Talking Politics

[Liverpool]

The sad thing is you don't even seem to be aware you are doing it.
You - we need to reduce labour costs to compete with China.
Me - we will never be able compete with China on labour costs - we have to compete in other ways.
You - China has lower production costs due largely to cheaper labour costs.
Me - I already said that.
You - Therefore, we need to reduce our labour costs.
Good one.

Well, at least we all know you know how to condense 1000 words posts into 6 carefully edited lines.
Good one... :clap
And I am right...you agreed with me...but you miss adding that line Antman...

We need to promote smart manufacturing in areas we have a comparative (note the spelling) advantage in, yes. Manufacturing industries where we don't, no.
You still don't understand the concept, do you? The situation T74 described is a good example - components manufactured in China, but designed, assembled, marketed in Australia. Also known as value-adding. T74 also correctly points out that China (as happened in Japan and Korea previously) is already shifting manufacturing offshore to countries with cheaper labour and production costs still.

Like I stated Antman ad-nauseum, which you seem to ignore.....and that is that China are NOT sitting back and doing nothing in these areas.
If they are already shifting manufacturing offshore themselves in certain industries, as you and Tiger74 procliam, then doesn't that mean they will be competing against us on designing, assembling, and marketing?
And all with cheaper labour too...which means?
That's right...we will see in the future the Chinese also being hired to do such jobs that you are saying we should be doing.
See how it came back to cheap labour again?

Well, great. When you have a strategy to grow manufacturing in Australia other than by reducing labour costs, I'd love to hear it because I haven't heard a single positive strategy out of you yet.

I have agreed with you in the areas you have mentioned previously....how many times do I have to say it?
BUT the ONE thing that it all comes down to is labour costs (which you agree we can't compete with at present)...unless (and this is a big "unless") you are either in a company that is very unique....(for example, Ferrari) where it is a niche market and something that the Chinese, even though they can probably copy, is not worth it to them. You have a market there that wants Ferraris.

 

[Liverpool]

I do have a problem with the country desperately propping up industries that are well past their use by date resulting in consumers paying much much more for goods that should be a lot cheaper.

That sounds similar to the argument I put forward regarding farming grants.

 

[Disco08]

Farming is beyond it's use by date?

 

[AngryAnt]

Well, at least we all know you know how to condense 1000 words posts into 6 carefully edited lines.
Good one... :clap

Brevity is the soul of wit.

Like I stated Antman ad-nauseum, which you seem to ignore.....and that is that China are NOT sitting back and doing nothing in these areas.

Never said they weren't. In fact it's implied in the theories I cited.

If they are already shifting manufacturing offshore themselves in certain industries, as you and Tiger74 procliam, then doesn't that mean they will be competing against us on designing, assembling, and marketing?

So we have to stay ahead of the game with new R&D and new technologies IN THE AREAS THAT WE HAVE COMPARATIVE ADVANTAGE IN !!!! I'd hate to have to teach you economics - this about first year uni stuff by the way it's not rocket science. Please give me some clue that you understand this concept because after thousands of words you still have given me no indication.

And all with cheaper labour too...which means?
That's right...we will see in the future the Chinese also being hired to do such jobs that you are saying we should be doing.

I haven't said which "jobs" we should be doing - I have suggested a strategy based around R&D, innovation and exploitation of comparative advantages where we have them. You don't compete in areas where you can't win. You pick your battlefields.

See how it came back to cheap labour again?

You have a one-card trick - unfortunately it doesn't trump anything. I can't be bothered pointing out why for the fifth?? time.

BUT the ONE thing that it all comes down to is labour costs (which you agree we can't compete with at present)...

At present? Not in our lifetimes mate.

So your strategy for Australian industry is to cut labour costs until at some point in the future we will compete with the Chinese on labour costs. Good luck with that.

 

[AngryAnt]

Farming is beyond it's use by date?

:hihi :hihi I hope not Disco...

