The global recession and Australian manufacturing

By Andrew Martin

Under the impact of the global and domestic recession, Australia’s manufacturing sector is facing its worst downturn since the early 1990s. Manufacturing output contracted 4.8% in the last quarter of 2008. More than 50,600 jobs in the sector were lost during the last nine months of 2008. According to an April survey by the Australian Industry Group (AIG), the main manufacturing employers’ association, manufacturing employment fell for the 16th successive month.

Released on May 1, the AIG survey of 200 companies revealed that overall orders fell for the 12th consecutive month (by 3.9%), while export orders fell for the eighth consecutive month (by 1.5%). Capacity utilisation was 67.5%, down from 75% a year earlier. Inventories were falling at their fastest pace in the 17 years of the survey. Employment in the sector fell by 1.9% in April, after having appeared to stabilise in March.

Manufacturing employs one-tenth of Australia’s workforce, so this bodes ill for the overall unemployment rate. Australia’s official jobless rate rose to 5.7% in March, from 5.2% in February, the biggest monthly jump since July 1991. During the 1991-92 recession, official unemployment peaked at 10.9%.

Pressure on wages

The recent wave of redundancies and the threat of mass lay-offs has put considerable downward pressure on wages. In January, workers employed at three Alcoa sites in Western Australia agreed to drop wage increases that they had already won in 2008 negotiations. The Australian Council of Trade Unions labelled the decision as “responsible union representation”. Commenting on the Alcoa workers’ decision, ACTU president Sharan Burrow said unions were focusing their efforts on keeping workers employed. In the capitalist media the Australian Manufacturing Workers Union (AMWU), which devised the deferral in wage increases, was portrayed as “mature and sensible”, while the Construction, Forestry, Mining and Energy Union (CFMEU) was described as “militant” and “reckless” for continuing with demands for wage rises.

At the General Motors-Holden plant in the Adelaide suburb of Elizabeth, the AMWU has accepted a plan under which the majority of the plant’s 3150 workers will be on a week-on, week-off day shift roster. During the off week, workers receive 50% of their normal wages. Weekly wages for most of the workers will in effect be halved, because afternoon-shift workers also lose the extra loading they were previously entitled to.

Rather than calling on the ACTU to launch a nationwide campaign for a shorter work week for all workers with no loss in pay, the AMWU national leadership hailed the Holden plan. Sounding like a spokesperson for the car components companies, AMWU national secretary Dave Oliver told the April 3 Adelaide Advertiser: “This decision of Holden’s should provide some security for the auto components sector which has been hit hard by the extent of down days and uncertainty seen recently. It is important that we maintain capacity, particularly in the component sector.” In the wake of the Holden deal, Adelaide car components company Tenneco, which makes mufflers for Holden, Ford and Toyota, announced that it did not have enough orders to sustain a five-day production week; it wants to put its 250 employees on a four-day week, with a corresponding cut in pay.

Subsidies to employers

The general response of the union officialdom to the recession has been to support the Rudd government’s subsidies to the employers via its economic stimulus packages, while calling for cooperation with the employers and the government for “buy Australian” industry plans.

When the Senate approved the government’s $42 billion stimulus package on February 13, the AIG declared that it would “help sustain business investment and support jobs”. This claim was repeated by the ACTU, with Burrow hailing the plan as “good for jobs and good for working Australians”, even though the government estimated that, with the plan, official unemployment would rise to at least 7% by June 2010. Treasury now estimates that official unemployment will rise to at least 8.5%, or about one million people.

When Pacific Brands announced in February that it would close its clothing factories in Australia, New Zealand and China, sacking 2800 of its 6000 employees, the Textile Clothing and Footwear Union of Australia organised rallies pushing the slogan “no more Aussie jobs to go overseas” and calling for a “tripartite” (government-employer-union) clothing industry plan based on all government-supplied clothing being made in Australia.

