Inflation

Knobby22 said:

It wasn't wages. That is a furphy. Our wages are cheaper when compared to many countries due to the exchange rate and the process is automated meaning wages are only a small component of the cost.

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From a professional contact who knows the Toyota story fairly well, the problem wasn't wages per hour but rather wages per unit of output.

Toyota in Australia couldn't get productivity up to the levels routinely achieved at technically inferior production facilities overseas. End result wages were high per car made. Now add in other high costs and they weren't sorry when Holden and Ford gave them a reason to close.

But we do have manufacturing that's working and as an example of that, well there's two significant ones almost next door to each other in Hobart, that being Nyrstar and Incat. So what's enabling their continued operation whilst others fail? Right from the start they've always had:

*A global outlook with the vast majority of production exported.

*Technological leadership or at least modern approaches. Unsurprising given both were originally the creation of technically focused people, they never were political constructs.

*First rate product. Very different products between the two companies but in neither case is quality in dispute.

*Generally competent management that's kept government well away and made it very clear that any cost or inefficiency imposed by government will be paid by government. Both have enough clout to enforce that.

*It hasn't been perfectly smooth sailing, there's been trouble to some extent in the past, but broadly speaking unions aren't particularly militant. Either production carries on or everyone knows it's game over. Nyrstar being a 24/365 operation no matter what.

*Low input costs particularly utilities. Nyrstar is joined at the hip to the Hydro and always has been, indeed at inception they actually were the same company for four years until government bought the power generation side, whilst Incat's also a beneficiary of generally reasonable business input costs.

In terms of impact, well there wouldn't be too many people in Hobart who don't have friends or family who've either directly or as a contractor worked for Nyrstar or Incat.

I'm not sure what Inact's worth to Australia financially, but the Nyrstar plant is over $1 billion a year so it's significant.

So it's not that we can't manufacture in Australia, just that we often fail for various reasons:

*Because we think local not global leading to small scale production. As the above two both illustrate, even in a small place such as Tasmania if you're going to manufacture then "think big".

*High input costs for utilities, transport logistics, etc.

*Poor service from state and local government, utilities, railways and so on in terms of physically getting things done with infrastructure.

*Poor productivity on site. Not always the fault of workers but a combination of factors.

*Rent seeking mentality from governments, unions, workers, suppliers.

*Poor management sticking with outdated product or processes. Of particular note are managers with neither technical nor management skill - what on earth they're doing employed in that role is beyond me, but there's plenty around in Australian business. They don't know how their business ought run, and they're not good at management in generic terms either.

*A portion of Australian consumers who for reasons I really don't get refuse to buy the local product even when it's decent quality and price and instead buy foreign made.

The biggest problem with the loss of manufacturing is what replaced it:

*Extraction of finite resources. We swapped living off dividends for living off the capital and it will end.

*Borrowing money and asset price inflation to fuel consumer spending.

*General running down of infrastructure, defences, etc.

All ultimately unsustainable and ends at a point where inflation, so as to default on the real value of the debt along with most likely a war is the only way out.

Most of the Western world has gone down the same path. Anywhere that hasn't is generally surrounded by and propping up others who have (eg within the EU or individual states within the US).

I don't intend that as political comment as such, though I do perceive the can has just about been kicked as far as it can be without it blowing up and that the future isn't going to be a repeat of recent years economically.

Knobby22 said:

I'm not saying it was a wrong decision but it is a great example of why manufacturing in Australia gets shut down. And it wasn't just the car companies only, a lot of associated manufacturing companies closed at the same time.
Australia generally doesn't like to subsidise manufacturing unlike many other countries however we will subsidise other parts of the economy.
Yes, and I agree these free trade agreements we sign seem to stop any support.
I was very pleased when we walked away from the EU agreement.

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Times have changed since the 1980's with regard manufacturing and processing materials here, what we can't compete with is something like vehicle manufacturing we don't have the home market to warrant the production, it was a godsend that it was closed when it did or as I said it would have cost the taxpayer a lot more.
But we can compete in products where we actually hold an advantage, such as battery manufacture, where there is no transport loss due to shipping losses. That was one of the main problems with transporting cars, from Australia to right hand drive markets like Japan, if their production is 20 times ours, it is cheaper to ship the 30,000 we buy to us, than us shipping the 2 million we would sell to them, simple logistics there is a lot of air space shipped in cars.
With batteries however, that's a different thing, we can package them and ship them to anywhere as they are universal and due to their size and shape ships can be filled to capacity.
There may be other materials like iron ore, that we can process here much easier and transport it in a more advanced state, where it may just have to be reheated and rolled to shape in the destination country, as i said if we have the advantage.
The EU have always looked after Europe, they wont do Australia any favours IMO.

