For much of its history Melbourne has been Australia's largest single centre of manufacturing. Its early manufacturing took two forms. Some of it involved the processing of primary products that had been produced in rural Victoria, often for export. Fellmongering, wool-washing, tallow manufacture and later flour milling and other food processing, as well as agricultural machinery production, fell into this category. It was dependent on the nature and volume of rural production. Other manufacturing was based on local consumer demand for products such as clothing, boots and shoes, beer and biscuits, as well as bricks and timber and other building materials. The growth of such industries was dependent on the size of Melbourne's population, its spending power and the extent to which local manufacturers could produce what was demanded more cheaply than imports.
Once the gold rushes of the 1850s increased Melbourne's population more than fourfold in a decade and a policy of import protection was implemented in the 1860s, manufacturing became the biggest sector of the Melbourne economy and the main source of employment. By 1871 more than 30 out of every hundred male and female wage-earners in Melbourne worked in manufacturing, by far the largest single category. By 1881 two-thirds of Victoria's 2500 factories were in Melbourne. On the eve of the depression of the 1890s a quarter of the Victorian manufacturing workforce was in the categories of metals, machinery and carriages, another 23% were in building materials and furniture, 19% in clothing and textiles, 15% in food, drink and tobacco, 9% in books, paper and printing, and 4% in leather products and tanning.
Protective tariffs probably contributed to the preeminence of manufacturing in Melbourne. So too did government bonuses and subsidies offered to Victorian firms, especially engineering and metal workshops, for locomotives and other railway equipment, water supply and irrigation pipes. As the Victorian railway network was built with Melbourne at its centre, cheaper, faster travel favoured large Melbourne manufacturers at the expense of smaller producers in regional centres who had previously been protected from the big metropolitan producers by high transport costs. New technologies in industries such as brewing and flour milling had a similar impact. Larger more efficient machinery involved costly investment that was only worthwhile where the large Melbourne market made large-scale production feasible.
Various influences shaped the location of industry in Melbourne. Fellmongers and boiling-down works required water and were located alongside the Yarra River. Attracted by low land prices as well as water, noxious trades also established themselves in Collingwood upstream of the city. This soon caused pollution downstream. There were concerns about the impact on public health, especially as drinking water was being contaminated. Attempts to eliminate the nuisance were slow and hesitant, but by the 1870s most noxious trades had relocated to the banks of the Maribyrnong River in Flemington and Footscray, where they were welcomed by local municipalities keen to boost employment in their localities, or to the Yarra downstream of the city centre. The low-lying, swampy land south of the Yarra and along the Maribyrnong was well suited for manufacturing. It was close to the city, water and rail transport, yet because it was liable to flooding it was unsuitable for housing. Much of it was Crown land which the government leased to manufacturers at low rentals in order to concentrate industrial development. In Port Melbourne and Footscray, engineering, foundry and other heavy industrial firms built their plants alongside the noxious industries and eventually grew to become the backbone of the local economies in both suburbs. Meanwhile the consumer-oriented industries, such as clothing, boot and shoe manufacture and brewing, concentrated in Richmond, Collingwood and Fitzroy.
While manufacturing had quickly become the biggest single employer of labour in Melbourne it was not the most efficient or dynamic sector of the Victorian economy. Most factories were small, employing an average of ten workers in the 1860s rising to around 18 by 1890. Only 30 factories employed more than 300 people, while some bakeries and machine shops or clothing manufacturers employed as few as two to three workers. The amount of fixed capital largely determined the size of the factory. Gasworks, railway workshops, agricultural implement makers, flour mills and breweries were often imposing structures, while clothing manufacturers, joineries and saddleries were usually no more than small workshops. Technological change could alter this situation rapidly. The introduction of machinery to the previously skilled crafts of book- and shoe-making led to a deskilled workforce and larger production units. Brick-making went through a similar transformation with the introduction of brickmaking machinery in the 1880s.
In the industrialising nations such as Britain, the new industries were the engines of economic growth. They enjoyed high labour productivity and dragged the rest of the economy along with them. In 19th-century Victoria it was the reverse. Manufacturing was the least efficient sector of the economy. Rural industries such as wool and wheat production were the most efficient, enjoying far higher productivity. The value of output of every worker was far higher here than in manufacturing. One reason why there were more jobs in Melbourne than in the bush was that manufacturing was relatively inefficient and labour-intensive.
The start of World War I quickly exposed the limitations of Australia's manufacturing capacity. As the British economy geared up for the war effort, it could no longer export so much to Australia. Many basic materials formerly largely imported - barbed wire, paper, electric motors, corrugated iron, medical supplies, buttons and photographical materials - were soon in short supply. So too were necessary raw materials and spare parts for factory machinery. Greater self-sufficiency was vital and local producers began making chemicals, drugs, surgical and scientific instruments, paints, varnishes and musical instruments that had formerly been imported from Germany. The Commonwealth Government itself became a manufacturer, establishing an explosives factory in Maribyrnong, a clothing factory in South Melbourne and a harness and saddlery works at Clifton Hill.