‘Buy Australian’

On March 4, federal industry minister Kim Carr told a Sydney forum of the AIG, “We are supporting buy Australian attitudes, but not supporting making it a mandatory part of government procurement” because this could invite retaliation from other countries. Union officials, however, have called for the federal and state government to guarantee the purchase by governments of locally made goods. The ACTU has endorsed the Australian Workers Union’s call for only locally made steel to be used in government-funded infrastructure projects. On April 22, ACTU secretary Jeff Lawrence defended the AWU’s “buy Australian” campaign, declaring it wasn’t “protectionist to aim to maximise local jobs and strengthen Australian industries so that they meet the needs of the domestic market, as well as position Australian companies for export markets”.

The AWU’s call came in the wake of a proposed “buy American steel” provision in US President Barack Obama’s stimulus package. The provision would threaten about $500 million in annual Australian steel exports to the US, according to trade minister Simon Crean. US business groups have also attacked the provision, arguing it could result in US steel corporations being shut out of economic stimulus programs in Australia, China, Germany, Britain and France.

Union officials’ backing for protectionist measures as the “solution” to the jobs crisis promotes not only economic nationalism but even economic provincialism. Thus, on March 19 the Queensland branch of the AMWU announced the launch of a “buy Queensland” campaign. A media release issued by AMWU state secretary Andrew Dettmer called on the state government to give a “premium for local content” in government procurement guidelines, noting that the Northern Territory Labor government has “recently announced a premium for NT firms of 20 percent over other firms as an industry development initiative”.

Over the past 20 years, governments have attempted to address the long-term stagnation of capitalist economy through free trade agreements (FTAs) and exposing what were once protected industries to global competition. For instance, the Australia-US FTA removed tariffs from the textile industry and 99% of US manufactured exports to Australia. Australian governments have cut tariffs in order to force a restructuring of basic industry and shift capital into more specialised high-tech industries that are internationally competitive.

There is not a direct correlation between tariffs and jobs. In 1984 tariffs were 57% in the automotive sector. Since 1995 tariffs have been reduced from 27.5% to the current 10%. Between 1995 and 2003, when tariffs stood at 15%, employee numbers in the sector fell by 25,000 to 54,000. Numbers peaked in 2005 with an expansion in demand for accessories and components. Employment then fell by 25% in two years, to a total of 61,200 in 2007. Component suppliers employ the big majority of workers in the industry. In 2007 there were only 17,470 employees in the big four auto plants (GMH, Ford, Toyota and Mitsubishi), and that was before the closure of Mitsubishi Australian operations.

Overproduction

Falling demand for luxury cars, large 4WDs and passenger vehicles domestically and internationally is more of a factor than lower tariffs in the bleak outlook for employment in Australia. Global production of passenger cars and utility vehicles grew from around 66 million in 1999 to almost 70 million in 2006. This significantly exceeded global vehicle sales, which were around 67.5 million in 2006. Oil prices have risen, affecting consumer demand and driving up production costs. The crisis in Australian manufacturing is one of overproduction, not caused by wages pricing manufacturers out of competition. Factors such as the scale of production and the rising exchange rate of the Australian dollar have a far greater effect on the viability of the local auto industry.

Capitalist competition engenders higher and higher research and development costs for each model cycle; each year literally thousands of changes are made to any given model. Because Australia’s domestic market is so small compared to the European Union, Japan or the US, R&D is a major contributor to higher unit costs because they are not easily absorbed by small production runs. A number of new global automotive assembly plants have a minimum production capacity of 300,000 units a year. This is close to the entire Australian annual production. A capacity of 300,000 to 400,000 units per year is generally considered necessary to ensure profitability, especially for small and medium car production, where margins are lower.

Sales of locally built cars have been especially hard hit by the downturn. Australians bought 50,500 fewer vehicles in the first quarter compared with 2008, a decline of 19%. Holden exports, mainly to the Middle East and the US, are down as much as 80%. Holden’s Elizabeth assembly lines ran for just 26 days over the first three months of the year, making 620 cars over two shifts. It is now cutting back to one shift per day and considering further cuts.

