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After the car industry

December 13th, 2013

With the closure of GMH locked in, it seems virtually certain that Toyota will follow the same path in the end, along with most of the supporting components industry. It’s possible that a well-designed policy, combined with a sustained depreciation of the $A, could keep the industry alive (the fact that it survived the end of the high tariff era was largely due to the Button Plan in the 1980s), but this is the Abbott government we’re talking about, so it seems unlikely.

The impending end of the car industry constitutes the effective end of large scale manufacturing in Australia, at least as the term is ordinarily understood. The remaining manufacturing sector consists mainly of basic processing of agricultural and mineral products for export, along with food and beverages for the domestic market. Elaborately transformed manufactures, on which such high hopes were pinned in the 1980s and 1990s have been declining for years, and will be confined to niche markets once we stop exporting automotive products.

An immediate policy implication of the end of car production is that it’s time to drop a bunch of policies whose rationale was to support the domestic industry. The most obvious candidate is the FBT concession, just reinstated by the Abbott government. But there’s also the maintenance of some of the worlds weakest fuel efficiency standards, driven by the desire not to tilt the playing field against Falcons and Commodores. More generally, a whole range of pro-car policies will need to be reassessed, given that they increase our dependence on imports and therefore our vulnerability to terms of trade shocks.

There are direct implications for employment policy, arising from the job losses that are about to take place, and longer term implications for education and training. More on these soon, I hope.

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  1. Graham White
    December 13th, 2013 at 01:06 | #1

    I’m sure this is going to be used as an excuse to blame unions by the right. Out of curiousity I did a plot of manufacturing as a percentage of gdp verse union density and found that there is a very weak positive correlation. That ismore union membership = more manufacturing but very noisy graph. Still it certainly makes the claim that unions kill manufacturing suspicious

  2. Hermit
    December 13th, 2013 at 04:24 | #2

    The economy seems to be heading towards a structural imbalance which will cause major tensions. We depend upon primary exports some of which (coal and live cattle) perhaps we should phase out. If China decides or is forced to ease up on its massive building program our iron ore exports will take a hit. Australia is now importing most of its oil and the fraction is increasing. Thus we may find ourselves importing not only most manufactured goods but some raw materials the same time our primary exports dwindle.

    The default assumption in recent years seems to have been we can all get a service industry job or perhaps in light manufacturing while living in a nearby suburb. Many had the option of a few years of FIFO commuting to mines while still keeping the suburban home. In future it seems likely there won’t be enough of either type of job. Somehow the economy has to transform itself to be sustainable while meeting material aspirations. I suspect this will take many years after various quick fixes have been tried and found wanting.

  3. rog
    December 13th, 2013 at 04:37 | #3

    @Hermit To some extent the ‘structural imbalance’ was addressed in the tax review by Ken Henry.

    Not to matter, we seem to have elected to be governed by a mix of democratic and corporate interests making reform difficult if not impossible.

  4. kevin1
    December 13th, 2013 at 06:53 | #4

    @rog
    Rog, can you elaborate a bit on Ken Henry’s comments about structural imbalance?

    Currency targeting seems to be an absolute no-no amongst the cognoscenti, but I never understood why Warwick McKibben’s idea of the RBA selling bonds offmarket to European treasuries to take pressure off the AUD seemed to have virtually no support from our local experts, despite his own high international credibility. Is it fear of confronting George Soros?

    However, apparently the RBA is now canvassing some intervention to bring down the dollar to 85c, and if it was down in the 70s, we probably wouldn’t even be having these conversations or these dramas.

  5. Troy Prideaux
    December 13th, 2013 at 08:05 | #5

    @Graham White
    I don’t know about the car industry, but unions certainly killed a lot of local food manufacturing in the 90s-early 2000s. Heinz is one example. This might not overtly show up on broad economic analysis, but if you’ve gone into these plants and had to deal with the utter BS they enforced (eg in the engineering of the equipment), you’d be left with no uncertainty of the strangling to productivity such practices had.

