Bringing back Australian Manufacturing: Discard programmed obsolescence

[SirRumpole]

@SirRumpole

Watch this at the 2.30min mark, Warren gives a good description of the return he expects to get out of his energy utility and railroad business.

I think you will agree his approach is the right approach, and the fact that he provides the services cheap than most state grids kind of proves it, maybe we need Berkshire to take over own Australians energy system.

Yes, that's a good indication of what @Smurf1976 said about the quality of management being the most important thing. In utilities one would think that technical expertise is important too, and while WB doesn't have that, I think he is smart enough to take advice from the technical experts while he concentrates on looking after the finances.

I don't know if we have people of his calibre on the Australian scene, I hope we do.

 

[sptrawler]

Yes, that's a good indication of what @Smurf1976 said about the quality of management being the most important thing. In utilities one would think that technical expertise is important too, and while WB doesn't have that, I think he is smart enough to take advice from the technical experts while he concentrates on looking after the finances.

I don't know if we have people of his calibre on the Australian scene, I hope we do.

We will have and they will come to the fore if we have catastrophe, which looks more likely than not, the problem is everything is happening very slowly.

 

[Value Collector]

Yes, that's a good indication of what @Smurf1976 said about the quality of management being the most important thing. In utilities one would think that technical expertise is important too, and while WB doesn't have that, I think he is smart enough to take advice from the technical experts while he concentrates on looking after the finances.

I don't know if we have people of his calibre on the Australian scene, I hope we do.

Warren put Greg Abel in charge of the Utilities, and then Later also the Railway, and now he is going to be Warren’s Successor as CEO of for the whole of Berkshire Hathaway.

Listen to this short video of Charlie describe how good Greg is, it’s particularly interesting how he says Greg runs the companies as if he was the regulator.

You don’t really get guys as good as Greg at state owned institutions.

 

[SirRumpole]

Warren put Greg Abel in charge of the Utilities, and then Later also the Railway, and now he is going to be Warren’s Successor as CEO of for the whole of Berkshire Hathaway.

Well Greg Abel is an accountant, utilities are science and engineering based.

So if it comes down to good technology that costs more vs cheaper solutions that make more profit, which way does he go?

As with most private companies, they are shareholder focussed, not customer focussed , and a customer focus is necessary when supplying essential services.

 

[Value Collector]

1. Well Greg Abel is an accountant, utilities are science and engineering based.

2. So if it comes down to good technology that costs more vs cheaper solutions that make more profit, which way does he go?

3. As with most private companies, they are shareholder focussed, not customer focussed , and a customer focus is necessary when supplying essential services.

1. Almost his whole career has been in Energy infrastructure businesses, so I am sure he has picked up a lot of knowledge in the subject.

2. If he always picked the expensive option you would accuse him of “gold plating” but, Having personally spoken with some of the mangers that report directly to Greg, I can confidently say he would answer that question by saying “we would do what’s best for our customers” because often they are going to make the same money either way anyway.

3. In business you don’t really have to choose between shareholders and customers, there is a saying in business “take care of your customers and your business takes care of its self.

 

[Value Collector]

@SirRumpole if you listen at e 3.20 mark, you will here Greg describe how in Iowa they haven’t raised prices since 1999 and don’t expect to until 2030, and how when they purchased the Las Vegas grid they put prices down 5% and plan on decreasing rates every 2 years.

It’s remarkable.

 

[fiftyeight]

well Australia has heaps of iron , coal , a fair amount of nickel ,oil , gas and uranium .. and the sun shines a fair bit in the Northern States

in fact if we really tried , we could make most steels types without importing any materials

we could start with a big bonfire to burn all the red/Green tape to get the furnaces warmed up

It blows my simple mind that it is more profitable to export dirt, convert our gas into LNG for export to process that dirt than it is for us to do any value add haha

 

[Value Collector]

It blows my simple mind that it is more profitable to export dirt, convert our gas into LNG for export to process that dirt than it is for us to do any value add haha

We do heaps of value add in Australia by the way, we are just make sure that the value we are adding actually translates to real value for us.