IFocus said:

A couple of points...

Your current standard of living is supported by Chinese imports without them you wouldn't be able to afford the items.

The western world exported all their pollution to China where the sky is brown... think about that for a second.

China long has made goods cheaper than anywhere else this is before BC look it up it's nothing new.

Manufacturing in Australia was generally rubbish and expensive I still have the tools to prove it.

Having said that Australian manufacturing provided the skill set for the rest of the economy, note the skills were very poor worked with Germans in 85 they were 10 x's better tradesman.

Finally Germany still manufactures sort of shoots holes in many of the arguments put up here.

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That is exactly true, but the other true point that we keep mentioning is, if we stay on the same trajectory the living standard will fall as the population increases, we sell what South America and Africa sell, raw materials, the only real difference is we share the profits with a smaller population.
Eventually the way we are going two things will happen the population will increase and the raw materials will decrease.
Germany still manufactures because they sell premium products and the per unit profit is excellent, but Australia never was and never will be in that league, same as Switzerland still holds rank over Germany when it comes to watchmaking.

That doesn't mean we can't value add, where we hold the advantage which is with the raw materials and the stable political system, as Lynas has found out when basing their rare earth processing plant in Malaysia, or Redflow manufacturing their batteries in Thailand and struggling to obtain funding.

As for skills Australia as you say had poor skill levels, when compared to German trained people, that would be because Germany has been producing high standard equipment for hundreds of years, there isn't many if any place in the world that make better precision equipment.
The problem Australia has is we are actually deskilling, rather than upskilling, in most fields and rather than reverse the trend we are accelerating it.
Nursing is a great example, if the Governments were serious about alleviating the skills shortage and standards, they would build the teaching facilities next to the major public hospitals so that the trainees could receive the technical and on job learning while in training, it would have multiple advantages.

IFocus said:

Your current standard of living is supported by Chinese imports without them you wouldn't be able to afford the items.

The western world exported all their pollution to China where the sky is brown... think about that for a second.

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Whilst true, it's inherently unsustainable and we're seeing the cracks now in rather a lot of areas.

Pretty much anything can be improved in the short term if the long term is disregarded. Anything from business profits to the efficiency of a light bulb that's true, you can make it work better right now if you don't mind killing it by doing so.

The inflation problem at this point is an example of that. We've reached a point where inflation is becoming harder to hide whilst at the same time harder to accept.

IFocus said:

worked with Germans in 85 they were 10 x's better tradesman.

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IFocus said:

Germany still manufactures

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Germany manufactures because they're better at it than they demand in wages. German cars for example have always been vastly superior to their aus competition so if the product sells at a high price then high wages can be demanded for making it.

If aus manufacturing is only 20% better than chinese but demands 400% higher wages then it's not a difficult equation to figure out is it?

It's not a question of whether something is good, bad, or in between, it's a question of whether the wage demands are congruent with the end product, and if a chinese dude can do 80% of the job for 20% of the cost, then they aren't.

This is true of any product/industry.

over9k said:

Germany manufactures because they're better at it than they demand in wages. German cars for example have always been vastly superior to their aus competition so if the product sells at a high price then high wages can be demanded for making it.

If aus manufacturing is only 20% better than chinese but demands 400% higher wages then it's not a difficult equation to figure out is it?

It's not a question of whether something is good, bad, or in between, it's a question of whether the wage demands are congruent with the end product, and if a chinese dude can do 80% of the job for 20% of the cost, then they aren't.

This is true of any product/industry.

