Now that Holden is to stop making cars in Australia, we’re already hearing about the impending death of Australian manufacturing.
Before you descend into gloom, take a look at this manufacturing data from the World Bank. It sets out how manufacturing value-added has been moving, as a share of GDP, for most of the countries on the planet.
Summary: If present trends continue, eventually the only country making stuff will be South Korea. Plus maybe Bangladesh and Nicaragua.
Slightly smarter summary: As you get richer, manufacturing looms smaller in your economy.
Australian manufacturing’s share of GDP peaked some time well before 1990, and in the past 20 years or so its manufacturing value-added as a share of GDP has dropped from around 15 per cent to around 9 per cent.
Sounds pretty bad? Maybe not. That decline is of the same order as other developed economies, although it started from a lower base than most. Canada’s manufacturing decline is very similar to ours, right down to the media fretting.
But surely it’s a very different story for places like China? Let’s look at the data. When did Chinese manufacturing peak as a share of GDP? Ooh. 1980. They’ve been going downhill ever since, if you want to see manufacturing as all-important.
How about Germany? That same year of 1980 is also the peak in the German manufacturing-share data, at least in this series. (But then, 1980 is the first year for which we have data in this series, so the true peak was probably earlier). Back in 1980, manufacturing was 30 per cent of the German economy; now it’s barely 20 per cent.
It’s the same for almost any country you can think of. Norway peaked in 1974, India in 1979, South Africa in 1981, Turkey in 1998, Ireland in 1999, Tajikistan in 2002, Malaysia and Singapore in 2004.
Here, have a graph. (Update: Now with Canada and Luxembourg! Update 2: Plus Japan!! Sorry Vietnam, no room for you now.)
Japan peaked in 1984, looked unstoppable, and 30 years on, worrying about the hollowing-out of Japanese industry is a national pastime in that country.
In the next two years South Korea will become the exception to this rule, for a little while at least, due to its growing capability in cars and electronics. History suggest its exceptionality will not last long.
It’s in the low-income economies that manufacturing is growing, the places just starting the industrialisation cycle. Nicaragua. Bangladesh. Uzbekistan (starting again, post-USSR).
Reckon this is cherry-picking? Download the data yourself and have a play in Excel.
Most of us think manufacturing matters to an economy more than it does; we underestimate the importance of services, especially in a relatively self-contained economy like Australia. (“Australia, trading nation” is a myth; we’re among the least trade-exposed nations on earth.) The obvious comparison is with agriculture: 120 years ago, more than 30 per cent of people worked in agriculture, and people would have laughed at a claim you could run an economy with a farm workforce less than two per cent of the total. But here we are, not noticeably starving to death.
What is almost certainly true is that the loss of manufacturing jobs has a distributional effect. In particular, less manufacturing means less employment destination for males without a good tertiary qualification. We need to keep addressing that distributional issue, because it’s not going away anytime soon as far as anyone can see. But we should avoid confusing the income distribution issue with the aggregate income issue. They’re very different.
Manufacturing is not as big in Australia as it used to be. But manufacturing is not as big as it used to be almost anywhere in what we used to call “the developed world”. For the old “developed” nations, it reached its peak between 1970 and 1990, and it looms larger in the thinking of people who came to maturity in those years. (People, perhaps, like Kevin Rudd, who famously declared that he didn’t want to live in a country which didn’t make things.)
If you think that manufacturing is the key to prosperity, the historical record should give you pause.
Note: Never mind Excel. Google has our manufacturing-data-fiddling needs covered. Naturally.