Basic Economic Analysis of Future Made in Australia

This article: Basic Economic Analysis of Future Made in Australia by Samuel Challenger is licensed under CC BY-SA 4.0 Therefore, the attribution in the footer does not apply to this article. 

 For context: when writing this, I am in my last year of high school and economics is my favourite subject at school. I'll be using analysis techniques taught to me, I am in no way an expert in any of this; if you are an expert, feel free to criticise me, as it will only help me. Or perhaps build upon my opinion, it's why this article is under a Creative Commons ShareAlike license compared to a non-derivative one.

With an election under way, a recent budget and friendlyjordies all talking about how amazing the Future Made in Australia, while others have doubt about its potential efficacy. I thought it would be fun to analyse the economic arguments in favour of the initiative other than the personal feeling of 'local manufacturing = good.' In the end, I'd argue that even though Australia's history with manufacturing has not been great, its worth trying as circumstances are different, and the economic benefits, ceteris paribus, (when considering in isolation) should be a justified reason to try. As this is an relatively new industry and there's still lots of space to innovate. 

Australia and its economic state

Recently, Australia has managed to reduce the rate of inflation back to sustainable levels (2-3%) and is forecasted to maintain sustainable levels.* without a technical recession, this means that there's now some space to grow the economy. Because continuing to have low growth can lead to slower growth in living standards, less tax revenue, increased government borrowing, low inflation and slowly rising unemployment.

*Fig 1: (Australian Treasury, 2025)

 

Fig 2: (ABS, 2025)

Australia's productivity growth (GDP per hours worked) has been stagnant for past few years, with multifactor productivity growth at -0.5%. (Productivity Commission, 2024) Low, stagnant and negative productivity growth contributes to declines in living standards and worsening inequality as essentially, the same value is being spread among more people. To improve productivity, Australia needs to improve its efficiency to meet the production potential or expand the production possibilities of the economy.

Fig 3: (Reserve Bank of Australia, 2022)

 

What is Future Made in Australia?

Future Made in Australia is a government supported plan to create a new sector of the economy. It is a plan to open investment opportunities and introduce a subsidised education program that will skill or re-skill workers for a net zero emissions future. This initiative will hopefully, allow Australia to be more productive and grow sustainably.  

How are the circumstances different?

Circumstances around the renewable energy and zero carbon industry are relatively new, compared to older industries. This means for space to compete as no one has completely captured the market, yet, other than China. Where China's investment is approximately 2.5 times higher than the US, or nearly 40 times Australia in 2023: 41% of global renewable investment (Gurzu, 2024)  But, China makes up 18% of the world population. (Whelan, 2020) The US on the other hand, accounts for 16% of investment but makes up 4.23% of the population. Meaning the US's investment is higher per capita.

 

But, as the China is becomes increasingly not trusted by the 'West,' buyers around the world may be looking for alternatives. What about the US? Well, the US' political position in general (especially around renewables and net zero) is becoming more volatile, and less private investment into the US and manufacturing may fall, ironically the opposite of what the current US administration wants. So, buyers (typically countries) around the world may be looking to buy from politically stable countries to buy from, this is where I believe Australia might benefit.

Creating an Industry? (Competitive Advantage) 

Fig 4: (Porter, 1990)

Micheal Porter said that “National prosperity is created, not inherited.” (Porter, 1990) This leads to the idea that comparative advantage can be created, if a nation has a competitive market. He devised a diamond called the determinants of national competitive advantage, where the the diamond are dependant on each other - not independent of each other.

The four corners of the triangle are:

1. Factor Conditions - how the factors of production: land, labour, capital & enterprise are positioned to produce
2. Related & supporting industries - industries that are related to one sector may help promote innovation and efficiency in the other.
3. Demand conditions - how strong domestic demand is. 
   
4. Firm strategy, structure & rivalry - how markets are organised, markets should be competitive (no monopolies)

 

Demand Conditions

Fig 5: (Ember and Energy Institute, 2024)

As the world and political establishment have recognised that climate change is a threat. The determinant of demand conditions is already being met, especially in Australia, as illustrated in figure 4, where Australia's per capita generation has doubled in the past 5 years. Where we are ahead of China, the US, the EU and the world. 

This evident increasing demand and the need to transition to a net zero future is likely the reason why Future Made in Australia initiative was enacted by Labor.