Another good example. Currently we try to grow rice in Australia - wet rice agriculture in a continent that is the driest on earth apart from Antarctica. We use gigalitres of water to do this - a precious resource wasted. In order to compete with countries that have comparative advantages in wet rice agriculture (Thailand, Indonesia, India, China) we massively subsidise this industry.

Comparative advantage trade theory says stop growing rice, buy it from Asia - it's cheap. Use those subsidies to do grow something else more suited to the climate. Sell that to Asia for a higher price than they sell rice to us.

This has the advantage of saving vast quantities of water to be used elsewhere as well.

 

[Disco08]

Yep absolutely, that's ludicrous.

 

[AngryAnt]

Yep absolutely, that's ludicrous.

Yeah, although Liverpool would tell you to keep on growing rice - you just need to reduce labour costs by sacking enough workers to compete with Asia.

Irrigated agriculture accounts for 70% of all water use in Australia by the way. I don't know how much of this would be for rice - cotton is also a big water user. By contrast, only 10% of stored water is for urban consumption.

There are also moves towards a wet/dry rice agricultural systems which could save some of that water.

 

[Tiger74]

For Australian manufacturing, there are a couple of things to remember:

1) you cannot replicate everything

Liv you are slightly wrong in one area (from my experience), and that is the Chinese catching up in design. They are the masters of duplication. You send a chair over there, they will make 10,000,000 units exactly identical for you at a damn good price. You send a design concept however, and get ready for 2 years of pain.

In terms of R&D and invention, China still trails the world. Personally I blame the education system. Strong of rote learning, and not much incentive for creativity and arguing against convention. Unfortunately these are key assets for anyone wanting to invent and develop new concepts and creations.

I know they are trying to change this, but again its in a Chinese Communist way, big Govt run R&D centres. Name the last time a Govt anything invented anything other than red tape.

Most the innovation into China right now is actually coming from the US, EU, and Japan, and as I mentioned earlier, its the guys to design and invent who score the bucks, not the guy who builds it.

2) mass production can make anything

This is a big myth. One example I know of is textiles. China is known as the place you go to make 20,000,000 t-shirts of simple design. India is the place you go to if you want 2,000 but of an intricate design. Chinese production is textiles is now so heavily geared to volume, it makes it hard to focus on small speciality runs for many plants.

Another is food. You will always have a market for your cheap Kraft processed cheese, and this can be made anywhere. This is however a booming market for speciality cheese, and mass production and cheap ingredients are the best way to kill these type of products.

3) China will eventually equal on quality for all production

This may happen for some, but not all. Best example is the car industry. As much as teh Australian industry has improved quality wise in the past 20 years, you still get an ass-kicking car when you buy a German made BMW. German wages are high, production costs high, but they meet this buy lifting their standards whenever the rest of the world come close to catching them.

 

[Liverpool]

Farming is beyond it's use by date?

I think some areas of Australia that have been farming areas and are now dry as a bone and with the climate change the way it is going, will not be able to be farmed as they traditionally were...and hence why I agree with Antman that a country should not prop up industries that are past their use-by date.
I stated that on the farming thread.

So we have to stay ahead of the game with new R&D and new technologies IN THE AREAS THAT WE HAVE COMPARATIVE ADVANTAGE IN !!!! I'd hate to have to teach you economics - this about first year uni stuff by the way it's not rocket science. Please give me some clue that you understand this concept because after thousands of words you still have given me no indication.I haven't said which "jobs" we should be doing - I have suggested a strategy based around R&D, innovation and exploitation of comparative advantages where we have them. You don't compete in areas where you can't win. You pick your battlefields.

If you actually read the farming thread I posted Antman.....I have been saying about farms that have traditionally grown a certain type of crop, or run a certain type of animal.....and now face ruin due to the weather and are using handouts to keep the farm going, need to look at farming different crops and maybe not having animals at all. or, maybe some farms should shut up shop completely.
By wanting farmers to look at using different crops, or running different animals...or going to learn a different trade...wouldn't you say that was the 'comparitive advantage' youa re talking about?
Your strategy is exactly as you put...1st year economics at uni...you're not telling us anything new mate.

