Make-up solutions wear thin

Blaming mining and the high Australian dollar for manufacturing's recent woes risks missing the point of what is really needed to get the troubled sector back on its feet.

With BlueScope Steel announcing that 1000 jobs will be cut from its NSW and Victorian operations, politicians, industry groups and unionists have proposed strategies to stem job losses.

But much of what has been proposed so far will hinder, rather than promote, the national economic interest.

Leading figures within the Left faction of the Labor Government have called on mining magnates to direct more of their capital towards manufacturing, or, in other words, do less mining.

If miners were to do this, however, Australia's flagging productivity performance would worsen, since the productivity of manufacturers is considerably less than that of miners.

This would mean the longer-term living standards for all Australians would decline.

For that matter, a shift in economic activity from mining to manufacturing would impede manufacturers, such as steel makers and services industries with close links to mining companies.

Others have called for governments to buy more products manufactured locally to offset reductions in demand for Australian manufactures overseas because of the high dollar.

But taxpayers would be worse off if governments were forced to buy more expensive, Australian manufactured goods rather than overseas alternatives.

Another option being considered, but would also be wasteful, is boosting the profile of Buy Australian, taxpayer-funded campaigns promoting local manufacturing sales.

Perhaps the most audacious policy suggestion has come from Prime Minister Julia Gillard, who stated the carbon dioxide tax will assure a ''bright future'' for manufacturing.

The idea behind this claim is manufacturers will build renewable technologies, such as windmills and solar panels, once Australia imposes a tax penalty on coal-fired electricity generation.

But this ignores the fact that manufacturing capital is highly specialised and cannot be shifted from one form of production into another as if by magic.

The replacement of cheap, coal-fired electricity by costly renewable energies will only dilute the competitiveness of manufacturers and other businesses reliant on energy to produce goods and services.

Governments should instead promote deregulation, tax reductions and other reforms, encouraging manufacturers to discover new sources of value at home and abroad.

The creeping growth in regulation in recent years has imposed significant burdens upon manufacturers doing business in domestic and international markets.

In particular, labour market re-regulation has built up input cost pressures for manufacturers as wages growth increasingly outstrips productivity performance at the firm level.

The threat of new federal taxes has not helped manufacturing businesses, either, as consumers hold tight to their wallets in fear of depredations to come.

A reformist policy approach would be more worthwhile than a throwback to pre-1970s protectionism.

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