  6. Troy Prideaux
    December 13th, 2013 at 08:16 | #6

    @kevin1
    Well, to a nation that relies on high levels of importation, a higher $ = higher standard of living. It also translates to your primary assets being more expensive to foreign purchase or takeover. Unfortunately it also translates to a nation being less competitive in trade which can strangle employment, skills growth and some areas of investment. So there are clearly trade-offs which can suppress broad consensus.

  7. Troy Prideaux
    December 13th, 2013 at 08:59 | #7

    I do sometimes wonder how clever we (oz) are with investing in potential growth opportunities for manufacturing eg. It’s been over half a decade now since the Chinese Baby Milk melamine scandal which resulted in an unprecedented surge of foreign sourcing of Baby Milk Formula from China. Such was the scale of the surge, that the Hong Kong Government needed to place strict (highly enforced) quotas on the quantity you could purchase and every 5th shop space throughout HK turned into a pharmacy (the retail outlet for Milk Formula). Many dairy rich European countries and NZ (eg. Fonterra) were all too willing to support this new Chinese demand for *non* Chinese Baby Formula, but where was Australia? Where were our Dairy Co-Ops and where was our investment for the rich demand?

  8. kevin1
    December 13th, 2013 at 09:30 | #8

    @Troy Prideaux

    Generalisation from anecdote deserves scrutiny. Yes the Food Preservers Union was militant but around the same period (1990?) the SPC workers led by J Halfpenny at the Vic THC gave ground to save their jobs.

    I don’t know about your dairy example but we had some very active and large exporters to Asia such as Bonlac and I think Murray Goulburn so there must be more to that story.

  9. Troy Prideaux
    December 13th, 2013 at 09:38 | #9

    @kevin1
    Yup, that’s true but (from my understanding) it’s mostly dried milk powder which we’ve been exporting strongly for more than a decade. This is why I’m asking the question, because the networks and much of the resources should have been there to became a key provider to that demand.

  10. David S
    December 13th, 2013 at 10:10 | #10

    @Graham White
    Could this reflect that the manufacturing employment environment is ripe for strong unionisation? If GM are to be believed then high AUD, high costs and small market are to blame. Unions certainly increased costs. I don’t subscribe to the idea that unions are wholly responsible, but they surely played a part. I am not against unions, but they do not create jobs. If a union has an undue influence on business this is equally as corrupt as business taking undue advantage of employees. Just like business, unions should be held to account

  11. Troy Prideaux
    December 13th, 2013 at 10:27 | #11

    @David S
    Apparently the 18.3% pay rise (over 3 years) offered to Holden workers in 2011 was significantly higher than what the Union was asking for. No doubt the management have a significant responsibility with the situation the company finds itself in.

  12. kevin1
    December 13th, 2013 at 11:14 | #12

    @Troy Prideaux

    As this defies logic I’d like to see a reliable source!

  13. Royton De’Ath
    December 13th, 2013 at 12:09 | #13

    Another perspective on the “18.3%” pay-rise i.e. not emanating from the usual sources of mischief mis-reporting:

    According to Holden’s Executive Director HR, Mark Polglaze, the new deal comprises a three per cent pay rise for each of the next three years. In addition a one-off payment to recognise the wage reductions Holden workers voluntarily agreed to during the GFC will be made. A further variable wage component of “up to two per cent” may be awarded based on productivity, financial and quality targets being met. (emphasis added)

    Link

  14. Graham White
    December 13th, 2013 at 13:21 | #14

    @David S
    it seems unions can have slightly higher density in manufacturing but its not a large effect.

    http://www.unionstats.com/
    http://www.abs.gov.au/ausstats/[email protected]/0/AD00D118F6667D8FCA2570EC007868D9?opendocument