At present? Not in our lifetimes mate.
So your strategy for Australian industry is to cut labour costs until at some point in the future we will compete with the Chinese on labour costs. Good luck with that.

I wouldn't be so sure with that.
We might not get right down to their level....but I think if Rudd can control things a bit (we'll see what compromises he made with the unions and what parts of WorkChoices he will scrap/keep)...but I would be looking more at whether they can reach OUR level.

Liv you are slightly wrong in one area (from my experience), and that is the Chinese catching up in design. They are the masters of duplication. You send a chair over there, they will make 10,000,000 units exactly identical for you at a damn good price. You send a design concept however, and get ready for 2 years of pain.
In terms of R&D and invention, China still trails the world. Personally I blame the education system. Strong of rote learning, and not much incentive for creativity and arguing against convention. Unfortunately these are key assets for anyone wanting to invent and develop new concepts and creations.
I know they are trying to change this, but again its in a Chinese Communist way, big Govt run R&D centres. Name the last time a Govt anything invented anything other than red tape.

Oh...totally agree...but I think they are getting smarter and better, Tiger74.
I'm not saying their cars are going to be as good as a BMW or anything anytime soon...but...small steps....

This may happen for some, but not all. Best example is the car industry. As much as teh Australian industry has improved quality wise in the past 20 years, you still get an ass-kicking car when you buy a German made BMW. German wages are high, production costs high, but they meet this buy lifting their standards whenever the rest of the world come close to catching them.

I used Ferrari in my last post.
Antman is right in aiming at markets that we can have an advantage in....but his problem is that usually a new market is a niche market, and a country's economy can't survive on niche markets.
Italy have Ferrari...but they also have Fiat.
Japan have Honda....but they also have Toyota/Mitsubishi.
You have to have some type of volume coming through as well.

 

[Disco08]

I think some areas of Australia that have been farming areas and are now dry as a bone and with the climate change the way it is going, will not be able to be farmed as they traditionally were...and hence why I agree with Antman that a country should not prop up industries that are past their use-by date.
I stated that on the farming thread.

I thought you were against any government assistance, irrespective of the timeframe or specific sector?

 

[newyorktiger]

Scouser,

You do know one of the most effective ways to keep labour costs down? Immigration from poorer countries. Funny how things all turns around full circle.

 

[AngryAnt]

think some areas of Australia that have been farming areas and are now dry as a bone and with the climate change the way it is going, will not be able to be farmed as they traditionally were...and hence why I agree with Antman that a country should not prop up industries that are past their use-by date.
I stated that on the farming thread.

If you actually read the farming thread I posted Antman.....I have been saying about farms that have traditionally grown a certain type of crop, or run a certain type of animal.....and now face ruin due to the weather and are using handouts to keep the farm going, need to look at farming different crops and maybe not having animals at all. or, maybe some farms should shut up shop completely.
By wanting farmers to look at using different crops, or running different animals...or going to learn a different trade...wouldn't you say that was the 'comparitive advantage' youa re talking about?
Your strategy is exactly as you put...1st year economics at uni...you're not telling us anything new mate.

And yet what we agree on in the farming sector you think doesn't apply in manufacturing. It's "comparative" advantage - not "comparitive" and the farming example is a good example - an extreme one because of our climate and drought issues. The same theory applies across all industries.

We might not get right down to their level....but I think if Rudd can control things a bit (we'll see what compromises he made with the unions and what parts of WorkChoices he will scrap/keep)...but I would be looking more at whether they can reach OUR level.

They will eventually - depends on time frame. Chinese manufacturing will always have one massive advantage over us - they have access to a huge domestic market. We don't have that and never will - another reason to be smart and choose our industries rather than trying to compete on cost. We will never win on cost, even if Chinese per capita income matches our own. Trying to match China on raw production costs and labour costs is never going to be a winning strategy, but we'll have to disagree on that one.

