Manufacturing inquiry a missed opportunity

Guest Contributor: Kim Campbell

June’s Independent Report on the Inquiry into Manufacturing rather missed a golden opportunity by diverting its focus onto the policy prescriptions of its sponsors, the opposition parties.

But it was a pleasure seeing a group of our politicians with a newly discovered respect, even enthusiasm, for the role played by manufacturing in an advanced economy such as ours aspires to be.

After all, the producers of New Zealand’s fine products from our farms, forests and seas would be much the poorer were it not for the value added by our manufacturers.

It’s even more true that our foodstuffs have to be processed or manufactured in short order lest they start to deteriorate.

On top of that, there’s the productivity enhancing machinery and equipment made and sold in New Zealand, which also earns some $3 billion a year in exports.

The missed opportunity in the report is that it didn’t take adequate time to spell out this value, value which is in terms of innovation, skills development, exports, and in knowledge-rich jobs which pay far more than sectors such as tourism or retailing.

It’s a pity because New Zealanders are by and large ignorant of the economics underpinning their standard of living, and the report’s publication could have used its moment in the media sun to help enlighten them.

Instead it conveyed an idea to the public that manufacturing is on its knees, a sunset industry needing additional policy prescription hand-outs to keep it viable. Nothing could be further from the truth.

The report also fails to articulate the exponential scale of change taking place to manufacturing processes worldwide, and the great strides being made in New Zealand to embrace these changes. They describe in brief that an increase in the value of manufacturing output may not require a commensurate increase in the numbers of people directly employed in manufacturing.

Forty years ago when post war manufacturing in New Zealand was enjoying a heyday, it was not uncommon for manufacturing businesses to operate their own transport, accountancy, financing, design and other services all included in the numbers of people they employed.

Today services like these are typically ancillary to a manufacturer’s core business. Production and trading complexity, and specialization have seen them steadily outsourced, so much so that their proliferation elsewhere in the economy led to some commentators in the 1980s and 90s to proclaim the advent of the services economy. As if services could be delivered in a vacuum somehow independent of tangible goods being produced or the people producing them. As if we were all going to get rich serving each other burgers and fries.

Outsourcing practices and quickly advancing automation meant the numbers employed in manufacturing steadily diminished, and the skills of those employed changed, while the value delivered rose in dollar value terms.

Employment in the sector reached a peak of 320,000 fulltime jobs in 1985; in the ensuing six years under the Labour government’s liberalization programme 80,000 jobs were axed from the sector. Now manufacturers employ about the same number as in the early 1990s while delivering 20 per cent more in GDP terms, the sort of productivity growth needed to lift our standards of living.

Rather than examining in detail how manufacturing had changed and how that change is accelerating, or noting that manufacturing is to be lauded, and is delivering more value than ever in an economic environment more open, unprotected and unsubsidized than just about anywhere else, the Inquiry Report tried to prove the reason for its commissioning – that there is a crisis.

So I found it less than persuasive and the recommendations underwhelming.

But there is good in it. The suggestions on government procurement have merit and should be examined further even if sound steps on this are underway right now.

The emphasis placed on capital investment is laudable though the policy settings called for are basically unintelligible.

Innovation and R&D are also well incentivized at present, with the current regime less likely to be abused than a tax credits system.

To complement them, we recommend a blanket reduction in company tax to make us more competitive with comparator nations.

Other recommendations in the report are also well catered for in our present policy settings.

On monetary policy we are pleased to see the leader of the Greens has come to his senses and for reasons known only to him has withdrawn the idea of printing money to lower the currency.

We are on record as fully supportive of the Reserve Bank Act in its present form and in the stewardship of the current Governor Graeme Wheeler.

Kim Campbell is chief executive of the Employers and Manufacturers Association

kim.campbell@ema.co.nz