Innovatia

world lifestyle with a third-world industrial structure. This was the message of the Harvard Atlas of Economic Complexity, which ranked Australia at the bottom of the OECD for “complexity”, as measured by the diversity and research intensi- ty of its exports. It is also the logical endpoint of the theory of “comparative advantage”, which asserts that we maximise gains from interna- tional trade by exploiting our abundant natural endowments in return for imported consum- er goods from places that produce them more cheaply. Even if this theory were true in the past, it no longer holds in a world where manufactur- ing is undergoing massive transformation in a “fourth industrial revolution”, encompassing robotics and automation, artificial intelligence, data analytics and machine learning. For economies like Germany, Switzerland and Japan, manufacturing and related services under- pin high productivity and high-skill jobs. Compet- itive advantage is achieved not through low-cost mass production but through “smart speciali- sation” in global markets and value chains. By contrast, Australia has allowed its manufacturing sector to decline to dangerous levels, now down to around 5 per cent of GDP from 30 per cent in the 1970s. Even many of the companies that man- aged to survive the removal of tariff protection in the 1980s and ’90s ultimately succumbed to the high dollar associated with the mining boom. Consequently, Australia’s manufacturing deficit is increasing year on year, particularly in R&D-in- tensive “elaborated transformed manufactures” (ETMs). While ETM imports have more than dou- bled to around $215 billion over the last 25 years, ETM exports have increased only marginally to $36 billion, with the widening deficit most acute

AUSTRALIA’S FUTURE IS NOT ITS PAST If the past is another country, then the future of Australia’s economy after the COVID-19 crisis is a different universe, Roy Green argues.

T he pandemic crisis has provided us with an opportunity to shape our country for years, possibly generations, to come. But are we able to grasp that opportunity? It’s not as though our recent past has been an unalloyed success. While we can claim almost 30 years of continuous economic growth, this record has been marred of late by a productivity slowdown, wage stagnation and increasing so- cial inequality. Moreover, we had to endure a dec- ade-long debate over climate change in which ev- idence mattered less than ideology. We became bystanders to the existential impact of global warming, species destruction and environmen- tal degradation, including the catastrophic bush- fires of 2019–20, the record-breaking 2022 floods in Lismore and other towns all over the country, and coral bleaching on the Great Barrier Reef. If there is a single factor linking the constitu- ent parts of this experience, it is Australia’s over- whelming reliance on the export of unprocessed raw materials to drive growth and prosperity. However sophisticated the method of resource extraction, the truth is we are sustaining a first-

INNOVATIA

338

INNOVATIA

| Advanced Manufacturing

339