Factor Conditions

The Future Made in Australia initiative primarily tackles the factor conditions to capitalise on the existing rising demand for renewables domestically. Future made in Australia will create the factors of production needed for this infant industry, specifically labour. Labour will be improved to better match the renewable energy industry through free and subsidised TAFE and apprenticeships for new workers and the reskilling of existing workers in fossil fuel industries. (Australian Apprenticeships, 2025; Future Made in Australia, 2024) Generally, education reduces helps reduce inequality (by the nature that educated workers earn more) and promote productivity growth by being more efficient in producing goods and services (Figure 3). 

Enterprise and land will also be created and promoted through detailed and comprehensive surveying of Australia’s land and resources, through the Resourcing Australia’s Prosperity Initiative. (Geoscience Australia, 2024)

Firm Strategy, Structure, and Rivalry

Improving enterprise, in theory, allows for smaller companies and entirely new companies to start extraction and compete. This is because they don’t need to upfront surveying expenses as the government has done it. This lowers the barriers for new comers to enter the market, creating more opportunity for competition which leads to more efficient outcomes. This example proves how the determinants of the diamond are interconnected and dependant on each other. This greater efficiency from promoting enterprise also expands productivity.

Related & supporting industries

As proved how the determinants of the diamond are interconnected, related and supporting industries will likely improve over time, as others improve. In this scheme, this has the weakest evidence to support it improving.

What does this mean?

This investment into the four factors of production will also have many positive effects on the economy, primarily sustainable economic growth – one the government objectives. Through the mechanism that increasing the factors of production will expand the maximum amount of goods able to be produced in an economy; an expansion of the PPC. (Figure 3) Naturally, this increases long run aggregate supply, which will in turn reduces long term inflation. This allows for GDP to grow without inflationary risks: sustainable economic growth. (See Figure 4) But, this is an assumption based ambiguity, because government spending and private investment might outweigh the expansion of long-run aggregate supply which will further elevate inflation.

Fig 6 (Own Work, 2025, CC BY-SA 4.0)

 

To explain the aggregate supply and demand model, it is essentially the macro version of the supply and demand model. Instead of finding a singular good's price to purchase and what quantity will be supplied, the aggregate model looks for an economy's price level (inflation) how real GDP would change. (real GDP is GDP not accounting for inflation) Aggregate Demand is also referred to GDP (regular) because it measures the demand for money in an economy. It is the sum of consumption, investment, government spending and net exports. Aggregate Supply and can be referred to long term or short term aggregate supply, depending on the situation, now versus in future. Supply is controlled by the factors of production and their conditions. For example, if lots of workers go on strike, production and thus supply of goods is hurt in the short term, but in the long-term these strikes are negligible to the long-run production or supply of goods, but new technology, perhaps like the NBN (when it was introduced) would increase long-run aggregate supply because capital, labor, and enterprise would be improved by strong, reliable, connected internet infrastructure. (This would also expand aggregate demand due to increased government spending)

Success? 

Well its hard to gauge the success of the scheme, considering Australia's past in relation to manufacturing. Furthermore, all the assumptions and analysis I've made are all considered in isolation, its very theoretical, not accounting for conditions reality faces: ceteris paribus.

 

But, I believe it worth trying due to mentioned geopolitical situation regarding the US and China. Australia might benefit due to their increasing hostility; countries may look for other competitors for renewable technologies, and the Australian government believes that we could be a competitor. Furthermore, Australia's economy is growing extremely slowly and is mainly growing due to increasing demand, not supply, which increases inflation. Australia could benefit from initiatives that expand Aggregate Supply, so growth can happen without the inflationary risks. But, as said, government spending and investment might not return significant increases to the production potential of an economy, meaning that inflation may still rise. To counter, the rise inflation might be smaller than otherwise expected if this money was just meant stimulating demand.

 

That's why, even though Australia might not be successful in creating a new industry, the demand conditions (both domestic and foreign) are there, and our weak GDP growth is why I believe it is worth trying. It is a loss to Australia, without trying.

 

*Worth noting that Figure 1 comes from the treasury (the budget overview document for the 2025-26 budget) and economic forecasts are often biased for political and market psychology reasons. To explain if the government knows inflation may rise to 4% (above target) they will refrain from telling the public because that could potentially make inflation worse. Why? Because knowing that prices are going to rise unsustainably in the future will induce demand. Imagine if you know toilet paper is going to rise $10 sometime in the 2 months, you are going to buy more toilet paper than usual because you know its cheaper now. Now, imagine if everybody knows this, demand is higher, therefore the price is higher, sooner. Now the price toilet paper is perhaps $15 more, occurring within a week. This is why you should never really trust forecasts made by governments, as those forecasts are generally for market and political stability.

 

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