How should Government support the advanced manufacturing sector after COVID-19?
Manufacturing in Japan, South Korea, Singapore, Taipei and mainland China have always profited from State sponsorship of key industries. Germany, France and the EC have followed the same path. Switzerland has long done the same. The UK is moving along this pathway as is the USA, in its own unique style.
These comparisons frame the challenge for Australia: can Australian SME’s be expected to compete for access to global supply chains just through IR reform, ‘reforming’ the tax base and big infrastructure spending? Whilst these might be welcome, they operate indirectly, tend to activate political and ideological sensitivities, and do little on the ground where Government co-investing in manufacturing infrastructure and skills is needed to set a strong platform for future growth. Whilst individual firms should always make profit-based decisions about the infrastructure, equipment and skills they need to grow, in reality Australian businesses are competing in a world where other nations are supporting their businesses with grants or debt funding. If Australian Governments decided to co-invest with business to accelerate advanced manufacturing what are the challenges they might encounter? What principles could they follow? What solutions are on offer? How could expenditure commitments be controlled and measured to demonstrate progress?
Challenge 1: “Swim between the flags”
There is an ideological spectrum that defines what is possible. At the one end is the failed industry subsidy intervention – the Australian car industry is the best example. This is non-starter for almost everyone
At the other extreme, the ‘picking winners strategy’ has few adherents. It is a high-risk strategy that does little to grow an economy-wide advanced manufacturing base or deliver jobs growth.
Is there a middle ground where scale creates economic value and helps good businesses to succeed and let bad businesses fail – a grant/loan funding program which is ‘self-assessing’, scalable and timely yet is also rigorous, transparent and accountable for enterprise and jobs growth?
Challenge 2: Weakness of industry-Government strategic alignment
Governments are unclear about the role they should play in industry development. Swimming between the flags is never easy. Dispensing funding reactively as the need arises annoys no one. Whilst this approach has proved resilient across election cycles, it is not effective. It has produced a smorgasbord of piecemeal funding programs that does little to generate scale outcomes. Business finds this incredibly frustrating. Fragmentation results in multiple programs with different uncoordinated outcomes that dilute the focus on sector strategies, if they exist, and complicate Governments’ ability to assess programme effectiveness and efficiency in any meaningful way.
Government sector strategies are more vision statements than strategies. They are too high level to be meaningful, are often disconnected from the pain points businesses grapple with every day. Results are measured, if at all, at an enterprise rather than a sector level.
Supply chains are poorly understood. The pandemic has demonstrated the fragility of global supply chains to health and geopolitical shocks. This highlights the benefits of sovereign capability, onshore supply chains and their competitiveness in a period of rising economic nationalism. The EC has already performed similar work. Australia’s laissez faire approach seems anachronistic by comparison. This analysis will enable pragmatic IR , upskilling and productivity reform.
Program support pathways are not well aligned to each stage of business growth. Whilst attempts have been made to do this significant business stage gaps remain that private capital chooses not to fill.
Access to capital is not well aligned to business maturity stages. Business owners can spend over 50% of their time for up to 6 months seeking capital. For some capital raising is a constant occupation. Most would prefer to be working on the business not raising capital for it. Private capital tries to pick winners or unicorns and cannot be scaled to the level of need.
Challenge 3: Weakness of Commonwealth State Government coordination
Business sees little observable Federal-State Government coordination of industry sector growth plans. The States often think they are competing to win business from other jurisdictions.
Each State has its own priority sector plans which have different emphases and support programs. There is little inter-state coordination or Federal-state coordination of sector plans. This is a bureaucratic failure that is both duplicative, inefficient, ineffective and not business focused. Within States, different Departments offer further grants for Regions or specific sectors or for different purposes. Chief Scientists often have their own grant programs. Grants exist for University collaboration or working with multiple collaborators or offshore collaborators. None are visibly coordinated or make it easy for business to access. Many are too small to make it worthwhile spending the time to identify best fit or when they open or close.
Challenge 4: Short-term funding commitments fail business needs
Federal and State election cycles prevent long-term commitments to industry policy that match the investment horizon industry needs. By comparison, Governments offshore develop and maintain a long-term strategic commitment to support business growth. They recognise that markets are global and that competition is underpinned increasingly by National and Regional support for enterprise growth and export acceleration. The challenge is to create bipartisan agreement to support industry across election cycles.
Addressing these challenges is not easy. Reform will be resisted by those who benefit from the status quo. But no advocate of industry policy can expect to develop a competitive growing manufacturing sector (read jobs) if the status quo does not change. The principles and solutions suggested below are hard not easy. Just implementing some reforms – data measurement for example – would be a start.
PRINCIPLE 1: The solution must be ideologically compatible because the problem is political as much as economic.
PRINCIPLE 2: The solution must be scalable because the problem is scale growth of the manufacturing base.
PRINCIPLE 3: The solution must be supported by better sector coordination across all levels of Government.
PRINCIPLE 4: The solution must be business focused so that the Government business support pathway is clear and easily accessible.
PRINCIPLE 5: The solution must be driven by sector and supply chain strategies that can be operationalised at a local level
PRINCIPLE 6: The solution must be measurable and transparent.
PRINCIPLE 7: The solution needs a 5 – 10 year funding horizon that is agreed subject to objective evaluation of progress.
National coordination of industry policy – a possible solution
1. Agree a single sector strategy and supporting supply chain strategy that applies nationally
Develop sectoral strategies and supporting supply chain strategies that maps and then actively seeks to build or connect supply chain capabilities and skills based on cost, price, quality and speed targets that are competitive globally. This will force an export focus and rational pricing across the supply chain. It will coordinate capability development and enhance onshore and offshore supply chain management, and promote efficient collaboration with research institutions because the benchmark target data needed to become globally competitive and to grow the manufacturing base will be transparent and drive innovation across the supply chain. It will enable pragmatic IR, upskilling and productivity reforms.
2. Organisational alignment
Articulating more detailed sector strategies will need stronger alignment of Federal and State industry support departments to priority industry sectors, and greater data integration, transparency, and communication of progress towards strategic goals. Federal – State – industry sector cooperation might be achieved through a cross-Government council like the national cabinet to agree industry policy and coordinate its support efficiently across State and Federal budgets.
3. Consolidate and align existing grant / loan programs to sector strategies and the business lifecycle
Support should be available to all businesses that meet the eligibility criteria for Government support and prove they grow revenue from it. This need not be self-assessing, but it is open to all, is scalable, and penalises failure to grow. The type of support offered changes across stages in the business maturity lifecycle – grants for start-ups and early stage development and low-cost repayable loans thereafter – but is coordinated through Government-industry led sector strategies.
4. Measure sector outputs
Integrate ATO, Federal and State Government data and business growth analysis so that Industry and Government can learn what Government support works to create jobs, drive enterprise value, and sector growth. Appropriate measurement will drive effectiveness and efficiency of each taxpayer dollar spent. This is a whole of Government measurement revolution that will require unlocking data sharing protocols.
5. Set a 5 – 10 year investment horizon
Cross-Government coordination of industry sector support should be bipartisan. It should be baked into the fabric of Governments’ business support budget to bring stability to industry’s long-term investment horizons. The benefits of national coordination will drive improved effectiveness and efficiencies that can be redeployed to support scale access to support programs. It will support jobs growth and GDP growth. A rising tide will lift all boats.