Antman is right in aiming at markets that we can have an advantage in....but his problem is that usually a new market is a niche market, and a country's economy can't survive on niche markets.

[/quote]

A niche market in China would be a huge market for Australia. We also have to mindful of new industries and thus new markets for these products and services. Also we have to keep doing the things we are good at as long as the markets for those things are strong.

 

[poppa x]

Liv you are slightly wrong in one area (from my experience), and that is the Chinese catching up in design. They are the masters of duplication. You send a chair over there, they will make 10,000,000 units exactly identical for you at a damn good price. You send a design concept however, and get ready for 2 years of pain.

In terms of R&D and invention, China still trails the world. Personally I blame the education system. Strong of rote learning, and not much incentive for creativity and arguing against convention. Unfortunately these are key assets for anyone wanting to invent and develop new concepts and creations.

The same could be said of the Japanese in the 60's and 70's. Most Japanese products of this era were cheap and nasty. But over time, the quality improved as their volumes grew and they gained more experienced and educated workers. 40 years ago they copied the wests products. Today they design their own and they are often superior to ours.

The same thing is happening with Hyundai. 10 years ago their cars were cheap nasty copies. Today, their new cars are well designed, well built and are winning awards.

China will go the same way. In my lifetime (and I'm 59) their products will be the envy of the west. To compete, we have to "choose our battlefield" and focus on those industries where we have an advantage. It won't be government that makes the selections. Industry and entrepeneurs will lead the way.

 

[Liverpool]

I thought you were against any government assistance, irrespective of the timeframe or specific sector?

If I had my way...yes, I think Government assistance is either for all industries or for no industries.....HOWEVER, if we are going to go down the road we have gone, then assistance (say in the case of farming) has to show some sort of justification that the Government should keep propping them up in certain areas.
The argument that the farms were viable before the drought doesn't cut it with me...as it hasn't rained, and as no one can predict when it will rain, or if it will rain in those areas enough ever again, then how do we know we are just not pumping money into something that will never show a return?

Scouser,
You do know one of the most effective ways to keep labour costs down? Immigration from poorer countries. Funny how things all turns around full circle.

Exactly...and a road we do not want to go down...hence WorkChoices.
Look at Qantas for example...they have a 75% Aussie crew and a 25% overseas crew...where they were starting to go the way of cheaper overseas cabin crews.
A dispute with the engineers now could result in strike action over Christmas (gee, a strike at Christmas as soon as an ALP government is elected...there's a surprise I didn't see coming! ).

They will eventually - depends on time frame. Chinese manufacturing will always have one massive advantage over us - they have access to a huge domestic market. We don't have that and never will - another reason to be smart and choose our industries rather than trying to compete on cost. We will never win on cost, even if Chinese per capita income matches our own. Trying to match China on raw production costs and labour costs is never going to be a winning strategy, but we'll have to disagree on that one.

Businesses (and maybe unions) are realising that if pays keep going up then there will be no work here in Australia, even if you ignore the manufacturing side of things and look at servicing.

For example, Qantas:

But Dixon is only too aware that he has to continue to work on his cost base. He has limited control over the cost of fuel (other than hedging) and has recognised that the low hanging fruit continues to be labour costs.
When the Qantas chairman, Margaret Jackson, announced her resignation a few months ago the most obvious replacement was Chris Corrigan, the former investment banker who had played hard ball using strike breakers to snuff the waterfront unions in the 1990s.
He is a bloke who understands how to appropriately value companies, and he has chaired Virgin Blue.
The revelation this week that Qantas appeared to have a contingency plan in the event it could not reach an appropriate enterprise bargaining agreement with its flight attendants suggests that having Corrigan on side may not be a bad tactic

and just now:

QANTAS will hire 2000 more international flight attendants, on substantially lower pay, under a landmark union deal.
The new Australian-based staff will get the Jetstar pay rate, about 25 per cent less than that for current Qantas cabin crew, and their work hours will be up to 30 per cent longer