The more diversified manufacturing sector that had emerged by the end of the war could provide a basis for future manufacturing growth especially in metals and engineering. It was however small, short of skilled management and labour, high in cost and serving a small market that gave little scope for economies of scale. It was clearly vulnerable to renewed imports from Britain and elsewhere. Tariffs were introduced from 1921 onwards as the Commonwealth followed the policy of protection that Victoria had pioneered some decades earlier. The purpose of tariffs was, in the words of Prime Minister W.M. Hughes, to 'protect industries born during the war ... encourage others that are desirable, and ... diversify and extend existing ones'. Rising levels of protection allowed locally made goods to replace imports and capture a larger slice of a rapidly growing market.
During the 1920s it became increasingly clear that Victoria's economy was undergoing fundamental change. It industrialised in the sense that the value of its industrial output exceeded that from the rural sector for the first time. City growth was becoming detached from the expansion of primary product exports. The rural sector faltered as it faced an increasingly unpromising world trading environment, but Melbourne boomed and it was manufacturing that led the way. By 1921 already 38% of all its workers were in industry. The growth of manufacturing now began to stimulate urban growth.
There were increases in the scale of manufacturing activity, in the complexity of the equipment and the processes used and in the inter-relatedness of manufacturing production. These developments can be seen most clearly in connection with the internal combustion engine and electric power, the two strategic energy innovations whose commercial possibilities began to be seriously explored in Australia after World War I. Steel production also provided foundations for industrial advance on a broad front although Melbourne did not share directly in this development.
In 1901 Tarrant Engineering Co. of South Melbourne built the first vehicle with an internal combustion engine in Australia. Despite this early start, the impact of American motor car manufacturers was soon felt as they established local agencies through which to sell their cars. During the 1920s the car was transformed from a custom-built to a mass-produced article. All engines and chassis continued to be imported but most bodywork and an increasing range of accessories were made locally. Small, custom builders of car bodies were quickly replaced by a few large producers of standard shapes using mass production methods such as the moving production line that had been pioneered in the USA by Henry Ford. The largest of these was Holden's, a South Australian firm that moved to a new factory at Woodville in Adelaide's western suburbs. It forged close links with General Motors of Detroit (GM-H), building all the Buick and Chevrolet bodies required locally. Its annual output of car bodies rose from 1595 in 1919 to 34 696 by 1928. Meanwhile the Ford Motor Co. of Canada opened a plant in Geelong in 1925 to produce 30 000 car bodies a year and employ 500 workers.
Car manufacture had powerful linkage effects. There was the obvious boost to engineering and iron and steel production, but car body assembly alone required timber, leather, paint, glass, rubber and carpets as well as metals, screws and nuts and bolts. In tyre production there was a reduction in the number but a great increase in the size of firms, with British and US companies taking increasingly dominant positions. The full potentialities of the car could only be realised once a network of garages had been established to provide fuel, service and repairs when and where they were needed and a network of roads had been built which could stand the wear of motorised traffic. This all required heavy investment in infrastructure for the new technology. Oil refineries were built near Melbourne and Sydney, while petrol pumps appeared in increasing numbers; initially these were placed at the kerbside, but city councils soon restricted them to drive-in sites, creating the now familiar service station layout. The financial and human costs of motoring were reduced by vehicle insurance and by road rules restricting how cars could be driven on the roads.
During the 1920s Melbourne also converted itself to using electricity. Increasingly electricity powered suburban trains and trams, lit public streets and private houses, and powered an increasing array of electrically powered household appliances and factories. As early as 1920/21, more than half the power used in Victorian factories came from electric motors. Once it became possible to transfer electricity long distances and large generators had been developed, large-scale generating plants could enjoy considerable economies of scale, especially if they were located as close as possible to the primary energy source being utilised. The massive investment required favoured public rather than private enterprise and electricity generation was dominated increasingly by statutory bodies and government departments. The State Government wished to use the brown coal deposits of the Latrobe Valley to generate electricity as a way of ending Victoria's reliance on black coal from New South Wales, the delivery of which was uncertain and strike-prone. By 1929 the planned township of Yallourn had a population of almost 2000. Cheap power enhanced the economies of scale in metropolitan centres and this was one reason why almost all the new factory jobs in Australia between 1921 and 1947 were created in Sydney and Melbourne.