But, When you realise that even the Chinese steel mills are losing money half the time, or selling their products on wafer thin margins, you have to think hard about how much capital you want to put towards competing in that game rather than just put more capital into the things that are earning 15% - 40% returns on equity.

I mean if it’s a pride thing, sure we could go ahead and roll out steel mills in every city and export steel to world at a loss, just to say we “add value”.

But if it’s actual products we want, we should start with deploying capital into the best places, and work down the list till be have deployed all the capital (and labour) we have available, and if that means we aren’t making bonds undies or excessive amounts of steel here, so be it.

 

[qldfrog]

It blows my simple mind that it is more profitable to export dirt, convert our gas into LNG for export to process that dirt than it is for us to do any value add haha

Show you our level of incompetence / absence of productivity..your call.
If it was making financial sense, companies from all over the world would rush to do it here but low productivity, cost of everything and then if you make any profit, one of the highest company taxation rate and unstable policies..nope..

 

[fiftyeight]

We do heaps of value add in Australia by the way, we are just make sure that the value we are adding actually translates to real value for us.

But, When you realise that even the Chinese steel mills are losing money half the time, or selling their products on wafer thin margins, you have to think hard about how much capital you want to put towards competing in that game rather than just put more capital into the things that are earning 15% - 40% returns on equity.

I mean if it’s a pride thing, sure we could go ahead and roll out steel mills in every city and export steel to world at a loss, just to say we “add value”.

But if it’s actual products we want, we should start with deploying capital into the best places, and work down the list till be have deployed all the capital (and labour) we have available, and if that means we aren’t making bonds undies or excessive amounts of steel here, so be it.

We export more than red dirt, but sure maybe in this case you are correct making steel is bad. Or, if making steel is such an unprofitable business to run there is something else going on here. Maybe a government known for long term strategic planning has decided taking a short term hit on profits is worth it?

When it makes sense it will happen automatically.

I really dont see how you can claim it will happen automatically ? The 'free market' does not, and likely will never compete in an open free system. Ignoring tariffs, tax breaks and direct market manipulation, the amount of regulation, red tape, native title, ESG......that an Oz company has to deal with vs a Chinese company is a lead weight to profitability.



There are probably a few industries we should run, even at a loss.



Some of our rules and regs are net positive and are what make Oz the best place in the world to live. But to then claim the 'free market' will automatically allocate efficiently ignores that we are not playing by the same rules. Give me a clean environment AND a few tax breaks to level the playing seems like a good deal to me.

We don't let the 'free market' do its thing even within our own economy, anti-monopoly Federal Competition and Consumer Act 2010, why would we let the 'free market' run out international trade.

Steel maybe a horrible example of an industry we could try and kick start, but we have a lot of dirt and a lot of energy, there must be something?

 

[Value Collector]

Show you our level of incompetence / absence of productivity..your call.
If it was making financial sense, companies from all over the world would rush to do it here but low productivity, cost of everything and then if you make any profit, one of the highest company taxation rate and unstable policies..nope..

Or, it just shows that there is competition for capital, and we have a lot of options to deploy capital at higher rates, so people aren’t choosing steel mills for their next dollar.

BHP, one of Australia’s biggest Iron Ore and coal miners used own steel mills, but got out of that business due to poor returns, and their ability to deploy capital at higher rates elsewhere.

If they wanted to they would.

 

[Value Collector]

We export more than red dirt, but sure maybe in this case you are correct making steel is bad. Or, if making steel is such an unprofitable business to run there is something else going on here. Maybe a government known for long term strategic planning has decided taking a short term hit on profits is worth it?




I really dont see how you can claim it will happen automatically ? The 'free market' does not, and likely will never compete in an open free system. Ignoring tariffs, tax breaks and direct market manipulation, the amount of regulation, red tape, native title, ESG......that an Oz company has to deal with vs a Chinese company is a lead weight to profitability.



There are probably a few industries we should run, even at a loss.