You keep saying I am disagreeing with what you are saying...but I am agreeing on all your points about looking at ways to be 'smarter', however the Chinese are starting to be smarter also and therefore at the end of the day, it will always come down to cost of labour. This is why I have called your 'comparative strategy' left-waffle...because it is obvious that we need to do all this stuff anyway and to be honest, I think we already do it (better than the Chinese anyway).
I also agree to a certain extent that we may never reach them when it comes to labour costs, however you would like to think that maybe we can control wages to a degree where the difference in our labour costs compared to the Chinese (and therefore they can manufacture a cheaper product) can be offset by our quality and after sales service, so much that this becomes more of an important factor for the consumer than the price of the product alone.
The key is that we still have to be close to the price of the Chinese product otherwise we will just lose market share as the selling points of quality, creativity, etc will not justify the consumer paying more than they expect to.

 

[AngryAnt]

You keep saying I am disagreeing with what you are saying...but I am agreeing on all your points about looking at ways to be 'smarter', however the Chinese are starting to be smarter also and therefore at the end of the day, it will always come down to cost of labour. This is why I have called your 'comparative strategy' left-waffle...because it is obvious that we need to do all this stuff anyway and to be honest, I think we already do it (better than the Chinese anyway).

Fair enough Poolman - but I still confused as to how you think classical economic theory is lefty waffle that somehow all businesses do anyway. It seems you are bit conflicted on that. Besides which comparative theory is about what nations do, not so much what individual businesses do.

We will have to disagree on labour costs. And with globalisation service areas also have to compete with cheaper providers of services overseas as well - you are 100% correct.

I also agree to a certain extent that we may never reach them when it comes to labour costs, however you would like to think that maybe we can control wages to a degree where the difference in our labour costs compared to the Chinese (and therefore they can manufacture a cheaper product) can be offset by our quality and after sales service, so much that this becomes more of an important factor for the consumer than the price of the product alone.

This is a good example of the things we need to do, yes.

The key is that we still have to be close to the price of the Chinese product otherwise we will just lose market share as the selling points of quality, creativity, etc will not justify the consumer paying more than they expect to.

Yeah but we have actually come up with new and different products than the Chinese, not just try to beat them on existing products. This is the "choosing your battlefield" idea.

However it's good to see you have made progress from your initial stance that labour costs are everything to agreeing with T74 and myself.

 

[AngryAnt]

The same could be said of the Japanese in the 60's and 70's. Most Japanese products of this era were cheap and nasty. But over time, the quality improved as their volumes grew and they gained more experienced and educated workers. 40 years ago they copied the wests products. Today they design their own and they are often superior to ours.

The same thing is happening with Hyundai. 10 years ago their cars were cheap nasty copies. Today, their new cars are well designed, well built and are winning awards.

China will go the same way. In my lifetime (and I'm 59) their products will be the envy of the west. To compete, we have to "choose our battlefield" and focus on those industries where we have an advantage. It won't be government that makes the selections. Industry and entrepeneurs will lead the way.

Having spent time in Korea and studying their program of industrialisation, I have to say that they are an amazing people. They went from a basically traditional almost feudal society pre Korean war, through a war that devastated and divided the country to this day, through a dictatorship, then a rapidly industrialising nation and finally a true democracy and fully developed economy in around 50 years.

In the mid 90s I visited the Lucky Goldstar factory outside Seoul where they were making crappy stereos and TVs. Their company goal was to be the "World's Best Company".. we asked in what, consumer electronics? "No, we want to be the "World's Best Company in everything" was the response. Lucky Goldstar is now LG - maybe not the world's best company but a pretty damn impressive one.

I was lucky enough to visit China for the first time this year and was very impressed with what they are doing in a whole range of areas... for me the growth of China and the other Asian economies offers Australia massive opportunities rather than threats - if we can be smart in the way we interact with these economies and societies. We sure as hell ain't going to do this by slashing labour costs and trying to compete directly with them.

