Last week’s decision by credit rating agency Moody’s to downgrade China’s sovereign debt is a reminder that we shouldn’t let the policy mistakes of the mining boom years be repeated.

Specifically, Canberra must learn the difference between working for global capital and working for Australian voters – the former adapts well to shifts such as a China downgrade, but the latter often does not.

The mining boom illustrates this point well. During the last few years of the Howard government, China’s infrastructure building spree sent the price of iron ore and coking coal through the roof.

Global capital, particularly through Rio Tinto and BHP, poured into the country and created tens of thousands of high-paid jobs. Good times.

But as early as 2007, I was asking colleagues and economists: “What happens when this ends?”

The answer was usually a startled look of disbelief. When a boom’s on, the capital floods in and we all get rich. Why ask questions?

Well within two years my supposedly naive question was making more sense. The distinction between the well-being of Australians and global investors was suddenly in stark relief, as our share market tumbled, finance houses collapsed, jobs were cut and credit for small businesses froze.

China to the rescue

In 2008/09 two things changed that story. The Rudd government splurged $10 billion, then $42 billion to stimulate the economy, and China went nuts with a stimulus plan of its own, worth half a trillion US dollars.

While the rest of the world fell into recession, Australia did not.

Mining profits boomed, and the Rudd government finally asked ‘what happens when this is over?’

It’s response was sound in principle, but very poor in execution: an additional ‘super profits’ tax on the miners to provide revenue to repair its GFC-tattered budget and assist industries that weren’t doing so well.

That last point is vital. When one exporting industry sends a currency through the roof – the Aussie dollar touched US$110 for a moment there – other exporters begin to choke.

So Prime Minister Kevin Rudd and Treasurer Wayne Swan had the right idea in taxing the boom industry to ensure other industries survived. What they did wrong was make the tax too high, too complicated, and to spring it on the industry without consultation.

The rest, as they say, is history. Mr Rudd lost his job. Incoming PM Julia Gillard negotiated a mining tax that  collected no revenue. Oh, and plenty of medium sized businesses in sectors such as manufacturing and food processing went bust.

The new boom

Why mention all this now? Because commodity prices are temporarily doing well again, but so is the rapidly growing education exports sector.

Both sectors are highly geared to China.

And therein lies the danger. If resources and education exports are hit by a China slow-down, we need other sectors to be growing to health well before that moment.

Some economist have spotted this. The Australia Institute think tank is hosting a conference to examine the sector most choked off by high dollar of the mining years – manufacturing.

The ‘Manufacturing Matters’ summit on June 21 will be attended by industry minister Arthur Sinodinos, shadow minister Kim Carr, unions, public servants and cross-bench senators.

What they need to ask themselves is not only, “Will Australia be a country that continues to make things?”, but “Where do the interests of Australians and global investors diverge?”

Global investment is welcome in Australia. In general it makes us all richer. But it can also disappear quickly when a boom ends.

When that happens, sectors such as manufacturing can’t be rebuilt overnight.

And manufacturing isn’t just a name drawn out of a hat. The closure of the auto manufacturing industry has left a lot of capital equipment and skilled workers in need of a long-term future.

Fortunately, both manufacturers that export and those that are ‘import competing’,are already receiving a boost from the lower Aussie dollar.

But it’s not enough. During the two years of the Abbott government, the auto industry was allowed to collapse by a group of ideologues who wrongly believed that the free flow of capital would solve all our problems.

The investment managers in London or the central-planners in Beijing might like that view, but for the long-term future of Australian jobs better industry policies are needed.

Which is another way of saying, let’s not let the current booms blind us. A diversified economy, especially one that “makes things”, really will protect us from future busts.