Car industry in its death throes

WILL Tony Abbott have a dollar float, tariff or GST moment? Or, will he be content to axe the tax, stop the boats, balance the books and leave the remainder to entrepreneurs and the workforce? As important as these are, there is another looming intervention required to make the economy better and, with it, a better society.

The new Labor member for Scullin, Andrew Giles, in his first speech, restated an old adage: “We wish to live in a society rather than simply fit into an economy.” He reiterated: “Let me be clear: I wish to live in a society.” Such is the romantic thinking that has locked workers into jobs that their neighbours have to support through taxation and out of jobs where they could support their neighbours.

Kevin Rudd famously said that he did not want to lead a country “that did not make things”. What about making money, doesn’t that count? It is not what you make, it is what you have to sell that counts, and Australia seems to have no end of goods and services to sell. The world seems to have no end of goods and services that Australians want to buy. The trick is that as long as Australia does what it does best, the chances of Australians buying more of what the rest of the world produces increases. The consequence is you have to stop doing the things you do not do best.

Specialisation and trade are at the heart of not only a better economy but also a better society. Matt Ridley, author of The Rational Optimist, speaking last week at an Institute of Public Affairs dinner, argued that the belief free markets valued selfishness and individualism was “wildly, 180 degrees” wrong. He reminded the audience that because of free markets everything they used in their daily lives, including their thoughts, was not the product of one person; rather, “everything is the product of co-operation, often among strangers, everything is cumulative, collaborative: where is the selfishness in that?”

The looming intervention that can make Australia a better society as well as a better economy is to turn off life support to car manufacturing in Australia.

The rationale for making cars in Australia is about as thin as an EH Holden’s duco. The infant industry remains so. In competition with much bigger and cheaper competitors it never had a chance. It did its job to help secure an industrial base in a less specialised world, but the world is now one big supply chain and Australia has to sell into it and buy from it.

Mitsubishi is gone, Ford is all but gone, Holden is preparing to go and Toyota may not be far behind. There were nearly 44 million vehicles manufactured in the world in the first six months of this year: more than 10 million in China, more than five million in the US, Japan close behind, then Germany, South Korea, India, Brazil, Mexico at about two million each. Australia made 94,000 vehicles in that time and ranks 30th out of 39 car-manufacturing nations, alongside Hungary and Austria.

Once again, the Productivity Commission has been asked to look at government assistance to the car manufacturing industry. The Abbott government says it wants two things: “an internationally competitive and globally integrated automotive manufacturing sector” and “a desire to improve the overall performance of the Australian economy”. These are contradictory aims.

In 2008, the federal government last reviewed assistance to the industry, and former Victorian premier Steve Bracks recommended what any protectionist would: more dollops of assistance.

At the same time as the Bracks review, the Productivity Commission was asked to model “the economy-wide ramifications” of changes in industry assistance.

The commission’s modelling indicated that there would be economy-wide benefits from reductions in assistance to the sector, particularly for tariffs. The advice this time will be the same.

It makes more sense to help workers adjust to, rather than pay the ongoing costs of, supporting unprofitable activity. The burden falls on to the workers and the suburbs and towns in which they live: Broadmeadows, Altona, Elizabeth and Geelong. The cruel thing is to allow another generation of young workers to enter an unprofitable industry.

At the time the commission reported, Australia was ramping up the resources boom. It needed skilled workers: that was the best time to make adjustments.

Now, it will not be so easy, but it must be done.

The tariffs should go, the luxury car tax should go, and then every grant to industry needs to be reassessed.

The Prime Minister has to steer around a South Australian election, due next March, and Victoria’s Napthine government hangs by a dill on the backbench. The commission report will give Abbott time to prepare the ground and await those events. Thereafter he must act.