    I can certainly see how unions could indirectly grow jobs in manufacturing. Who would be the target market for anyone buying goods manufactured in the 1st world? Probably people who wanted something a little bit more fancy and therefore more expensive and higher quality (requiring higher skills available in the 1st world). If you have higher union density you have a middle and lower class on higher wages and with more discerning buying tastes. However if you have an unequal wage distribution the most attractive feature of a product is how cheep it is (more and more as things get more unequal) for most of the population. 3rd world produced goods that are low quality become more attractive

  15. David S
    December 13th, 2013 at 13:34 | #15

    @Troy Prideaux
    I completely agree. Management should hold the most responsibility. I just think any industry where the balance of power is not balanced is not a sustainable business. Why would unions be present at all job interviews? Why would unions not allow casual employees? It smacks of unions looking after unions. A truly sustainable business / manufacturing industry must look after it’s workers, if it wants to invest in human capital and a future. Poor management, poor government policy and undue union influence will ensure we don’t manufacture very much in Australia.

  16. Jordan
    December 13th, 2013 at 20:04 | #16

    @David S
    Do Unions determine production decisions and sales or that is in management perview?
    Who is responsible for decision failures? those with power of decisions or those without power to decide production plans? (I am not thinking about wage increase as a decision that brought closings of GMF, as Quiggin points out, value of $AUS is the factor that led to closure)

    You are not mentioning mangement payout increase.
    Why look only at workers’ wage increase? Are you biased before you start looking into a subject?

  17. Jordan
    December 13th, 2013 at 20:07 | #17

    @David S
    I saw your reponse to Troy too late. I apologize for raising the same question as Troy which you answered.

  18. TerjeP
    December 13th, 2013 at 23:30 | #18

    It’s possible that a well-designed policy, combined with a sustained depreciation of the $A, could keep the industry alive

    It’s possible a well designed-policy could promote a palm tree in every Australian garden but that’s not quite the same as being in favour of such a policy. Nor does it say how you would choose to craft such a policy.

    John Quiggin – just to be really clear could you clarify things and say outright whether you advocate higher tariffs and/or more corporate welfare in order to sustain the Australian car manufacturing industry?

  19. Jordan
    December 14th, 2013 at 01:18 | #19

    @TerjeP
    He have told you already. He prefers lower $AUS by lowering interest rates which will encourage domestic production.
    Actually, Central banks of 6 sovereign countries have made currency swap agreements. They can control value of currencies with those swaps also.
    Australia can join those CB6 too, but it seems that your CB does not feel like.

    JQ also recomends using subsidies in a much smarter way then as it is spent currently. Current subsidies (FBT) are spent on all domestic and imported cars equally while just a sliver of subsidy is used for domestic cars only. All that is described in a previous post.

  20. John Quiggin
    December 14th, 2013 at 01:24 | #20

    Worth noting that Terje, along with most of the “free market” right, endorses the FBT subsidy because it is “a tax cut”.

    The lack of understanding of how tax expenditures enable governments to replicate the effects of taxes while not collecting any money is striking.

  21. Jordan
    December 14th, 2013 at 02:02 | #21

    @John Quiggin
    yes, it is striking how “free marketeers” can see individual cogs and the ones right next to it but not the whole machine with many cogs.
    They also can not see total output of the machine, only simple, individual outputs.

  22. rog
    December 14th, 2013 at 04:49 | #22

    Turnbull us now advocating for “high tech advanced manufacturing” to replace the closure of Holden.

    Which is sort of funny (not) when you consider the amount of “high tech advanced manufacturing” in modern cars and also in light of his determined efforts to break up the high tech NBN.

  23. rog
    December 14th, 2013 at 05:14 | #23

    Of course talk is cheap but when it comes down to hard tacks the Minister for Broadband invests in foreign telcos that utilise FTTH.

  24. TerjeP
    December 14th, 2013 at 05:46 | #24

    John Quiggin – I don’t mind you criticising my position but I was hoping you would answer my question.

  25. Julie Thomas
    December 14th, 2013 at 06:10 | #25

    @TerjeP

    I think Jordan did answer the question.

