Wednesday 24 July 2013

Learning how to make stuff again...

Australia's manufacturing industry has been decimated by a high currency, weak consumer demand, distorted tax and incentive systems and crowding out by the resources sector.  With a weakening currency, falling commodity prices, and talk of further interest rate cuts that is shifting however the game has changed and this time Australia is going to have to work for its growth.

Why so?  Well the Oz economy can no longer rely on the internet or rapid increases in the terms of trade to lift Australian's incomes.  As set out in macrobusiness it happened before, but now it's back to basics:

 the surge in incomes over the 2000s was extraordinary – driven primarily by the once-in-a-century lift in commodity prices – and that income growth will be much slower going forward. Indeed, to the event that the terms-of-trade continues to retrace back towards its longer-term average level, it will detract from household income growth, unwinding much of the gains enjoyed over the 2000s. 
In the years ahead, Australians will have to get used to much slower income growth than they have become accustomed to and will instead have to earn pay rises the old fashioned way: via improved productivity.(here)  
What is productivity? Making or doing things better and more efficiently.  This is why Kevin Rudd has been sounding out on the issue.  So Australia may not necesserily be making more stuff, but needs to be doing it smarter.  And when New Zealanders start to gloat about this - something needs to change! 

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