ONE-ON-ONE Dr Mark Dean

Dr Mark Dean is the Laurie Carmichael Distinguished Research Fellow at the Carmichael Centre, in the Centre for Future Work at The Australia Institute. He spoke to William Poole.

AMT: You were recently the author of a report ‘Rebuilding Vehicle Manufacturing in Australia’. Tell us a little about its findings. Mark Dean: My report shows that Australia has all the key elements to develop an electric vehicle (EV) manufacturing industry in this country. We have rich mineral reserves. We have an advanced industrial base. We have a highly skilled workforce. And we have consumer interest, not just in the purchase of EVs, but also in seeing an EV manufacturing industry in Australia. The one thing we lack is a Federal Government with the political will to create an active, interventionist industry policy to bring those pieces together and develop a plan for the growth of an EV industry, which could effectively be economy-transforming. And I’ve developed four building blocks around areas that would be fundamental to an industry policy for EV manufacturing in Australia. AMT: Would this be a significant export industry as well? In the past Australian car-makers often struggled outside the domestic market. MD: Yes, it would absolutely be an export-focused industry. It would need to be. And EV manufacturing would really form the most critical pillar of what should eventually become an industry that diversifies into electric buses, electric trucks, rail transport, and right into what I call “applied renewable technology solutions”. If we get the industry policy right, what we’re ultimately doing is diversifying our ability to develop solutions for all types of renewable energy applications, and in the process exporting that knowledge and expertise to the world. That all starts with the EV manufacturing industry. I should add that there were times in the past when we were also exporting vehicles. US Police Departments in California, Michigan and Florida were procuring Holdens from Australia, for example. But I take your point that Australia was bad at exporting the units we were producing. We weren’t producing enough to export at scale, and we weren’t meeting local demand for smaller vehicles – Holden in particular. We were always making larger vehicles. AMT: Can you talk a little more about those key advantages Australia enjoys in the EV space? MD: So let’s go through the four building blocks. Number one: vast lithium reserves that at the moment we mostly export as a raw commodity to other countries, who turn them into batteries overseas and sell them back to us at a premium. In 2017 raw commodity exports and lithium generated $2.1bn of revenue for Australia, but the Future Batteries Cooperative Research Centre shows that battery production generated $22.1bn for those countries overseas – more than ten times the revenue from our exports. We need to develop processing capabilities onshore, near the lithium if possible. Perhaps even the Pilbara could become a processing region, with the infrastructure, trains, ports access to shipping. So that’s one piece. Next, the development of supply chains is critical. We need to scale up the SMEs, make them feature more as part of our industry ecosystem, strengthen them to become the major links between processing and manufacture. There’s a huge piece there. We have a skills base, but we will need entirely new training packages and units of competency to create the skills for EV manufacturing. My report demonstrates that Australia’s training capabilities in vocational education and training at present still consider EVs as hybrid-only. There’s no training and units of competency that consider training for EV manufacture as a whole new separate entity. That’s a critical skills gap that can be addressed with full, adequate funding of TAFE, because TAFE was critical to manufacturing regions in the past. One of my recommendations is to provide TAFE free as a transitionary labour market policy to help former auto workers retrain and reskill, and to address the shortfall in apprenticeships and traineeships we’ve seen over the last ten years as government funding has been stripped from TAFE institutes around Australia. The fourth point is consumer interest and demand. Not only do a majority of Australians support EV uptake among consumers, they want to see EVs manufactured in Australia. There is majority public support for this becoming how we transform our manufacturing industry and how we address climate change. The public knows we used to manufacture things; it was brought more to our attention during the pandemic with Australia’s inability to produce vaccines, rapid antigen tests and personal protective equipment. These are things we should be self-reliant in. But it’s become clearer to Australians than ever before that when we lost manufacturing capabilities, we lost the ability to do so many things we take for granted. So government would provide incentives for consumers to purchase EVs and create local domestic demand for vehicles that are made in Australia. AMT: Obviously we did have a car industry, but the last car-makers left Australia a few years ago. What would be different now that means this industry would grow and prosper? MD: There are a number of factors here. First, the increasing withdrawal of an active government role in industry policy formation since the 1980s was of great detriment to the manufacturing sector. The idea that market forces would drive continued development was frankly stupid – to think a country as remote as Australia could sustain a global export industry without government support. No other country with an advanced manufacturing sector – and largely that means an auto manufacturing industry – allows market forces to dictate how their industry transforms. Government is active at all levels of investment, at state, local and federal levels, in countries like Germany, the US, Japan. None of them leave their most innovative, R&D-intensive, knowledge-intensive industry exposed to global market volatility. They provide sophisticated assistance through government investment and active intervention in creating and shaping the markets for the industry’s expansion. In the Australian case, what happened is in 2013 Australia had just ridden the wave of the global financial crisis with our commodities boom. But our exchange rate with the US was through the roof. At its peak we were buying a US$1.10 for every Australian dollar. So travelling to the US at that time was fantastic, but it disguised the effect that exchange rate had on manufacturing. We were no

