Australia's Manufacturing Sector

AUSTRALIA'S MANUFACTURING SECTOR

The manufacturing sector holds a vital place in the Australian economy, due to output and employment levels which exceed that of the agriculture and mining sectors combined. With the ever increasing growth of modern technological innovation, the manufacturing industry will continue to play an important role in the economy. Manufacturing is defined in the Macquarie Dictionary as "the making of goods or wares by manual labour or by machinery, especially on a large scale" (Macquarie, 2009). This mean that any form of new technology is created through the manufacturing industry therefore if your say technology is the future than manufacturing is also. The Department of Innovation, Industry, Science and Research in 2008 voiced the opinion that "Over the last forty years, Australia's manufacturing sector has changed into a more productive, capital intensive and globalised industry sector". I agree fully with this statement due to Australia's increasing manufacturing output rates and statistics stating that "Since 1975 manufacturing has increased from $65.73 billion in the year to June 1975 to $96 billion in the year to June 2006" (ACCI, 2007). Obviously the easiest and most realistic way of determining the appropriateness of the statement made by the DIISR is to discuss the productivity, capital intensiveness and the globalisation of the Australia's manufacturing sector, in relation to other sectors of the economy and manufacturing in the rest of the world.

Firstly a strong understanding of this sector must be made. What does the manufacturing sector do? It is responsibly for production of food, beverages, tobacco products, clothing, petrololeum, coal, chemical, metal and non metal products, rubber products etc. The manufacturing sub-sector and contributions to output in 2006 are represented below (ABS 2006, Cat No 5206.0).

The Federal Government Productivity Commission (2003) explain that due to Australia's reduced trade barriers, the increasing world income and globalisation, trading in the manufacturing sector is growing faster than primary commodities (materials in raw and processed state e.g. iron ore). Australia's trade prospects have never been greater for the manufacturing sector. The overall performance of the manufacturing sector can be viewed from a relative terms, meaning in relation to other sectors of the economy and in real terms or the actual profit of this sector.

A long-term study of the productivity of the Australia's manufacturing sector will show that its output has declined, but this decline is in relative terms to its proportion of GDP (gross domestic product) which is the total value of goods and services produced by the economy. GDP is used to measure the size of the economy.

This representation of data from the Australian Federal Government's Productivity Commission research paper: Trends in Australian Manufacturing (2003) shows the percentage share of the economy (or percentage of GDP) by several sectors of the economy. This tells us that the manufacturing sector's GDP has declined from its peak in the early 1960's. This is mainly due to the more rapid growth of other sectors of the Australian economy, in specific the services industry. This data shows the slow decline of output over the past from 1950 - 2000 by the manufacturing industry. So by looking at this set of data alone and only studying productivity in relative terms and percentage of GDP, I would have to disagree with the original statement made by The Department of Innovation, Industry, Science and Research in 2008 that inferred that "Over the last forty years, Australia's manufacturing sector has changed into a more productive, capital intensive and globalised industry sector". This is only half the picture; the productivity of Australia's manufacturing sector has increased in real terms. The image below shows the contribution of each sub-sector to manufacturing output over the years 1984-2006 in real terms (Australian Bureau of Statistics 2006, Cat No 5206.0).

There is an upwards trend evident for all of the manufacturing outputs presented, which supports the claim that Australia's manufacturing sector has become more productive over the past 40 years. This also proves that by studying only GDP of this sector, a vastly different realisation will be made. Therefore because of this I agree with the original statement made by the DIISR.

Aside from looking at the productivity of Australia's manufacturing sector to determine its growth, we can also study the change in capital intensiveness. Capital intensiveness can be defined as the degree at which a company or business must invest in physical assets such as machinery, buildings etc. It takes a lot of money to develop a capital intensive business, therefore any business with large amounts of capital will profit more so than the other with less capital. The need for more capital intensive businesses has risen