With electricity the linkage effects were also extensive, ranging from copper mining and smelting and the production of wiring, to generators, motors, switching gear and other heavy capital equipment, through to the manufacture of electric kettles, irons, refrigerators, radios, gramophones, vacuum cleaners and other consumer goods. Once again, foreign firms, mainly British and American, brought technology, capital and management skills and joined with or bought out local firms, or set up their own subsidiaries. Metropolitan Vickers set up an Australian subsidiary in 1925 that took over the South Melbourne factory of Electrical Equipment Manufacturers and also set up another factory at Auburn, New South Wales. By 1930 it was employing 500 workers at the two sites. The Australian General Electric Co. employed a similar workforce in factories at North Melbourne and Newcastle making, among other things, Hotpoint irons. It was jointly owned by the General Electric Co. of the USA and Thomson-Houston Ltd of England.
Expansion of these new sectors of industry, and indeed of manufacturing as a whole, was maintained by buoyant levels of domestic demand. Real per capita incomes and private consumption rose only modestly during the 1920s, seemingly to an extent insufficient to spark off industrialisation, but statistical measures probably do not adequately capture the magnitude of the stimulus. Australian real incomes, already high by international standards, had reached a level where further increases would be spent on the new consumer goods rather than on purchasing more food or other basic needs. Incomes also stretched further as mass production caused the prices of some commodities to tumble; falls of 50% or more in the prices of cars and radios over a five-year period greatly extended the market. A widespread use of hire purchase for the first time had the same effect. People had long been familiar with the use of term purchase for housing but the principle was extended to cars, fridges, carpet sweepers and gramophones. Consumption need no longer be delayed while savings were accumulated, indeed the process was reversed.
Governments, both State and federal, took actions which stimulated manufacturing, sometimes without intending to do so. Tariff barriers persuaded General Motors, ICI and many other multinationals to establish branches and create jobs in Melbourne or Sydney rather than in Detroit or Birmingham. They brought with them capital and the latest machinery as well as technical and managerial expertise. Melbourne did well relative to other locations because State taxes were lower than in other States and after the development of electricity generation in the Latrobe Valley it also had the cheapest electricity on the mainland. This combined with other clear economic advantages such as cheaper factory rents than in Sydney due to larger areas of suitable land. Governments also provided a modest boost to urban growth by subsidising an inflow of labour, many of the new arrivals became factory workers.
As in the 19th century, retained earnings continued to provide the main source of finance for industry. But in the 1920s foreign investment accounted for roughly a quarter of all manufacturing investment, largely in the form of plant and equipment set up by multinational companies. Investment in manufacturing became increasingly independent of developments elsewhere in the economy. It was geared instead to the extension of the new technologies surrounding the car, electricity and heavy industry, so that it increasingly determined rather than reflected patterns of national development.
The industrial growth of the 1920s was halted abruptly by the depression. Almost 40 000 manufacturing jobs disappeared between 1927 and 1931. The unemployed could not afford manufactured goods or their hire purchase commitments. However, it was manufacturing that initiated and then led the recovery. This was the first time such a thing had happened in Australia's economic history, a reflection of the increasing industrialisation of the economy. It came about because local manufacturers were able to capture a larger share of the market from imports. A steep rise in tariffs, devaluation of the Australian pound, falling wages and electricity costs all made local producers far more competitive internationally. Textiles benefited first, then the metals industries and engineering took over as pacemakers. The heavy industrial base was diversified with the establishment of technologically sophisticated companies such as the Commonwealth Aircraft Corp. at Fishermans Bend (1936), an initiative of leading businesses such as BHP, the Collins House mining group, ICI, GM-H and Orient Steam Navigation.
World War II stimulated but also distorted industrial development. Imports dried up as they had during World War I and there was a renewed drive for self-sufficiency. This time a far more sophisticated economy was able to manufacture ships, planes, torpedoes, radio and electronic equipment, chemicals for complex explosives, and tanks in a factory at Holmesglen. Labour was required for the armed forces as well as for both civilian and military production. Full employment was soon achieved and labour became scarce. The factory workforce in Victoria increased by nearly 60 000 during the war years. This was made possible by women going out to work in large numbers and by men deferring retirement. Once hostilities ceased the new capacities and skills and equipment could be redirected to civilian production without too much difficulty and provided the foundation for renewed economic growth.
The increasingly autonomous manufacturing sector, which had first become evident in the 1920s, reached its fullest development during the long boom of the 1950s, 1960s and early 1970s; indeed the growth of manufacturing was at the heart of the boom. The symbolic event that heralded Australia's entry into the industrial age came in 1948 when Prime Minister Ben Chifley welcomed the first Holden off the GM-H production line at Fishermans Bend. Australia's first mass-produced car emerged under circumstances common to other sectors of manufacturing after the war. It would not have been built without governmental encouragement and protection from imports; overseas car makers such as General Motors and Ford would far rather have imported complete cars had they been allowed to do so. It was a complex and technically sophisticated product produced in a large, capital-intensive plant. It also had strong linkages with a wide range of other industries. As in the 1920s, the expansion of car production was dependent on the growth of incomes and of domestic demand for locally produced consumer durables of a sufficient magnitude to create a mass market for what had hitherto been luxury goods.