Some of our rules and regs are net positive and are what make Oz the best place in the world to live. But to then claim the 'free market' will automatically allocate efficiently ignores that we are not playing by the same rules. Give me a clean environment AND a few tax breaks to level the playing seems like a good deal to me.

We don't let the 'free market' do its thing even within our own economy, anti-monopoly Federal Competition and Consumer Act 2010, why would we let the 'free market' run out international trade.

Steel maybe a horrible example of an industry we could try and kick start, but we have a lot of dirt and a lot of energy, there must be something?

We do still have steel mills in Australia, they can scrape out a decent return consuming locally generated scrap and producing some niche products, and the rest of the steel we import.

Producing above that level is counter productive, and quickly becomes loss making.

I say it will happen automatically, because as soon as it becomes clear that an industry can be viable in Australia, and it will produce higher returns on capital than other alternatives, it will attract capital and become a reality.

Even if the market outside Australia isn’t entirely free, we still should be deploying capital and labour based on what is the best use of those limited resources.

If some other country wants to pollute their air, making steel cans for us on 3% profit margin, while we sell them the iron ore and coal at a 50% profit margin, let’s buy the cans from them, and if it helps them lift their workers out of poverty and they start buying baby formula and trips to the Gold Coast from us, let’s make baby formula and whale watching capacity instead of steel.

 

[Smurf1976]

But if it’s actual products we want, we should start with deploying capital into the best places, and work down the list till be have deployed all the capital (and labour) we have available, and if that means we aren’t making bonds undies or excessive amounts of steel here, so be it.

Here's an example of the problem as I see it.

In 1994 the electricity industry was almost entirely state government owned and anything that wasn't state owned it was a technicality since the state still ran it.

From ABS statistics, the total persons employed in the electricity supply industry in November 1994 was 51,700 persons.

In 1998 prior to the commencement of the National Electricity Market and still mostly under state ownership (except Victoria) employment had fallen to 37,200 in May that year.

As of August 2024 there were 111,700 people employed in the electricity supply industry from the same ABS data (ABS data series ID is A84602223T for anyone who wants to verify this for themselves).

Now I'll add some comment to this from my own knowledge.

Go back 30 years and the overwhelming majority of people employed in the ESI were split between trades and other blue collar hands on workers and professionals carrying out work in their profession, most notably but not limited to engineers.

From some old HEC (Tas) records, about 15% of the total workforce was administrative and that was in the days of manually read meters, all invoices sent by post, and still having physical shopfronts taking cash payment from consumers. Management, finance etc were also part of that 15% of the workforce doing administration. The rest were blue collar hands on, or white collar working in their profession.

Now today the industry should in theory be more efficient. Here in SA we used to have 30MW steam units, we had steam range plant, ETSA ran its own coal mine, and so on and that's all gone today.

For a very specific example of that, Osborne B power station (outskirts of Adelaide) consisted of the power station in its originally designed and built form with 12 boilers and 6 x 30MW steam turbines and a later addition of a single new boiler and 60MW steam turbine. To maintain and operate that plant needed a workforce of hundreds to operate and in particular maintain all that plant.

Today on the same site is a combined cycle gas turbine, nominal capacity 180 MW so a direct equivalent to the old station minus the later extension. To operate that requires basically nobody - it's someone sitting there watching it basically. Not far away are some open cycle gas turbines that are unmanned.

Countless more examples like that across the industry. Small units replaced with fewer much larger units that bring about a massive labour cost saving and in the case of peaking plant replaced with gas turbines that are unmanned in operation. Examples of that in every state - go back 40 years and NSW still had 30MW steam plant with chain grate boilers in operation whereas now the smallest steam plant is 660MW so per unit of output the labour saving is truly massive.

So why do we have more than twice as many people working in the industry?

Well it's not because the volume of electricity used has more than doubled. Comparing 1991-92 (because I don't have 1994 data handy) with 2023-24 the % increase in consumption is 61% across the NEM states collectively.