The AMWU is calling on the government for a quicker turnover of its car fleet to support demand. Governments are only too willing to prop up the auto manufacturers with taxpayer-funded subsidies. But subsidies are no guarantee of employment. Mitsubishi received more than $200 million of taxpayer subsidies between 2001 and 2007 in the form of Automotive Competitiveness Investment Scheme credits, direct grants and loans. All of this — apart from the $35 million it has promised to return to the South Australian government — it pocketed and left hundreds of workers unemployed.

Tariffs and ‘free trade’

Many pro-capitalist economists condemn tariffs for preserving inefficiency and raising prices of consumer goods. Mining companies in particular call for free trade because tariffs in other countries threaten the profitability of basic commodity exports. The intention of tariffs is to restrict international trade in order to support local capital. Trade unions often support tariffs under the pretext of preserving jobs.

“Free trade” supposedly removes these barriers to provide a “level playing field”. However, “free trade” can hardly be termed “free”. Countries that enter negotiations for a “free trade” agreement seldom have equal bargaining power. The WTO doesn’t manage trade as an impartial arbiter, but favours member countries that do the bidding of transnational corporations and that trade in the US dollar. Even between the most advanced capitalist countries, it is not a “level playing field”. For example, Australian farmers are well aware that both the United States and the European Union are staunch partisans of “free trade”, yet both subsidise agricultural exports. There are different rules for different players on this supposedly level field.

Contrary to the view of the corporate media, “free trade” is not a new phenomenon, and the debate between “free trade” and protectionism is not new either. In 1848 Karl Marx made a speech, “On the question of free trade”, on the removal of the English corn laws, which were tariffs on the import of cheaper foreign grain. At that time, the industrial capitalists of England, then the most powerful capitalists in the world, were demanding an end to these tariffs because they made workers’ food more expensive and therefore kept wages higher. The English landlords wanted to keep the corn laws since they resulted in higher rents for agricultural land.

Marx supported neither the protectionists nor the free-traders. He pointed out that it was a fallacy to suggest that lower priced commodities would increase the purchasing power of workers. He pointed out admissions that free-traders themselves had made. An English capitalist economist who advocated free trade, David Ricardo, explained the real agenda behind the removal of the corn laws: “If instead of growing our own corn ... we discover a new market from which we can supply ourselves ... at a cheaper price, wages will fall and profits rise. The fall in the price of agricultural produce reduces the wages, not only of the labourer employed in cultivating the soil, but also of all those employed in commerce or manufacture.”

The capitalists could see that there were lucrative profits to be made from the import-export trade and from lowering the cost of the reproduction of labour. Marx explained: “When less expense is required to set in motion the machine which produces commodities, the things necessary for the maintenance of this machine, called a worker, will also cost less. So long as the price of corn was higher and wages were also higher, a small saving in the consumption of bread sufficed to procure him other enjoyments. But as soon as bread is very cheap, and wages are therefore very cheap, he can save almost nothing on bread for the purchase of other articles.”

Marx was scathing about the supposedly philanthropic intentions of the free-traders, who at that time were mostly manufacturers: “Besides, how could the workingman understand the sudden philanthropy of the manufacturers, the very men still busy fighting against the Ten Hours Bill, which was to reduce the working day of the mill hands from twelve hours to ten? If the landlords were to sell our bones, you manufacturers would be the first to buy them in order to put them through a steam-mill and make flour of them.”

Marx was just as scathing of the protectionists, pointing out that the real aim of protectionism was not to reduce exploitation, but to further capitalist development. While capitalists, whether protectionists or free-traders, differ on the methods of maintaining the capitalist economy, they have the same aim of reducing the wages, living standards and democratic rights of the working class in order to enrich themselves from workers’ labour. It is foolish for workers to sacrifice hard-won gains in the interests of international competition. The question needs to be approached from the standpoint of workers’ needs, not the capitalists’ profits.

[Andrew Martin is an AMWU delegate and member of the Revolutionary Socialist Party.]