 

[Tiger74]

The same could be said of the Japanese in the 60's and 70's. Most Japanese products of this era were cheap and nasty. But over time, the quality improved as their volumes grew and they gained more experienced and educated workers. 40 years ago they copied the wests products. Today they design their own and they are often superior to ours.

The same thing is happening with Hyundai. 10 years ago their cars were cheap nasty copies. Today, their new cars are well designed, well built and are winning awards.

China will go the same way. In my lifetime (and I'm 59) their products will be the envy of the west. To compete, we have to "choose our battlefield" and focus on those industries where we have an advantage. It won't be government that makes the selections. Industry and entrepeneurs will lead the way.

I actually disagree on Japan. They (generally - we are full of generalizations here!) are very good at refining or re-engineering, but not inventing.

They made cars more efficient to drive and cheaper.

They made stereos small.

They made computers more efficient.

They made TV pictures better.

The core technology however was still coming from the USA or the EU.

This can only go so far, because sooner or later someone will create something brand new.

A good example is silicon chips. Many of the worlds PC's have Pentium chips in them. They are made all over the world, but the company that gets the bulk of the cash is Intel. To work around this, Taiwan, China, and Korea are desperately trying to develop their own silicon chips that are cheaper and better than the Intel chips.

There is one problem though...

The next progression of chip technology is coming close to hitting a wall. Using current technologies, we may not be able to shrink the circuitry further due to heat and other issues. This means Taiwan and co are learning to make the current spec smarter, but what are Intel and the like doing?

They are developing new materials that will not have the heat issues the current chip has, and are even beginning to research organic chips. They see that the silicon age is coming to an end potentially soon, and they want to be at the forefront of the new technology.

To innovate, you need to have a culture that fosters thinking outside the square, debate, and risk taking. Historically Chinese and Japanese education systems have not done this.

 

[AngryAnt]

I actually disagree on Japan. They (generally - we are full of generalizations here!) are very good at refining or re-engineering, but not inventing.

Conclusive evidence that you are wrong on this T74 can be found here http://sqzm14.ust.hk/gt-inventions.html

 

[Liverpool]

Fair enough Poolman - but I still confused as to how you think classical economic theory is lefty waffle that somehow all businesses do anyway. It seems you are bit conflicted on that. Besides which comparative theory is about what nations do, not so much what individual businesses do.

Maybe I used the wrong terms by saying "lefty waffle"...but I hear the same stuff from idiots on TV who have just read a 1st-year economic textbook...and think that all of a sudden, they know how we are going to compete with the Chinese. We do this, this, and this...and hey presto!
It's rubbish.
And what I mean is it isn't the info from the textbook that is rubbish....it is rubbish that people have this perception that Australian businesses do not already do this.
They think they are telling us something we don't already know.....and then they add a few environmental terms to what they are saying and you have, what I call, 'lefty waffle'.

And while your 'comparative strategy' you say is ear-marked for a nation not individual businesses.....I disagree in that I think it is done by individual businesses all the time.
The company I work for is a market leader...therefore when we develop something, other companies follow suit....whether that be a product, marketing, pricing...you name it.
We are always looking at leading the industry...that isn't determined by the nation as a whole, but by us, an individual business.
If we can drag along the rest of the industry with us, then all the better for us, our competitors here, and the Australian market as a whole.

However it's good to see you have made progress from your initial stance that labour costs are everything to agreeing with T74 and myself.

My initial stance was that labour costs are the main thing....and my stance has not changed.
However, I have NEVER said it was "everything".
I have said post after post that I agree with you regarding other areas we need to be very good at to compete with the Chinese, however all this will amount to ZERO if we are not competitive when it comes to labour costs.
I'm not saying we need to all go off to work earning 20 cents per day like some third-world country, but we do need to keep them in check somewhat so they don't spiral out of control until we get to the stage that more and more businesses move offshore and we price ourselves out of the market completely.

 

[ssstone]

and at the end of r+d,smart economics someone/country has to make them?????