If Manufacturing is the answer what is the question?

Australia's has enjoyed 29 years of Prosperity. It has come to an end.  I suggest that Australia is different now and, on that basis, we need to behave differently. There is a NEW language emerging around the COVID. Never before have we had to manage the conversation around lives v livelihoods so overtly. It is the opportunity of a millennium.  A paradigm shift in thinking inconceivable just weeks ago.

While the challenges are unprecedented and profound there is an opportunity confronting us. We have a choice to reshape, recreate a NEW narrative about our future in the following terms.

There is necessarily urgent work to do to address the COVID – to protect and sustain the health of Australia and getting the Australian system working again in whatever form that emerges. 

In my recently published book Innovation in Australia – Creating Prosperity for future generations, I have completed an overview of the cultural challenges in the Australian business system specifically concerning Innovation in Australia. I have reviewed our history; documented an assessment of our current performance; presented the brutal facts and made some proposals about a pathway forward - a New Narrative for Australia. The pathway involves several radical thoughts which are specifically relevant to our current crises. None of them is a quick fix. 

When I wrote the book, I had no concept of the COVID and its impact on the world and Australia.  Now it is now even more urgent that we consider some of the ideas in this book. The way out as it is now being described involves new thinking about "shaping the future."  

Ian Fraser AC has said in his review:

“This book sets out to shock.  I read it in two hours, and  believe that those two hours would be well spent for any person, whether politician, board member, university vice-chancellor, trade union leader, employee or high school graduate, who aspires to shape the future of this country in the global village positively in the 21st century.” 

The COVID has destroyed any sense of smugness and complacency that comes with extended periods of success. As John Howard said: “Australians are entitled to feel relaxed and comfortable”. Not anymore!

As I have previously written, there is little evidence anywhere in history that human systems can sustain high levels of performance for long periods. It was inevitable that something would challenge our golden run. As it happens, it is an invisible force which is challenging the world. 

We have had to work hard, as I understand it, to guarantee that our health workforce has appropriate clothing (PPE) and technology to manage in this extraordinary time. And that our health infrastructure can cope with a threatened, massive increase in demand. Today it appears, Australia is in a good position but cautious about whats next?  (For now, the numbers are with us.) It is not over and, it may not be over for a long time. The government has proposed radical and positive responses – decisions made, which in the light of our history, are incomprehensible BUT needed. 

Leaders in all spheres are stepping up and need support as we negotiate this time.  

In the fulness of time, there will be reviews and studies about what happened? How it happened? How well prepared were we? How we responded? And were the results what we expected? Specifically, the critical question is, what are we learning? As a nation, we are participating in a living social experiment. No one has lived through anything like this before, so every step is a step into the unknown. As a learning event, it is both devastating for many and profound. We know that for individuals major learning happens around big life events – deaths in the family, losing jobs, loss of businesses, major health crises. It is when we discover who we really are.

For Australia, the nation - the learning is profound and it is shifting the thinking for future generations. It is an opportunity to reconstruct, reshape recreate – Australia. It is a time to think about a multi-generational view -to lift ourselves from the comfort and complacency of the last few decades.

There are other countries that have a multi-generational view of the future.

Japanese business leaders and Boards of Directors think about industries in multi-decade time spans instead of three to five years periods so common in Australia. Financial Review 17-18 August 2019

It appears we have much to learn and we are learning on the run. One very positive initiative is the establishment of the National Cabinet – which is a breath of fresh air compared to some of the other institutions we have in place.  The National Cabinet – it is a huge opportunity to think and plan differently. We are living in a system which was designed 120 years ago – a different world. A new different form of leadership structure/s may emerge. The new structure might well reflect the reality that we are living in the 21stCentury.

In recent days much has been written about the absence of manufacturing capacity in certain vital areas of industry and our dependence on other countries for crucial medical equipment and other supplies. There are early discussions about the opportunity to fix the problem quickly. Who could argue with that? Manufacturing has been declining for many years – it is a low % of GDP.  When GMH, the last of our car manufacturers closed, there was a short period of national mourning - and we moved on.

Since the mid-70s, globalisation and the pursuit of efficiency (reduction of costs) are dominant paradigms.  In the significant business countries of the world, the emergence of shareholder value as the purpose of business has created a force which in many ways is destructive to national independence and sovereignty. It creates a form of short-termism which dominates the business system in many countries. It has become a race to the bottom. Outsource as much as we can for the cheapest cost, and have it delivered Just in Time. In times of crises such as the one we are in (The COVID), these philosophies have left us vulnerable. This time it appears suppliers (countries) are thus far obliging, but it may not always be so. 

Surely business and government in Australia have as a strategic imperative - Australian Independence -resilience is the new buzz word in times of emergency. One platform is to ensure Australia has an industry base which ensures our prosperity, our safety and our security over decades even centuries? 

Manufacturing is important.