So labour per unit of production is higher now than it was a generation ago, productivity has fallen. That's occurred despite remote read meters, online and direct debit payments replacing cash over the counter, vast improvement to IT, far greater labour productivity in generation as per the example above, generally improved work methods, lack of demarcation and so on.

So what's changed? Why so many people?

I'll be blunt there - a huge portion of the industry's workforce today is not doing any work with tools, they are not operating any kind of machinery, and they are not engineers or other hard science professionals. The majority is now white collar non-technical eg sales, admin, compliance, process and so on. People who simply weren't employed at all historically.

So just within the electricity industry there's enough bloat crept in to staff an entire steel industry with plenty left over.

Same exists in many sectors pf the economy. The productive workforce has been pruned back as far as possible in the interests of efficiency but administration has ballooned.

From some old printed records the Tasmanian public service had 33,800 employees as of February 1991. Bearing in mind the vast majority of these were hands on - schools, hospitals, all roadworks was in-house labour, the government still had its own tradies building Housing Commission houses and doing the maintenance, and so on.

Now today the Tasmanian public service has 35,275 employees according to what Google brings up. That's despite essentially all blue collar work now being outsourced to contractors - the government no longer builds houses, it no longer builds roads or even paints lines on them with its own labour, even things like cleaning are now contracted out. And yet the number of public servants has gone up rather than down.

That cuts across all of this. Utilities, manufacturing and the issue of an aging population that's on another thread, this has relevance to all of those.

I'm not suggesting workers are standing around all day doing nothing, what I'm questioning is what seems to be a huge increase in white collar work that isn't directly producing an end product and which historically wasn't done at all.

That leads me to question why it's become necessary, and just how much value that's really bringing to society? Would diverting labour away from administration and into manufacturing or house building actually be a problem?

In short I'm not convinced about the value creation aspect of all this. Regardless of how profitable it is for shareholders, a factory does ultimately bring money into the country or keeps it here whereas office administration doesn't do that, it just circulates money within the domestic economy whilst adding costs. An individual might benefit from it, because there's a higher ROI on the capital invested into mining or the admin job pays well, but at a macro national level I'm not seeing it.

How has (for example) swapping the manufacturing of paper for the office-based shuffling of paper and it's electronic equivalent actually brought a benefit at the macro level?

Noting to be clear that my argument is about economics not politics.

 

[qldfrog]

Here's an example of the problem as I see it.

In 1994 the electricity industry was almost entirely state government owned and anything that wasn't state owned it was a technicality since the state still ran it.

From ABS statistics, the total persons employed in the electricity supply industry in November 1994 was 51,700 persons.

In 1998 prior to the commencement of the National Electricity Market and still mostly under state ownership (except Victoria) employment had fallen to 37,200 in May that year.

As of August 2024 there were 111,700 people employed in the electricity supply industry from the same ABS data (ABS data series ID is A84602223T for anyone who wants to verify this for themselves).

Now I'll add some comment to this from my own knowledge.

Go back 30 years and the overwhelming majority of people employed in the ESI were split between trades and other blue collar hands on workers and professionals carrying out work in their profession, most notably but not limited to engineers.

From some old HEC (Tas) records, about 15% of the total workforce was administrative and that was in the days of manually read meters, all invoices sent by post, and still having physical shopfronts taking cash payment from consumers. Management, finance etc were also part of that 15% of the workforce doing administration. The rest were blue collar hands on, or white collar working in their profession.

Now today the industry should in theory be more efficient. Here in SA we used to have 30MW steam units, we had steam range plant, ETSA ran its own coal mine, and so on and that's all gone today.

For a very specific example of that, Osborne B power station (outskirts of Adelaide) consisted of the power station in its originally designed and built form with 12 boilers and 6 x 30MW steam turbines and a later addition of a single new boiler and 60MW steam turbine. To maintain and operate that plant needed a workforce of hundreds to operate and in particular maintain all that plant.