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Germany has had wage repression over the years and the working conditions are like working with the Gostopo of the war era. It's a different work culture, none of this taking a drink at the water cooler or smoking, 30min lunches like you see here.

https://www.dollarsandsense.org/archives/2015/0915miller.html

sptrawler said:

Times have changed since the 1980's with regard manufacturing and processing materials here, what we can't compete with is something like vehicle manufacturing we don't have the home market to warrant the production, it was a godsend that it was closed when it did or as I said it would have cost the taxpayer a lot more.
But we can compete in products where we actually hold an advantage, such as battery manufacture, where there is no transport loss due to shipping losses. That was one of the main problems with transporting cars, from Australia to right hand drive markets like Japan, if their production is 20 times ours, it is cheaper to ship the 30,000 we buy to us, than us shipping the 2 million we would sell to them, simple logistics there is a lot of air space shipped in cars.
With batteries however, that's a different thing, we can package them and ship them to anywhere as they are universal and due to their size and shape ships can be filled to capacity.
There may be other materials like iron ore, that we can process here much easier and transport it in a more advanced state, where it may just have to be reheated and rolled to shape in the destination country, as i said if we have the advantage.
The EU have always looked after Europe, they wont do Australia any favours IMO.




That is exactly true, but the other true point that we keep mentioning is, if we stay on the same trajectory the living standard will fall as the population increases, we sell what South America and Africa sell, raw materials, the only real difference is we share the profits with a smaller population.
Eventually the way we are going two things will happen the population will increase and the raw materials will decrease.
Germany still manufactures because they sell premium products and the per unit profit is excellent, but Australia never was and never will be in that league, same as Switzerland still holds rank over Germany when it comes to watchmaking.

That doesn't mean we can't value add, where we hold the advantage which is with the raw materials and the stable political system, as Lynas has found out when basing their rare earth processing plant in Malaysia, or Redflow manufacturing their batteries in Thailand and struggling to obtain funding.

As for skills Australia as you say had poor skill levels, when compared to German trained people, that would be because Germany has been producing high standard equipment for hundreds of years, there isn't many if any place in the world that make better precision equipment.
The problem Australia has is we are actually deskilling, rather than upskilling, in most fields and rather than reverse the trend we are accelerating it.
Nursing is a great example, if the Governments were serious about alleviating the skills shortage and standards, they would build the teaching facilities next to the major public hospitals so that the trainees could receive the technical and on job learning while in training, it would have multiple advantages.

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My brother in laws family make precision metal parts of such quality that they sell to China. We do have some vestiges of high quality manufacturing left.

Knobby22 said:

My brother in laws family make precision metal parts of such quality that they sell to China. We do have some vestiges of high quality manufacturing left.

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It's to be hoped that the $'s per article etc sold is exceptionally high so as to meet the standard of manufacture.

I wonder if the RBA folks subscribe to Evil Murdoch press ?

The number of companies that collapsed in October soared 43 per cent, with an increasingly aggressive tax office ramping up the pressure as the holiday slowdown period looms for many under-pressure businesses dealing with interest rate rises.
Revive Financial head of business, restructuring and insolvency Jarvis Archer said with the July to September quarter Business Activity Statements (BAS) falling in October, many businesses had watched their ATO debt jump.

“For many, this has put the prospect of paying their ATO debt beyond reach. Particularly for businesses seasonally quiet over Christmas, like construction, this time of year can stretch cash reserves,” Mr Archer said.

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Mick

mullokintyre said:

It is interesting how time changes things.
Back in the 60's and 70's (last century), something that was of inferior quality was derisively called "jap made".
Then the Jap was swapped for Korean (LG was cheap electronic goods) as the quality of Japanese goods improved.
Now its Chinese that is at the bottom, and Korean stuff has moved up the ladder.
I refuse to buy after market car parts from China, they are invariably poorly made, often do not fit , and sometimes do not even work out of the box ( had that occur with a an aftermarket oxygen sensor and an oil pump).
Mick

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You can have high quality Chinese but no-one is interested in importing..it is more expensive than the shxt and reduce profit of the middle man as the customer is not willing to pay more also.
Your computers, drones, cars from china are past the cheap jap stage.
But indian indeed is a gamble on ebay

over9k said:

Germany manufactures because they're better at it than they demand in wages. German cars for example have always been vastly superior to their aus competition so if the product sells at a high price then high wages can be demanded for making it.

If aus manufacturing is only 20% better than chinese but demands 400% higher wages then it's not a difficult equation to figure out is it?

It's not a question of whether something is good, bad, or in between, it's a question of whether the wage demands are congruent with the end product, and if a chinese dude can do 80% of the job for 20% of the cost, then they aren't.

This is true of any product/industry.

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My experience in working with German trades was in automation in 85 / 86 seriously if it wasnt for Hitler they would have won the war.

