Can $10 a month bring back manufacturing in Australia?

Many of us have contributed money and food to social organisations to help the underprivileged in our society with no expectation of any return. Some corporates also encourage its employees to work in certain organisations a couple of days a year as volunteers.

Let me start our discussion today with an example — We normally buy a coffee every day before we start work and sometimes, one in the afternoon too. That would be $3 — $6 per day. If we forego this behaviour only 3 days a month and donate the dollars saved for a noble cause, assuming 100,000 people decide to participate, we get $1 million a month. Wow, that’s a lot of money.

I think by now you know what I am going to say! That’s right — “Manufacturing is somewhat like an underprivileged contributor in our society” and it needs a helping hand from all of us to improve its capabilities and get back on its feet.

It’s very difficult for one person to bring about a revolution, but it becomes easier when lots of people come together and join hands, that is called a “Co-operative” movement — a close cousin of the socialist movement. A co-operative may be defined as a “democratic process of many people coming together, with a common goal, primarily for social upliftment or a noble cause”.

The movement I am talking about is — “Bring back manufacturing in Australia”.

Socialist strategy in a capitalist economy

How will a socialist approach help? Socialism, as the name suggests has a strong social motive not just profit.

We all have heard of “Corporate Social responsibility” and has been discussed at depth, but we rarely discuss “Consumer Social Responsibility”. Do consumers have a social responsibility? Yes, they do. Consumers, sometimes have to forego some of the profits for the betterment of the society. In this case, betterment means, creating jobs, building technical capabilities and being self-reliant.

Australia is a capitalist economy. The businesses and wealth are owned by private owners. All owners invest money with an intention to make profit. In the current scenario, where we have failed to make any profit in manufacturing, the big question is “will anybody invest in manufacturing”? — Probably not.

Why do we need to bring back manufacturing in Australia?

The Cambridge dictionary definition of manufacturing is “to produce goods in large numbers, usually in a factory using machines”. I will elaborate the definition as a process of “value added conversion” that uses raw material and parts to produce finished goods through the use of tools, human labour, machinery, and chemicals.

In other words, with no manufacturing in our society, we don’t do any value addition in our wealth. We lose our capacity to produce and always rely on overseas businesses to provide us for our basic needs. Consider our relationship with China currently, it makes more sense to bring some of our manufacturing back. (Please note that extraction of minerals/ metals doesn’t involve any manufacturing.)

To understand how manufacturing impacts an economy I have created three hypothetical situations. The below model doesn’t include any financial cost.

1. In the India / China model, I have assumed that 50% of sales in exported and 25% of the raw material is imported

2. In Australia example, 100% of sales in imported with no export from manufacturing.

3.In the Japan / Taiwan example, 50% of the sales is exported and 75% of raw material is imported.

Main three observations

1. Trading activities makes highest profit among the three.

2. Benefit to the economy is maximum in economy that use local raw materials.

3. In order to build a healthy global economy, we need a good mix of import and export.

How can a co-operative contribute?

There is a cost associated with funding / financing of any project. Cost of funds for Co-operatives is zero as the contributors have no expectation. (There is administration cost though)

This funds may be used for plant and machinery, working capital, technology or skilled manpower. Considering a commercial borrowing cost of 8%, there are big savings that can be made.

However, we have to have strong governance procedures to ensure proper utilisation of funds.

My message

The biggest Advantage in the co-operative model is zero financial cost and no pressure of making profit as a business entity. A true corporate with a social objective. Once profits start flowing in, it can be shared with the larger audience.