability to import manufactured goods from other nations with cheaper labour, the market for American-made goods remains massive given the size of USA domestic market.
But at 6.5% the size of the USA’s GDP, Australia’s economy is to the USA like South Australia is to the rest of Australia. As a result we don’t really have a large enough domestic market to sustain our manufacturing industry – imagine how well a manufacturing industry would go if it had to rely only on selling things within South Australia’s borders.
It means our manufacturing industry is not only subject to shifts towards more productive output (that is, less labour, more robots) as is the USA, but more subject to losing manufacturing to other nations due to trade.
It’s no real shock that since the Australia-USA free trade agreement came into effect in January 2005 exports to the USA have increased by 30%, but imports from the USA have increased by 40%:
Australia's trade with USA
Exports, FOB value; Imports, customs value. Orange is after signing of AUSFTA
It’s one of the reasons why the productivity commission has not been all that praising of free-trade agreements. For Australia the benefits of free trade mostly come via cheaper imports than from an increase in exports.
The decline in manufacturing output since the GFC doesn’t mean we should be against trade – but you can’t expect to have the benefits of paying the same for a car as you did 25 year ago and also expect to have a thriving local car industry.
And we also we need to face up to the fact that the 30 year receding tide of the manufacturing sector won’t be turned if only we had more trade barriers.
As we can see from the USA’s figures – and indeed from our own over the past 30 years – even if our manufacturing output does improve, it won’t lead to an increase in manufacturing jobs.
And if you think that is bad enough, just remember that the automation takeover that has happened to manufacturing over the past 30 years is now happening in other industries.
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