Tuesday, January 23, 2007

Who gave Blundstone's 300 workers the boot? We did.

The once-proudly Australian boot manufacturer Blundstone is to end manufacturing in Australia and move its plants to India and Thailand. 300 Australians are to lose their jobs.

It is natural to want someone to blame. The Textile, Clothing and Footwear Union lays the blame at the feet of this and the previous federal government which have cut tariffs and pushed internationally for free trade.

It is may well be true that if Australia reversed all of the tariff cuts that have taken place since the early 1980's Blundstone would find it worthwhile to continue manufacturing in Australia. At the start of the 1980's Australia's average effective rate of assistance for clothing and footwear manufacturers exceeded 200 per cent. The tariff on boots is now less than 10 per cent and on track to fall further...

While Blundstone was announcing its decision to close its Australian operations in Hobart last week in Canberra Australian officials were confirming to APEC that Australia was on track to bring down most of its tariffs to 5 per cent by 2015.

It is an approach that until now has made Blundstone more competitive. It exports to 15 markets worldwide including the USA, Canada and Israel - something it was not able to do back at the start of the 1980's when Australian costs were 200 per cent above those elsewhere.

But it is now facing a changed environment that even a massive tariff barrier would not help it cope with.

For some time now Blundstone has faced competition from manufacturers hiring workers in countries such as India and Thailand for a fraction of the price Blundstone pays to hire workers from Australia.

Until now has been able to withstand the competition by investing in cutting-edge technology that would allow it to produce a high volume of a standardized high-quality boots without a big wages bill.

But as Blundstone's manager Steve Gunn puts it, “our consumers are indicating to us that they are no longer wanting to buy the type of products we can make efficiently in the sorts of numbers that they have in the past, particularly the 35s and under, indicating that they want different types.”

Low volume runs of transitory specialised designs are best made by people rather than machines, and in any event the high-tech machines Blundstone used to rely on are becoming harder to find.

As Steve Gunn puts it: “We have now become aware that our technology trail
that we have relied upon so heavily to give us a competitive advantage in
the last 20 years, by taking world-edge technology and using it, that is no
longer being developed”.

“All of the producers that are in low-cost locations, they're not terribly interested in a machine that saves a job.”

Blundstone is far from the only Australian manufacturer to go down the path of using workers in low wage economies to make the labour-intensive goods and Australian factories to make high-volume capital intensive ones. Pacific Brands manufactures high quality standardized Bonds singlets from a state of the art facility in Sydney that is almost completely automated. Its fancier more individually designed products get finished off in lower-wage locations such as China.

Seen through this prism Blundstone's Hobart manufacturing operation has been as much a victim of changing consumer tastes as it has of tariffs or relative wages or free-trade.

As we become richer we increasingly demand less standardized products.

Blundstone itself probably accelerated the accelerated the process a few years back when it began to market its boots as fashionable and had them worn by celebrities reportedly including Brooke Shields and Cindy Crawford.

Australia's textile clothing and footwear industry employs half as many workers as it did a decade ago. But the 43,500 jobs lost in that industry have been dwarfed by the almost two million extra jobs created in the economy more broadly. It will not be straightforward for some of the 300 workers made redundant by Blundstone to find new jobs, but Australia's generational lows in unemployment suggest that it will be easier than it has been in a lifetime.

Unfortunately many of the new jobs that have been created during Australia's employment boom are unlikely not suit the Blundstone workers.

Research conducted by the Parliamentary Library for the Labor frontbencher
Craig Emerson finds that two-thirds of the jobs created during the term of
the Howard Government require a university degree.

As the Prime Minister himself said last year: “Not everybody is suitable
for a university education”.

If it is any consolation to the workers made redundant at Blundstone, it is likely that the demand for workers of all skill levels will increase still further as the Australian population ages.

Tasmania is leading the pack with around one-third of its population expected to be aged 65 or over by the middle of this century.

By then workers will be in keen demand not so much to make goods for the avalanche of retired Australians, but to provide them with services: to tend to them in shops, to deliver what they buy and to put on their boots rather than manufacture them.