Today on the same site is a combined cycle gas turbine, nominal capacity 180 MW so a direct equivalent to the old station minus the later extension. To operate that requires basically nobody - it's someone sitting there watching it basically. Not far away are some open cycle gas turbines that are unmanned.

Countless more examples like that across the industry. Small units replaced with fewer much larger units that bring about a massive labour cost saving and in the case of peaking plant replaced with gas turbines that are unmanned in operation. Examples of that in every state - go back 40 years and NSW still had 30MW steam plant with chain grate boilers in operation whereas now the smallest steam plant is 660MW so per unit of output the labour saving is truly massive.

So why do we have more than twice as many people working in the industry?

Well it's not because the volume of electricity used has more than doubled. Comparing 1991-92 (because I don't have 1994 data handy) with 2023-24 the % increase in consumption is 61% across the NEM states collectively.

So labour per unit of production is higher now than it was a generation ago, productivity has fallen. That's occurred despite remote read meters, online and direct debit payments replacing cash over the counter, vast improvement to IT, far greater labour productivity in generation as per the example above, generally improved work methods, lack of demarcation and so on.

So what's changed? Why so many people?

I'll be blunt there - a huge portion of the industry's workforce today is not doing any work with tools, they are not operating any kind of machinery, and they are not engineers or other hard science professionals. The majority is now white collar non-technical eg sales, admin, compliance, process and so on. People who simply weren't employed at all historically.

So just within the electricity industry there's enough bloat crept in to staff an entire steel industry with plenty left over.

Same exists in many sectors pf the economy. The productive workforce has been pruned back as far as possible in the interests of efficiency but administration has ballooned.

From some old printed records the Tasmanian public service had 33,800 employees as of February 1991. Bearing in mind the vast majority of these were hands on - schools, hospitals, all roadworks was in-house labour, the government still had its own tradies building Housing Commission houses and doing the maintenance, and so on.

Now today the Tasmanian public service has 35,275 employees according to what Google brings up. That's despite essentially all blue collar work now being outsourced to contractors - the government no longer builds houses, it no longer builds roads or even paints lines on them with its own labour, even things like cleaning are now contracted out. And yet the number of public servants has gone up rather than down.

That cuts across all of this. Utilities, manufacturing and the issue of an aging population that's on another thread, this has relevance to all of those.

I'm not suggesting workers are standing around all day doing nothing, what I'm questioning is what seems to be a huge increase in white collar work that isn't directly producing an end product and which historically wasn't done at all.

That leads me to question why it's become necessary, and just how much value that's really bringing to society? Would diverting labour away from administration and into manufacturing or house building actually be a problem?

In short I'm not convinced about the value creation aspect of all this. Regardless of how profitable it is for shareholders, a factory does ultimately bring money into the country or keeps it here whereas office administration doesn't do that, it just circulates money within the domestic economy whilst adding costs. An individual might benefit from it, because there's a higher ROI on the capital invested into mining or the admin job pays well, but at a macro national level I'm not seeing it.

How has (for example) swapping the manufacturing of paper for the office-based shuffling of paper and it's electronic equivalent actually brought a benefit at the macro level?

Noting to be clear that my argument is about economics not politics.

It is called the BS job phenomenon,and not limited to white collars Mr @Smurf1976 , present in all public services AND big corporates.
Jobs which even workers understand as of no actual real purpose/need..which has a psychological burden on selfworth for some of these individuals btw,but that is another story.
A funny? example taking place now
Not far from my place, the local water network provider has a relief valve on the pipe feeding the Sunshine coast drinking water plants.
That relief valve is along the road housed in what was a 3x3 concrete besser block housing.
To allow maintenance parking more safely along the low traffic rural road, a concrete platform including the water passage for replacing the ditch is being built.
This has been going on for the last 2 months, the concreted area is roughly 20x6 m with an average depth of 1m.
A lot if concrete
Quasi daily, a team of lollypop gals come 3 of them due to a side road each with they car, temp traffic lights and signage
.Add the concrete truck , usually one machinery,a delivery truck and 3 to 5 operators with 2 utes.
All paid by on your water bill to replace the fact the maintenance ute used to park in the grass alongside the road when servicing,as they did for roughly 40y.
some call it progress.i call it another BS task.i do not know the number of white collars jobs incolved certification PMs involved but conservatively i would say 10 person work on 2 months.we are talking multiple hundreds of thousands of dollars(.i got insider info)
Repeat ad nauseum..and no the customers have no choice, no play the concurrence.Even without being connected, a warehouse of mine was billed 1k a year for the privilege of being able to connect to water, regardless of not having the connection.
The very same organisation with the ALP lobbyist and former brisbane mayor Soorley at its helm.
How do you want to be competitive, and can we have lower cost of living..