Culture / expectations / total commitment etc, certainly played a part these guys could run / connect wiring, write code but also knew the size of every nut and bolt in the place they were shakers and movers plus drank 2 to 3 full strength beers for lunch.

They were just ordinary electricians one was 23 the other 26 as for wages they expected to retire at 50.

The electrical systems / engineering across the whole project was just unbelievably clever.

It would be 20 plus years later that I saw electrical engineering / control systems that approach the same levels and it was still not as good even though much higher tech gear was used.

In comparison I worked for an American company 10 years later doing instrumentation / process control and it was a return to the 1950's / 60's I had to get the text books out to remember how a single loop pneumatic controller worked.

I cringe every time I hear how clever Australia is in mining.

The call has been forever to add value to our mining operations and yet I have never seen the education / culture developed to even think about it.

sptrawler said:

Times have changed since the 1980's with regard manufacturing and processing materials here, what we can't compete with is something like vehicle manufacturing we don't have the home market to warrant the production, it was a godsend that it was closed when it did or as I said it would have cost the taxpayer a lot more.
But we can compete in products where we actually hold an advantage, such as battery manufacture, where there is no transport loss due to shipping losses. That was one of the main problems with transporting cars, from Australia to right hand drive markets like Japan, if their production is 20 times ours, it is cheaper to ship the 30,000 we buy to us, than us shipping the 2 million we would sell to them, simple logistics there is a lot of air space shipped in cars.
With batteries however, that's a different thing, we can package them and ship them to anywhere as they are universal and due to their size and shape ships can be filled to capacity.
There may be other materials like iron ore, that we can process here much easier and transport it in a more advanced state, where it may just have to be reheated and rolled to shape in the destination country, as i said if we have the advantage.
The EU have always looked after Europe, they wont do Australia any favours IMO.


That doesn't mean we can't value add, where we hold the advantage which is with the raw materials and the stable political system, as Lynas has found out when basing their rare earth processing plant in Malaysia, or Redflow manufacturing their batteries in Thailand and struggling to obtain funding.

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Well it looks as though Mike Cannon-Brookes may be on the same page, the Sun Cable connector looks like it may well be made in Tasmania, it makes a lot of sense as he can claim it is clean energy being made by clean energy.
If it is cost effective, it could well lead to further spin off manufacturing.
As @Smurf1976 has mentioned on several occasions, Tasmania can be very progressive, way too many people on the mainland focused on small issues while the big issues get bigger and bigger.
Hopefully this comes to fruition.
Back in May Cannon-Brookes claimed control of the controversial project and now Tasmania has been named as a preferred site for its advanced cable manufacturing facility.

On its website, SunCable said it had been working with jurisdictions across Southeast Asia and Australia over the past two years, assessing potential sites.

"As part of this process we are progressing detailed studies and due diligence on a potential site at Bell Bay, Tasmania.

"This strategic move supports Australia's renewable energy ambitions, with construction potentially starting in 2025 and cable production by 2029."
Tasmanian Premier Jeremy Rockliff said the state had "fended off" 30 locations around the world to be chosen as the preferred site.

"A $2 billion capital investment and some $350 million injected into the economy annually... 800 jobs in construction and 400 in operation", Mr Rockliff said

"So this is a huge opportunity not only for northern Tasmania but for all of Tasmania".

SunCable's criteria for a cable plant site included land and infrastructure near a deep port with access to renewable power and transport, an established industry base with a skilled workforce and local supply chain and community input to help inform decision making.

Mr Rockliff said locals would be trained to work at the plant.

"We will partner with SunCable together with our education system to support pathways for our young people to be employed in this manufacturing capability"

qldfrog said:

Chinese

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So far as China's concerned, I think the big issue going forward is demographics and the almost certain shrinking of their workforce in the years ahead. Their population of 50-something year olds seems to be somewhat larger than their population of 5-14 year olds so the workforce is going to shrink going forward if that's correct.


India's far better placed in that regard but even Australia or the US are in a better position than China.

So to the extent China's a supplier of cheap labour to the world, that's going to be in decline.

IFocus said:

Culture / expectations / total commitment etc, certainly played a part these guys could run / connect wiring, write code but also knew the size of every nut and bolt in the place they were shakers and movers

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Trouble with Australia is that culturally, depending on the employer that's a good way to identify yourself as a target to be outsourced.