longer competitive. We had to have the Australian dollar at 75 cents compared to the US dollar for exporting vehicles. At that point, the manufacturing sector was in crisis. And I think we all remember the then-Treasurer Joe Hockey not only refused a loan of $500m to Holden, he actually dared Holden to show its cards and reveal what it was going to do. He effectively dared Holden to leave the country. They called his bluff and left. That $500m stimulus to Holden – and therefore to the manufacturing sector, the supply chains, all the component manufacturers that would’ve benefited – that $500m would have created $23bn of return to the economy. The $500m the Abbott Government was unwilling to provide to our most important manufacturer would have paid for itself many times over, and we would still have a vehicle manufacturing industry. We didn’t need to lose the car industry. AMT: And obviously $500m is a lot of money, but it would be relatively small compared to the support government provides elsewhere? MD: That’s right. During the pandemic the government spent almost $300bn. If it was to front an initial public investment in developing an EV industry of say $10bn-$20bn, that still pales in significance to the money spent through the pandemic. But the Government effectively does understand that industry policy is important, yet it’s picking losers by backing the gas industry. They say that we can’t pick winners when it comes to manufacturing, but it’s picking losers by backing “gas-fired recovery” as it's only industry policy besides defence. So industry policy is something the Government can do; they just don’t seem interested in backing the one sector that could be transformative for the entire economy. But going back to the ways an EV industry would be different now, first of all, EVs are far less complex than internal combustion engine (ICE) vehicles. The batteries are the most complex, expensive component. So what you may actually see is a lot of new skills and jobs focused on battery production, and there would be some important restructuring around batteries becoming the most crucial part. Also, we’re not starting from scratch. Much of the rest of the work, the actual building of cars, is still very much alive in Australia. Many people are surprised to learn that even though Holden closed in 2017, we still have more than 30,000 workers in our vehicle parts manufacturing industries in Australia and our exports of auto parts have grown substantially. They are largely spread throughout the SMEs that previously depended on OEMs that left in the 2010s, like Holden, Ford, Toyota. So the difference now relates to the incredibly important role of SMEs in a new manufacturing industry. We would be seeing a much greater dependence on SMEs, and them stepping up to take on a larger role. AMT: And one of the great strengths of those SMEs is they are incredibly agile. MD: Yes, exactly. What we have now is that not only are a lot of SMEs still making vehicle parts and exporting to global markets, other companies have diversified into different areas of vehicle manufacture. SEA Electric in Dandenong is building drive trains for electric trucks. ACE Vehicles is building electric buses in Adelaide and Brisbane. The NSW Government has just announced it’s going to build electric buses for its fleets and it wants to do electric ferries and all kinds of things. So a lot of this is happening in Australia, it’s not all being imported, and we should be looking at doing more. We have an industrial base that has eroded somewhat, but we still have the ability to build on that and bolster our SMEs so some of the small enterprises become medium, and the medium enterprises become large enterprises. The OECD has warned that Australia’s industrial structure lacked “the missing middle” – an absence of large or middle-size companies to take up the slack of the lost tier-one suppliers and OEMs and fill that gap. We lack that critical capability. My report suggests ways government can bolster that and develop capabilities and supply chains.