 

[SirRumpole]

As an example of how efficient our energy sector is I recently had to deal with 3 seperate companies.

Origin energy (retailer) required my meter to be changed.
Essential Energy ( the generator) had to cut the power while the work took place.
BlueCurrent who I had never heard of owns the meter and had to do the actual work.

None of them new what date the work was going to be performed despite sending out notices to that effect.

So how the system survives with so many (slow) moving parts is beyond me.

 

[qldfrog]

As an example of how efficient our energy sector is I recently had to deal with 3 seperate companies.

Origin energy (retailer) required my meter to be changed.
Essential Energy ( the generator) had to cut the power while the work took place.
BlueCurrent who I had never heard of owns the meter and had to do the actual work.

None of them new what date the work was going to be performed despite sending out notices to that effect.

So how the system survives with so many (slow) moving parts is beyond me.

I have the feeling we will soon have to either migrate or adopt the former soviet block mentality: a mix of dark humour, passive resistance ,careless and self reliability , not to forget contraband alcohol.....

 

[SirRumpole]

Not manufacturing, but relevant to secure supply lines..

Plans to revive a sovereign fleet of cargo ships.

Australia looks to secure shipping supply chains with national strategic fleet

With only nine Australian-crewed ships still operating, the proposed National Strategic Fleet could be the key to securing supply chains in times of crisis.

www.abc.net.au

 

[sptrawler]

Not manufacturing, but relevant to secure supply lines..

Plans to revive a sovereign fleet of cargo ships.

Australia looks to secure shipping supply chains with national strategic fleet

With only nine Australian-crewed ships still operating, the proposed National Strategic Fleet could be the key to securing supply chains in times of crisis.

www.abc.net.au

The good old State ships.

 

[sptrawler]

Mark McGowan left a legacy and showed it actually is possible to build some things here.

Train builds return to Midland after historic railcar 'super-contract' signing

On Tuesday Premier Mark McGowan signed a contract to build 246 of the next generation of C-Series railcars, with half to be built in WA.

www.watoday.com.au

Rail car manufacturing will return to WA 25 years after the Midland Railway Workshops were closed.

On Tuesday Premier Mark McGowan signed a contract with French train manufacturer Alstom to build 246 of the next generation of C-Series railcars.
The government said at least 50 per cent of those railcars would be built in WA in a new manufacturing and assembly plant in Bellevue near the old Midland workshops, creating up to 200 jobs including 15 to 20 apprenticeships.

The 10-year build program would cost WA $1.25 billion, $347 million less than the original budget announced in April 2018.

Well yesterday was the first time I got travel on a W.A built electric train and it was an absolute pleasure, quiet, comfortable and really nice fit out.
Magic bit of gear, well done Mark and well done Midland workshops.

 

[divs4ever]

Or, it just shows that there is competition for capital, and we have a lot of options to deploy capital at higher rates, so people aren’t choosing steel mills for their next dollar.

BHP, one of Australia’s biggest Iron Ore and coal miners used own steel mills, but got out of that business due to poor returns, and their ability to deploy capital at higher rates elsewhere.

If they wanted to they would.

after the ARI/OST ( Arium ) debacle why would they ( rush to invest in steel mills )

but i did very nicely on BSL ( but exited a few years back ) and am doing OK on BIS

but BSL seems to make money from steel products ( and not just in Australia )