Contrary to many people's misunderstanding, the idea that Australia needs to boost productivity mostly isn't about "work harder" but rather, it's about "work smarter" and that's not just about the person doing the physical task, it's about the design and specification of it in the first place.

IFocus said:

Culture / expectations / total commitment etc, certainly played a part these guys could run / connect wiring, write code but also knew the size of every nut and bolt in the place they were shakers and movers plus drank 2 to 3 full strength beers for lunch.

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Yes well if it was Australian plant, the nuts and bolts could have been Whitworth, UNC, UNF, metric, B.A or AF.

Whereas if it was German, it would have been metric, so they did have somewhat of an advantage.

IFocus said:

The call has been forever to add value to our mining operations and yet I have never seen the education / culture developed to even think about it.

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That would be difficult. Why bother when we can just run a population/immigration ponzi scheme?

Perpetual easy growth to infinity.

Smurf1976 said:

So far as China's concerned, I think the big issue going forward is demographics and the almost certain shrinking of their workforce in the years ahead. Their population of 50-something year olds seems to be somewhat larger than their population of 5-14 year olds so the workforce is going to shrink going forward if that's correct.

Population Pyramids of the World from 1950 to 2100

China - 2023

www.populationpyramid.net

India's far better placed in that regard but even Australia or the US are in a better position than China.

So to the extent China's a supplier of cheap labour to the world, that's going to be in decline.

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Yes and that is why China will IMHO become the Germany of Asia whereas Korea will remain a Swiss equivalent.
Cheap workforce provided by Vietnam laos etc and most replaced by automation.
Don t worry for China .
Sadly, I think our dream of reestablishing manufacturing here is doomed.
The culture is missing, the education is missing no high engineering schooling, too specific for adaptation and overall problem solving..and once the skills are gone, unless you ship 20y old to factories overseas, you will never catch up
Lastly:

Warr87 said:

we sell what South America and Africa sell, raw materials, the only real difference is we share the profits with a smaller population.

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sptrawler said:

If for example China could reduce its emissions by importing some steel billets instead of iron ore, it no doubt would pay a hell of a lot more for the product

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In no way China cares about emissions but it does care about keeping jobs for its citizen, so even if cheaper buying here, we would still not sell to China..dream on...
We are done and dusted until we reach Argentina status and then maybe, with 90 millions sharing a few closing pits in the hole, we will have a wake-up.but one painfull lost generation at least, I would say 3 generations so let's see again for my great grand children what is up.i will not be there, you will not and the world will have changed

Smurf1976 said:

Trouble with Australia is that culturally, depending on the employer that's a good way to identify yourself as a target to be outsourced.

Contrary to many people's misunderstanding, the idea that Australia needs to boost productivity mostly isn't about "work harder" but rather, it's about "work smarter" and that's not just about the person doing the physical task, it's about the design and specification of it in the first place.

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And productivity is about the amount of parasitism on top of your output, real production, so your social engineering,climate warming, councils, lolly pop guy at the pothole repair , number of public servants, paperwork, red green tape and ATO requests.
Compare now and 30y ago...
The whole extra population increase has only been in added leeching of mining, agriculture.
Manufacturing, IT production (for the world, not internal support or running of SAP system) is mostly gone as is finances. Do we provide software, finance management for overseas..nope. The only service industry for exports is these millions coming for education..xka foreign students in unis, but we all know now that it is a grand scam for paying a migration visa, we are selling our soil via mining and agriculture, our soul via $ visa, but our headlines is on "first nations", Super or next Covid scare
Low productivity alone generates inflation.
We are the next Argentina without the soul..errrkkk
The signs were clear 30y ago

Knobby22 said:

My brother in laws family make precision metal parts of such quality that they sell to China. We do have some vestiges of high quality manufacturing left.

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Family business?
I've found that the businesses can produce really good quality. Larger businesses especially union dominated and either the cost becomes too expensive or it's bad quality.

moXJO said:

Family business?
I've found that the businesses can produce really good quality. Larger businesses especially union dominated and either the cost becomes too expensive or it's bad quality.

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Yes, all his brothers (3) and his Dad runs it. Really skilled hard workers, non family also but not that large. Dad would be in late 70s but still keeps hand in.

My brother in law is an accounting partner so not involved directly.

They had some other cousins doing admin etc. involved but sacked them all as they would not get vaxxed. Think they were happy to see them go, weren't pulling their weight. Have not rehired them.