I’m sure your readership is interested in Industry 4.0 as well. Even before we lost auto manufacturing in Australia, those factories were largely automated. I imagine we would be returning to something more advanced than that if we brought EV manufacturing to Australia. And that again highlights the diversification opportunities, for jobs, for the creation of service industries that connect suppliers to customers more directly, for the servitisation of manufacturing. The breadth of the opportunity there could be enormous. The refurbishing of EV batteries, the circular economy principles, and the technological investment needed to drive innnovation are all huge opportunities also. AMT: So why is Australia currently failing to grasp these opportunities? MD: It’s always worth reiterating that Australia had effectively been building cars since the 1930s. For nearly a century, we built cars in Australia. The reason we started building cars is because state premiers and the Federal Government saw the opportunity to transform our economy from lower-level agricultural commodity exports, to diversify and grow our economy, increase standards of living through manufacturing’s creation of better jobs, more services, more diversification in the economy. That didn’t happen because of market forces. That’s a fundamental point. The emphasis on market forces has been to our detriment, particularly where governments have played the most decisive role for manufacturing development in Australia. Government must lead the way in a range of areas, particularly procurement. The private sector will follow government’s lead if government backs industrial development and transformation by removing risk, through co-investing itself, and by becoming a demanding customer. One of my recommendations is to have governments procure an entirely electric vehicle fleet by 2030, and to support state and local governments to meet those targets as well. That is a clear example of the way government would back Australia’s domestic EV manufacturing industry and open up possibilities for private sector investment. Consumers want it, industry knows there’s a huge opportunity. The one thing we don’t have is government to actually back it. We have this problem in Australia of thinking that government is the problem. We’ve gone from building a nation through things like Snowy Hydro or an auto manufacturing industry, to losing that vision. This needs to be a nation-building opportunity. This is a policy that can rebuild our nation, restore manufacturing and restore our economy in a post-pandemic world. AMT: What are the consequences if we fail to take this opportunity? MD: One measurement I often refer to is Harvard’s Atlas of Economic Complexity. Australia ranks 87th in the world, out of 130 countries. Countries like the US, Japan, Germany, Singapore, Switzerland, the Netherlands, Sweden all sit within the top 10. That’s a reflection of the complexity of their economies, which are knowledge-driven. It demonstrates how able you are not only to diversify your economy, but connect those diverse industries and knowledge pursuits to create innovative new products and services. Australia’s position of 87th reflects our long-term dependence on commodities exports, not adding value to our industrial products. What concerns me is we have everything we need, but without the industry policy to support and advance that development, we will continue to rely on raw commodities exports, and we will actually see our standard of living drop. I’m trying to be optimistic about an EV-driven future, but the pessimist in me worries that the standards of living we have at the moment are built on efforts made in the past: the institution-building in manufacturing, the institution-building in the economy, the hard decision-making, the nation-building. The policy development of the past that we have since abandoned means our lifestyles could very quickly follow. We do see signs of that already: growing inequality; younger generations being materially worse off than their parents. These are indications that you can be doing better as a country, and you should be if you want to continue comparing yourself to the rest of the developed world. And developing countries are actually looking at industry policy opportunities; that’s not exclusive to advanced countries. A lot of developing countries are looking at how to induce their own manufacturing industries. But Australia seems to have largely abandoned that, and I’d like to see that reversed if we’re going to continue to be a wealthy country that creates good jobs for its people, excellent business opportunities for its SMEs, is technologically advanced, and addresses climate change. AMT: Beyond EVs, what other opportunities do you see emerging for Australian manufacturers? MD: For SMEs in particular, a lot of opportunities involve diversification into new applications for lithium ion batteries – perhaps home energy storage, battery-powered trains or trams, other things like that. What I see with applied renewable energy solutions is that government supports the pursuit of knowledge in as many different innovative ways as possible, spinoffs occur from EV manufacturing, and end up transforming other areas of the economy. Whether that’s battery-powered agricultural machinery, battery-powered homes and energy grids, even rethinking urban infrastructure, sustainable building, and all the different opportunities from advanced materials. That’s what I mean by applied renewable energy solutions – it’s a way to use EV manufacturing as a lever to open up all those opportunities over the long term. Once we can show the rest of the world we can do EV manufacturing, we begin to show how else we’ve applied that concept to other areas of the economy. And what we end up doing is exporting the knowledge, which is what other countries do – the complexity pieces around how you can assemble diverse knowledge, create innovative new products and have a competitive advantage over other countries. That could be a huge opportunity for Australia. Other countries look at our abundance of renewable energy with envious eyes. And we don’t use it, not to the extent we should be, and that means government involvement. AMT: Tell us about the Carmichael Centre and the Centre for Future Work more broadly. MD: The Carmichael Centre is a new centre established in the Centre for Future Work at the Australia Institute. It is named after the legendary trade unionist Laurie Carmichael, and his important role in 20th Century industry policy in manufacturing. This has been my first big research piece around industry policy. I’ll also be looking at TAFE reform, and ideas like a shorter working week. These were all areas of Laurie Carmichael’s passion and interest, and his activism as a trade unionist. The Centre for Future Work is a great home for the Carmichael Centre because it looks at Australia’s economy, labour markets, and improving the future of work for working people – it’s helping to influence the conversation around how we create better jobs, a better economy, a stronger, more sustainable economy that works for working people. AMT: And what is the most satisfying part of the job? MD: Being able to see that my policy research has a direct influence on policy debates is wonderful. I also really love how much my own thinking is challenged by my colleagues. These are often team efforts that are influenced by conversations and debates with colleagues. It’s an environment of big ideas and intellectual pursuits that are grounded in reality, thinking about how to make Australia better for everyone.

www.carmichaelcentre.org.au