iPhone manufacturing and mining

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=4&pagewanted=all (Registration required)

Here’s an article which says what I’ve been saying for a while now, albeit with researched evidence. If you want to save half an hour of reading, the lengthy piece is about how the iPhone is manufactured in China, and why the operation will, in the words of the late Steve Jobs, never return to the USA.

This drives home the point that despite what people may think, manufacturing is a very specialised industry which requires a lot of skilled engineers and workers. Taking the iPhone as the example, it would not only cost significantly more to do it in the United States, it would be nearly impossible to get the necessary parts, skills and labour to put it together.

With that said, whether you agree manufacturing should stay in Australia is now a moot point. Decades of inaction has meant that it’s far too late and most manufacturing jobs have already gone overseas. Only a few exceptions remain, but their long term existence is questionable given that they’re receiving massive taxpayer subsidies (ie. car industry).

While it may be nearly over for big manufacturing in Australia, it serves as a powerful example that once an industry goes overseas, it generally does not come back. The current economic trend in Australia is obviously the booming mining industry, which now has the greatest share than ever of the Australian economy. Primarily the big two companies, BHP and Rio are gearing Australia’s economy towards being a raw materials exporter.

The consequence of this economic realignment is that it is causing a brain drain of talent and labour away from other industries. In fact, it’s already a struggle to find tradesmen, engineers and labourers to do odd jobs, and when you do find them, they’re incredibly expensive. But this is only the beginning, and in the future it will be far more difficult as these individuals are further tempted towards the mines.

And just as it will become impossibly expensive to hire tradespeople and physical workers, the mining boom will also start siphoning Australia’s best minds. Young students and talented workers will increasingly become frustrated their relatively low pay scales and start thinking that they’re better off driving a mining truck for triple the pay or getting into a mining company’s corporate headquarters.

These are just a few consequences of the supposed mining boom. While it is a positive that Australia’s economy is temporarily being saved by the money brought in by resource exporters, it is a dependency which in the long term will cause irreversible damage to Australia’s other industries.

The story of the iPhone and manufacturing is a lesson to be well heeded, as one day the mines will run out or other nations will start developing their mining capabilities to a competitive standard. And when that happens, Australia needs to have alternative sectors which will sustain the economy.

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