Wednesday, August 31, 2011

Invest in children of knowledge revolution

It's annoying the way business people keep slipping the words ''going forward'' into almost every sentence and it was even worse when Julia Gillard kept repeating the slogan ''moving forward'' in the last election campaign. But I have to admit they've got the right idea: we do need to keep our minds focused on the future and what we need to do to secure it.

The world keeps changing and we must respond appropriately to that change. Most of us feel threatened by change, and it's only human to want to resist it. The temptation is to try to preserve things as they are, rather than adjust to the way they will be.

As we wonder what to do about the threat to our manufacturing industry, it's tempting to see that threat as temporary. We're in the middle of a resources boom which has lifted the value of our dollar to a level which could wipe out some of our industry. But the boom won't last long and, if we're not careful, we could find ourselves high and dry: no boom and a big chunk cut out of manufacturing. What do we do then?

This is a serious misreading of our situation. What we're dealing with isn't just another of the transitory commodity booms we've experienced many times before. It's a historic shift in the structure of the global economy as the Industrial Revolution finally reaches the developing countries. The two biggest countries in the world, China and India, which were also the biggest economies before that revolution, are rapidly industrialising and within the next 20 or 30 years will return to their earlier position of dominance.

Does that sound temporary to you?

As part of their urbanisation and industrialisation, those countries - and the Vietnams and Indonesias following in their wake - will require huge quantities of iron ore, coal and other raw materials. Not for several months but for several decades. Much of what they need will be coming from us. That says it's likely to be many moons before our dollar falls back to the US70? levels our high-cost manufacturers are comfortable with.

The other side of the re-emergence of China and India is the global shift of all but the most sophisticated manufacturing from west to east. This is a disruptive trend affecting all the developed economies, not just us. All the rich countries are having to find other things to do as their manufacturing migrates to the poor countries.

This, too, is not a process that's likely to stop, much less reverse itself. So it's not a question of hanging in until the world comes back to its senses and things return to normal. The day will never come when we're able to reopen our steel mills and canning factories.

It's a question of whether we dig in and try to prevent our economy changing, or we adapt to our changed circumstances and move into areas more suited to a rich, well-educated, highly paid economy.

In truth, we're making so much money from our sales of raw materials to the developing countries that we could afford to use a fair bit of that income to prop up our manufacturers. That wouldn't make us poorer, just less prosperous than we could be (though keeping labour and capital tied up in manufacturing would mean a lot more immigration and foreign investment to meet the needs of our rapidly expanding mining sector).

And the fact is that, throughout most of the 20th century, we diverted a fair bit of our income from agriculture and mining to subsidising our then highly protected manufacturing sector. This may help explain why so many people - particularly older people - are so ready to do whatever it takes to stop factories being closed. It's the traditional Australian way of doing things: passing the hat.

But what's the positive, future-affirming alternative? What else can we do?

Embrace the newer revolution in the developed world, the Information Revolution. While the poor countries are becoming manufacturing economies, the rich countries are becoming knowledge economies.

The knowledge economy is about highly educated and skilled workers selling the fruits of their knowledge to other Australians and people overseas. It covers all the professions and para-professions: medicine, teaching, research, law, accounting, engineering, architecture, design, computing, consulting and management.

Jobs in the knowledge economy are clean, safe, value-adding, highly paid and intellectually satisfying.

The developed economies are fast becoming ''weightless'', as an ever smaller proportion of income and employment comes from making things and an ever increasing proportion comes from providing services. Some of those services are fairly menial, but the fastest growing categories involve the highest degrees of knowledge and skill.

Employment in Australian manufacturing has been falling since the 1980s. It's sure to continue falling whatever we do to try to prop it up. By contrast, since 1984 total employment has grown by almost three-quarters to 11.4 million. Get this: all of those 4.8 million additional jobs have been in the ''weightless'' services sector.

Notwithstanding our future increase in the production of rural and mineral commodities, our economy - like all the rich economies - will continue to lose weight. The real question is whether the services sector jobs our children and grandchildren get will be at the unskilled or the sophisticated end of the spectrum.

And that depends on how much money and effort we put into their education and training. We've gone for the past two decades underspending on education and training at all levels, falling behind the other rich countries.

If we've got any sense, we'll use part of the proceeds from the resources boom to secure our future in the global knowledge economy.