There was some great work in the late 80s and early 90s on microeconomic reform. Floating the $, Removal of Tariffs, GST, Enterprise Bargaining and Award Restructuring, the Future Fund – but it stopped. It's hard to believe that those who initiated these changes imagined that reform would end or that some industries would outsource vital parts of our supply chain. For 20 years, we have lived in a “dream time bubble”. It is a simplistic model "look how clever we are syndrome!" No hands!

I have done some basic research on Innovation in Australia and there is a number of systemic issues we face in commercialising our research. 

Andrew Liveris (the Australian former Chairman and CEO of American multinational Dow Chemical Company) has suggested that most global innovation comes from the manufacturing sector. 

“Innovation is most successful when it goes hand in hand with production, particularly in the advanced manufacturing sector. In fact, a recent McKinsey study found that manufacturing accounts for up to 90 per cent of private-sector R&D in major manufacturing economies. 

This is one of the reasons I have championed advanced manufacturing in every corner of the world for many years. Because the solutions we seek... the solutions that will drive sustainable growth and human progress... will be found at the intersection of innovation and production. 

Australia, to be frank, is behind in this area. As you know, we have allowed our manufacturing sector to shrivel in recent years... settling for an economy defined by exporting natural resources. 

Do not get me wrong – this approach has produced incredible growth in the short term. However, overemphasising extraction and export – at the expense of other priorities – has clear downsides.”

The link between innovation and the manufacturing sector (only 6.3% of the economy), is critical. 

When we come through this, the challenges are there. This current burst of energy to rebuild manufacturing is essential, but, it is not a one year or three-year project. Industry building is a multi-generational strategy made up of multiple large and small strategies and plans. Who in this country is looking at the long-term possibilities? There are countries in the world who do – we are not one.  In my view, both business and government are myopic, lacking in imagination and self-interested. E.g. (the three-year electoral cycle). It is a cultural problem. 

Tradition, Custom, Ideology and lack of imagination (lack of foresight) are severe limitations on our capacity to move forward. Some years ago I spent some time in Kuala Lumpur at a conference, and I was having coffee in the foyer of the Conference Hotel reading a local business paper. I discovered this table. It highlights for me the time frames involved in Industry building.

A simple reading of this table suggests that:

The  United States took 90 years to develop serious manufacturing industry capacity. If, as is reported, many of the manufacturing jobs in the US are now in China, it only took them 20 years to dismantle it.

China built its manufacturing system in about 30 years. The United States and Australia are dependent on them for many products. Now China is a higher wage country and under threat from countries like Vietnam and Mexico. 

There are a number of stages and industry grows through to reach a level of sophistication. Older Australians can articulate the introduction of Japanese products to Australia.Initially, they were considered inferior but over time..... (it is a similar story for South Korean products.)This chart describes the move up the value chain from low cost, low tech manufacturing to low-cost medium-tech manufacturing to low-cost high-tech branding design and manufacturing and finally to a Knowledge Economy(eg Service Industries). This is what happened in Japan, South Korea and now China. (To be followed by Vietnam, Mexico and ......

Any decisions we make over the next 3-5 years will require much discussion and debate and the debate needs to be had in the context of a larger Vision. We are in a region dominated by cultures very different from ours. China, Indonesia, India and Vietnam all have the capacity to be influential in our future and they are working now.

It seems China (our major trading partner) has a very long-term view evidenced by:

·       The Belt Road Project (involving 60 countries) which extends to investments from China thru Asia to Europe and 

o    multiple large (50year-100year) projects

o   their investment in the African Continent

·       Japan has also had a long-term view and while they have internal issues with their economy and population decline it is no mistake on their part that they have a shareholding in many Australian businesses.

The topic of this article is: If manufacturing is the answer, what is the question?

I submit that there are many questions, and I have articulated some of them in my book referred to earlier. 

I’ve also talked about the importance of vision-driven (‘big picture’) planning. It requires us to consider how we see Australia evolving over the next 50 years: 

Is Australia: 

? a business leader in selected value-added industries, capitalising on the billions we have spent on R&D over decades?      

? a nation that has transformed itself from a service economy to a high- technology industry hub for Asia and the world?

OR 

? an intellectual property hub (where our intellectual property is generally licensed or sold offshore?) 

? a business incubator (where any business of substance is sold to the highest bidder)? 

NOTE: In 2019 Australia sold 16 food businesses to international investors. 

Building industries based on Australian innovation is the way to increase the size of the pie to ensure Australia's future Prosperity. It requires a shift of mind at every level of Australian business and government. It will also need some radically different approaches. It will require a form of business and government leadership which we have not seen in Australia in my lifetime.

·       Shrinking to greatness (thru productivity and cost reduction) and outsourcing competence may be good for shareholders BUT it is catastrophic for countries -A “dumb” mindset!

·       Innovation in a vacuum is nonsense – A purposeless mindset!

We need to build a system that enables our country to create a  narrative about Future Australia – there is nothing now. 

Leadership requires:

 ? imagination

? foresight

? courage 

? competence

? resilience

? and dare I say it, some mongrel. 

The sky is not the limit....There are footprints on the moon! Buzz Aldrin with Ken Abraham)