  26. December 14th, 2013 at 06:32 | #26

    We live in an era of hyperglobalisation driven by very, very low shipping costs. Aren’t containers wonderful? The era may be short-lived if bunker fuel costs go up and shipping begins to pay the carbon price of its emissions. There isn’t a renewable technology in sight for cargo shipping – the German company Skysails’ idea of auxiliary power kites has failed commercially, and it never offered more than a marginal saving.
    When transport pays its carbon costs, it will be dearer, and local manufacturing may bloom again. Since it will be highly automated in rich countries, the jobs won’t come back with it.

  27. Fran Barlow
    December 14th, 2013 at 07:13 | #27

    @TerjeP

    just to be really clear could you clarify things and say outright whether you advocate higher tariffs and/or more corporate welfare in order to sustain the Australian car manufacturing industry?

    This is exemplary trolling. To the best of my recollection, nothing posted by PrQ could be read as implying “higher tariffs and/or more corporate welfare” in any area of policy. If you are going to pose questions in this way, perhaps you should at least cite the specific words you mean to place under the heading of implied support for “higher tariffs and/or more corporate welfare”.

    The one piece of “corporate welfare” I saw mentioned in the above was the implicit appeal by PrQ against the salary packaging subsidy, which if anything, is something of a reverse tariff.

  28. sunshine
    December 14th, 2013 at 09:17 | #28

    The FBT point is an interesting one ,my mind went to the diesel fuel rebate and the apparently untouchable defence billions (what about the 30+ $B super tax concessions?) .We arent broke -there is money there .What happens when the A$ isnt so high and we have no manufacturing infrastructure or skills left to take advantage of that ? This is having a good crack at unions too. If GMH and Ford havent been producing relevant things then they could be made to- train carriages/infrastructure ,better cars, or gas powered buses etc.

    A Tea Party/ IPA dream future = no unions or min wage, no regulations (that get in the way of wealth concentration) ,solid property rights ( police ,jails ,soldiers, surveillance), lots of desperate unemployed, a class of hyper wealthy to run the place .

  29. TerjeP
    December 14th, 2013 at 10:25 | #29

    Fran – I just want to know if in John Quiggins view a “well-designed policy” for the Australian car industry entails tariffs or corporate welfare.

  30. John Quiggin
    December 14th, 2013 at 11:12 | #30

    Terje, I think the answer has already been given, but I’ll spell it out.

    I would oppose any policy that cost more than the FBT concession, which I would remove. So, relative to the current government policy, and your preferred position, I advocate less corporate welfare. Hope that helps.

  31. TerjeP
    December 14th, 2013 at 11:40 | #31

    So if the FBT concession was $1.8 billion over four years, or say $450 million per annum, you would scrap the FBT concession and hand up to $450 million to the car manufacturers via some means. The options would seem to be direct handouts, some sort of production bonus, or a corporate tax concession. Would these options be compatible with a “well-designed policy”?

    I take it you have ruled out tariffs. Although I’m not sure why. If you want to shelter the industry tariffs seem like the most direct and transparent option.

  32. Robert Merkel
    December 14th, 2013 at 12:00 | #32

    I take the point on the various pro-car policies, but I’d much prefer fuel taxes to fuel economy regulations…

    But the thing I’d get rid of straight away is restrictions on imported used cars.

    In the UK (to pick a market with RHD cars) a 2009 BMW 530d that’s done under 40,000 kilometres is listed at 20,000 GBP – or roughly 37,000 AUD. A comparable vehicle in Australia would be listed at roughly 60,000 AUD.

    While we’re at it, get rid of ADRs and adopt the EU safety regulations.

  33. kevin1
    December 14th, 2013 at 14:41 | #33

    @TerjeP

    I was hoping someone would unpick the loaded phrase “corporate welfare”, as the intent is ostensibly to secure government, not corporate, objectives. The problem with lots of “business support” is that it seems to be on the basis of “best endeavours”, like Gillard’s co-investment with GMH with its 10 year guarantee. Or maybe pious hopes, as GM is looking decidedly shifty on this issue.

    Bit like the “agreement” that James Hird will not paid for 2014 due to his misdemeanors as Essendon coach – so he is paid his million bucks for 2014 upfront, in 2013, and all the lawyers are satisfied with the farce. Everybody wins, especially Hird.

    Looks like a moral hazard issue to me: if such government deals were done on the basis of an legally enforceable contract, then we should get better decision-making upfront and protection of taxpayers’ interests. “Enforceable undertakings” under the Trade Practices Act are common behavioural controls used against corporate offenders. In the case of bankruptcy, a refundable govt investment or loan could be given the same payment priority as an ATO claim.

  34. TerjeP
    December 14th, 2013 at 15:27 | #34

    Kevin1 – no arguments from me. If the taxpayer is forced to hand out cash it would be nice if they saw something for it. And if we must shelter an industry I’d generally prefer we did it with tariffs, not subsidies or quotas.

    But I don’t know why the car industry is worth of sheltering. I don’t know why sentiments for this industry run so strong.

  35. kevin1
    December 14th, 2013 at 16:05 | #35

    @TerjeP
    As well as the economic aspects, there is a clearly a cultural angle which is not discussed to the extent it deserves. But this is clearly not a specifically Australian concern – what is your own explanation for why most countries subsidise and hang on to (or develop) their own car industry?

  36. TerjeP
    December 14th, 2013 at 17:52 | #36

    Stupidity.

    There are plenty of countries that don’t have a car industry. They seem to cope just fine.

  37. kevin1
    December 14th, 2013 at 18:46 | #37

    @TerjeP
    According to Wikipedia’s List of Countries by Motor Vehicle Production, Australia ranks 30 on the league table of (as I read FN 2, assembly is excluded). Above us are China, US, EU, Japan, Korea, India, Brazil, Mexico, Thailand, Canada, Russia, Czech, Turkey, Indonesia, Iran, Slovakia, Argentina, Malaysia, Poland, S. Africa, Taiwan, Romania, Hungary. And below us are the ones seem to cope just fine: Pakistan, Uzbekistan, Morocco, Ukraine, Venezuela, Colombia, Egypt, Philippines, Vietnam, Belarus, Ecuador, Kenya, Zimbabwe and yes, the Scandinavian group.

    Which group seem to cope just fine? and which group look like the stupid ones? Got another explanation?

  38. TerjeP
    December 14th, 2013 at 21:13 | #38

    EU is not a country. I believe Denmark, Norway, Switzerland are examples of countries with no or little in the way of a domestic car industry.

  39. kevin1
    December 15th, 2013 at 09:42 | #39

    @TerjeP

    The 3 countries you mention are between 5-8 million population, which might be important, and the EU does include non-carproducers many of which are also small viz. Belgium, Bulgaria, Greece, Croatia, Cyprus, Ireland, Latvia, Denmark, Lithuania, Estonia, Luxemburg, Malta. I would like to hear more in this discussion as to why the leading developed countries are so keen to keep this industry that they will subsidise it heavily. Political rentseeking by the producers no doubt, but do subsidies have widespread public support in Europe: is the sector regarded as “foundational” to engineering knowledge transmission or generation externally?

    From Table 20.10 in the ABS Year Book Australia 2012, the transport equipment mfg. subdivision has 89,900 employees, about 25% of the combined four metal and metal product mfg. subdivisions. As a large number of Mitsubishi workers didn’t work again, and Kenworth trucks is another long standing assembler closing down soon, there is justifiable concern that there is a shrinking space for manufacturing jobs. A general scepticism that the magic of the labour market will generate a satisfactory solution is well placed and “a harsh reality that sees us discount the future of the current generation of workers, and instead concentrate on ensuring employment for their children and grandchildren” is foreshadowed by academic Andrew Beer in “Moving on: Holden closure shows we need a new growth agenda” at The Conversation.

    Intrinsic motivation may be ridiculed by those with an instrumental attitude to work, but for many skilled workers the psychological benefit of jobs where they can take pride in being “productive” won’t be found in “dumbed down” retail, driving, security, cleaning and other service occupations which are lower skilled and lower paid. If stronger guidance was provided, the talk of a skilled labour force, knowledge nation etc. would be more credible.

  40. Fran Barlow
    December 15th, 2013 at 10:04 | #40

    Peter Martin: Big players unlikely to survive unless the dollar drops

    During the global financial crisis, Holden’s workers accepted half-shifts to stop job losses. In April this year, they signed up for a three-year wage freeze in exchange for a commitment from Holden to stay in business beyond 2016. Each production-line worker puts in an extra quarter hour a day.

    They are the most productive in the 37 countries in which General Motors manufactures cars.

    ”Every 60 seconds a vehicle rolls down our assembly line,” Holden boss Mike Deveraux told the Productivity Commission last week.

    ”The people making cars in Adelaide have to deal with a significant amount of complexity as each car comes past them – much more than in most other GM plants. They will build a couple of Cruzes, they will build a Commodore, a sports wagon, a Caprice, another Cruze. I mean, a different car and a different job comes at these people every 60 seconds, and on Cruze, they are loaded to 56 seconds out of that 60-second cycle time, balanced across hundreds of people on that assembly line.”

    My problem with is not with concepts such as NPV but with the “competitiveness” paradigm. While it’s rational to want to produce goods and services with as little labour and materials as possible ceteris paribus in an Australian context “competitiveness” is a dogwhistle aimed at depressing the wages and working conditions of the producers, rather than a proposal to deal with the decisive drivers making goods produced here more costly.

    The workers at GMH offered a very concessional deal on wages and in the end, it got them nothing because, plainly, other things were much more decisive.

    It seems clear that the part of the economy one can describe as “ETM” has been set back enormously by the relatively high dollar and under investment in engineering and training. The current regime is moving now to abolish trades training centres too.

    So while I’m not convinced that a local car industry (in terms of building whole cars) is viable here, it seems to me that we urgently need a plan to revitalise the ETM sector and part of that might well be in areas of engineering cognate with cars — e.g. spare parts, retrofitting and re-engineering. Plainly, the whole renewable/green sector is wide open for engineering innovation.

    The other curious feature of this discussion is that while the various jurisdictions seem to have no problem at all pouring money into various vanity projects in sport and doing upper class welfare well north of $30bn per annum (if one counts tax treatment of super for the wealthy) having a quality airline or a cutting edge ETM sector seems not to excite them all that much. Nobody will say that the state not getting good value for money is a good thing, but if as seems clear, we are willing to waste money on xenophobic angst (as we do on “boats”, and defence) or fluffing wealthy folks’ retirement income) wouldn’t it be less stupid to focus instead on stuff that might make a positive difference to people in the longer run?

    It seems to me that doing high quality R&D and training and employing engineers and scientists at good wages would be something in which all of us could feel some positive sense of ownership. I’d far sooner have Australia seen as innovative and scientifically minded and leaders in education and technology and “clean tech” than a leader in sports or stopping “boats”.

    And if we are to shell out for national symbolism, having a first rate international airline owned by the government is far from the silliest way to blow some money. Again, that’s way ahead of blowing money to get gold medals or international sporting events. I’d also put it way ahead of being on the Security Council — (though if Australia were a progressive and humanistic country, I might change my mind about that).

  41. kevin1
    December 15th, 2013 at 11:22 | #41

    @Fran Barlow
    Bet we will never read that info. in the Australian; those comments need to be served up to every ratbag sneering about lazy overpaid carworkers. Peter Martin stands out as someone who adds great value; I saw him the other day at the press club asking the ABC boss if commercial news orgs should do an objectivity audit on themselves. Now that shows initiative.

    The competitiveness paradigm in its extended form makes a virtue of making us uncomfortable: Graeme Samuel used to say “competition is a race without a finish.” However, it’s probably little known that the “public interest” test in the (superseded?) