Latest McKinsey Report shows the size of the challenge.
I expect all those with a passion for manufacturing read the monthly AMTIL magazine and so will appreciate that every month, the AMTIL magazine features the four leading views in their “From the” opinion pieces. Interesting though each is, they are disparate in their views and opinions. The Industry Minister’s articles focus consistently (though Industry Ministers change with disappointing frequency) on how the government is doing all the right things; the Union choose separate partisan battles, the AIG follows its’ own agenda, while the CEO, quite rightly, promotes AMTIL and the currently positive manufacturing sector. Partisan promotion though, can be myopic and subsume the longer-term economic challenges as manufacturing continues to be highly susceptible to economic disruption and global pressures. It would be good to see more cohesion and collaboration in the face of these continuing threats from an uncertain future. But what, if anything, can be the catalyst for a more rational view of the challenges manufacturing and in turn the nation, has to face in the future?
McKinsey and Company Australia, have just provided this with the March 2019 release of their thought-provoking report “Australia’s Automation Opportunity”. This is a very comprehensive, well researched and written report on the rise of automation to 2030 and how Australia must grasp this opportunity or be left behind the rest of the world in productivity and therefore prosperity. The report covers all the economy, not just manufacturing, with assertions that “between 25 and 46% of current work, – affecting between 3.5m to 6.5m people – could be automated by 2030”. With over 900,000 people employed in manufacturing jobs it is a sobering thought that at least 225,000 people’s jobs are threatened with automation!
The report is also strategically clever because it focuses on the opportunity that automation can bring, if managed in a collaborative and investment driven way. It suggests that automation can actually raise living standards substantially over the period; that reskilling, life-time learning and a technology focused economy can significantly raise productivity and maintain employment over the longer term. It manages to create ‘a glass more than ‘half full approach’ while pulling no punches on the size of the challenge. At the core of its message is the need for a ‘national agenda’ built around 3 major elements; a massive injection of both public and private funding of between $800b (worst case) and $2.7t (best case) cumulatively by 2030; a substantial reskilling exercise for displaced workers allowing them to move to the new higher skilled roles or into more customer service focused or aged care related roles and importantly, a big push into education and STEM to provide higher technology skills, higher cognition and increasing emotional and social skills. It argues persuasively that this agenda can substantially lift national productivity to over 150% of its current base and increase individual prosperity by up to $11k for all by 2030.
This is a very ambitious plan that unfortunately raises more questions. How is a collaborative national agenda to be created when Parliament is so divisive and short sighted? Will the displaced workers have the capacity and determination to train for new roles and aptitude to gain new skills and how much will employers be prepared to fund their transition? Are the ‘societal’ pressures created by this change being underestimated and will it not lead to a more divided society in terms of ‘brain stimulating’ and ‘brain deadening’ jobs? Finally, how is this huge STEM re-education program going to be driven through the schools’ system?
These are huge national questions but as this opinion piece is targeted at the manufacturing sector and in particular the Machine Tool and metal cutting (AMTIL), how will this sector be affected and how is this further disruption to be handled? The report states that up to 29% of current manufacturing jobs will be affected. It is unclear how many of these jobs reside in metals niche but there is already evidence that increasing machine automation, robotization and process integration have already created job losses. The report shows that labour productivity has declined but automation offers the opportunity to substantially increase overall productivity. Increasing Productivity is essential if we are to maintain living standards and our international competitiveness. The challenge is to increase the higher-level manufacturing industry skills, while accepting the decrease in lower level skills, ripe for automation. But practical engineering knowledge and skills are already being diminished with the loss of older workers, the decline in apprenticeships, the lack of investment in the Tafe to keep up with technology and the imbalance between theoretical and practical knowledge in our university system. Manufacturing is primarily SME focused and it would seem the industry, even with the offshoring of production and the loss of the automotive industry, has shown itself to be resilient and self-reliant as employment has actually grown over the last few years. However, the report clearly shows that the impetus of automation is so great that it now needs an integrated and collaborative approach between all vested institutions and organisations or face substantial increase in unemployment. The raising of technical education; the reskilling and retraining of the workforce has to be the joint responsibility of all in the sector. Companies, large or small, must look at upskilling their employees, be involved in identifying and building the skill sets for emerging engineers and also doing more to support STEM education in schools right from year 6 through to year 12.
There is a strong argument that Australia has become complacent after two decades of sustained economic growth but if the McKinsey report demonstrates one thing it is that manufacturing, let alone the whole economy, must make lifting and refocusing education the highest priority. The challenge is to provide additional funding, correctly targeted. Is this an opportunity for AMTIL, its lead contributors and its participating members to collaboratively focus and lead in this challenge?
Jack Parr is a member of the Vernier Society whose charitable arm, the Vernier Foundation, run a collaborative program with selected schools in Victoria to provide funds for supporting STEM Education. The Vernier Society, now in its 77th year, is an organisation for all those with a passion for manufacturing.
McKinsey and Company Australia: “Australia’s Automation Opportunity: Reigniting productivity and inclusive income growth” March 2019.