How Aussie Mittelstand can solve our manufacturing crisis
By Christopher J Tipler
Every day now, our manufacturing sector shows more symptoms of a potentially terminal illness. Called Dutch disease, it is the malaise caused by a high, commodity-driven, exchange rate. Across the sector jobs are rapidly disappearing. Our car industry teeters on the brink, as does aluminium production. Employment is being scaled down in steel products manufacturing, textiles, aircraft engineering, and so on.
No one knows what to do. Business leaders blame the trade unions and the dollar. Our government’s propose ‘solutions’ that will be little more than life support for desperately ill patients. The free traders look on smugly – to them it is all part of an inevitable transition to a service-based economy.
I will not argue the case again here for a viable manufacturing sector; I will simply assert it as entirely obvious. ‘Making stuff’ (as Barack Obama puts it) is crucial to our welfare and the welfare of our children. We must find a solution to our Dutch disease, because the mining boom will not end any time soon, and our dollar is likely to stay high.
Any solution must result in a manufacturing sector with a strong ability and motivation to export and replace imports. A large part of our manufacturing base is now foreign owned. The biggest segment – food and beverage - is 50% owned offshore. The figure for chemicals and household products is 70%. Automotive is close to 100%. This is a problem, as international companies have no particular motivation to export from Australia. Why would Nestlé or Colgate Palmolive, or General Motors see Australia as an export base for any of their global brands? They, and others, will generally only export from Australia if they are processing a large-scale resource that cannot be found elsewhere, such as minerals and some rural products (such as milk).
In this context it can be argued that Australian manufacturing has evolved in the wrong direction; that we have too few genuinely local enterprises whose fundamental motivation is to create wealth and employment here. Enter the Germans, specifically the Bavarians.
Bavaria’s Mittelstand companies – particular types of SME – have been receiving a lot of media attention recently. These companies are the backbone of Germany’s economic success and exhibit the following qualities:
The Mittelstand approach of constant innovation, of doing things faster and smarter than competitors, enables these businesses to offset the disadvantage of a cost base that is higher than their Asian competitors. Mittelstand is also a philosophy, a way of living and working, that is not dependent on size. BMW, for example, views itself as a Mittelstand business despite its global scale. This is reflected in the strength of inter-personal relationships and short decision cycles that characterise its operations.
I put it to you that Mittelstand is the solution to Australia’s manufacturing ills. In fact it is the only solution. We have a handful of such businesses but we need hundreds and we must find ways to nurture them. Here are some thought starters:
- Learn about Mittelstand, and help our business managers learn about them
- Identify all current and potential Mittelstand businesses and talk to them about what practical help they need to overcome the ‘tyranny of distance’ that Australia represents
- Look at specific programs to provide long term funding
- Look at innovative policies such as Kurzarbeit, the Bavarian policy that subsidises companies that cut hours, not staff.
- Overhaul and emphasise apprenticeship training nationally
- Overhaul our business schools so that they can be of some practical use to our Mittelstand
- Focus our universities and research organisations on the task of cooperating closely with such businesses
All of this will take time; a lot of time. But then, as the ancient Chinese saying goes, ‘a journey of a thousand miles starts under your feet’.
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