Statistics make it clear that manufacturing was pulling the rest of the economy along behind it during the long boom. Manufacturing output increased 6% per year between 1949 and 1967, significantly faster than the economy as a whole. It was also creating far more new jobs than other parts of the economy with 155 221 in Melbourne between 1947 and 1966, roughly one-third of which went to women. This high level of job creation was accompanied for the first time by a rapid and sustained rise in labour productivity, almost twice the rate for the economy as a whole, and better than the performance achieved in the USA, the United Kingdom or Canada. Within manufacturing it was the 'newer', capital intensive branches of iron and steel, motor vehicle and parts manufacture, electrical and electronic equipment, machinery and engineering, and chemicals and petroleum production which expanded most rapidly. At the end of the 1940s these accounted for about a fifth of manufacturing output but in the next two decades this rose to a third. The share of the older and generally less capital-intensive industries of food processing, textiles, clothing, footwear and furniture moved in the opposite direction. As in the 1920s it was overseas-based companies who set up local branches to circumvent the rising tariff barrier that shielded Australian industry. Many became household brand names and they provided much of the drive, equipment, expertise and the finance that fuelled the boom.
This postwar expansion of manufacturing could no longer be contained within the old ring of inner industrial suburbs. They had become crowded and congested. New methods of production required more space and single-storey buildings to accommodate assembly-line techniques. The fork-lift truck led to new kinds of factory buildings. An increasing use of electricity for power and road transport rather than rail to move goods, opened up new locational possibilities. Urban planners wishing to separate industry from residential areas zoned large areas of land on the suburban fringe for industrial use. During the 1960s manufacturing expanded most rapidly in Moorabbin and the Oakleigh-Clayton area. When the available sites were taken up the area of fastest growth then transferred to Broad-meadows and Waverley.
This suburbanisation of industry is best illustrated by GM-H's move out to Dandenong in 1952. Land was cheap and plentiful. Labour was available from the nearby suburban fringe and the very presence of such a large employer encouraged people to move out to where there were jobs. Other industries linked to car manufacture such as Bosch, Repco and Balm Paints, relocated nearby. H.J. Heinz, International Harvester and Volkswagen were also attracted by land and labour, thus creating a major new industrial concentration on the south-east fringe of the city. When Ford Motor Co. faced similar challenges in 1959 it migrated north to Broadmeadows bringing many other industries in its wake.
The long boom came to a sudden end from 1973-74 as world oil prices rose fourfold and inflation gathered pace. Economies throughout the world slumped into a recession marked by rising unemployment, rising prices and falling rates of growth, a combination of circumstances, termed 'stagflation', that puzzled experts and did not respond to the usual corrective policies. The next two decades were marked by high unemployment and hesitant growth interrupted by renewed recessions in the early 1980s and the early 1990s. It was in these circumstances that Commonwealth governments embarked on a fundamental reshaping of the Australian economy. Government businesses were privatised and microeconomic reforms introduced to remove monopolies and other forms of protection in order to allow market forces to operate more freely. This deregulation represented an abandonment of the protected environment that had nurtured manufacturing for more than a century. Governments now wanted to make manufacturing more efficient by exposing it to international competition in the expectation that companies could expand beyond the small domestic market, exporting more of their output in an increasingly 'globalised' world.
Tariffs began to come down in 1973 but the process of reduction was drawn out and is still not complete. In car manufacturing, textiles, clothing and footwear, the sectors most vulnerable to cheap imports, the rate of reduction of protection was slowed and sometimes reversed. Nevertheless, especially in textiles, clothing and footwear, some companies collapsed and others retrenched workers in an attempt to reduce costs and remain competitive. From 1975 onwards the number of jobs in manufacturing in Victoria began to decline. The more recent misfortunes of industry can be charted through the decline in the proportion of Melbourne's workforce in manufacturing. At the 1951 census more than 40% of all wage earners were in manufacturing. This was the peak of its dominance. By 1966 it had fallen marginally to 37% before a steeper decline set in to 31% by 1971, 24% a decade later, and 17% in 1991. By 2001 the percentage was down to 16. However the figure for 2001 represents something of a rejuvenation of Melbourne's manufacturing during the last decade for it represents an increase in factory employment of 16 000 over the previous decade, to a total of 246 000. Helped by the fall in the value of the Australian dollar, many local companies have risen to the challenge and become internationally competitive in the last decade, exporting a larger proportion of their output, especially to Asia and the Pacific. It is not only the 'high tech' sectors that have managed this. Food and drink processors, whose predecessors established Melbourne's manufacturing base a century and a half ago, have also done well. As a result of this modest resurgence, Melbourne remains the most important centre for manufacturing in Australia.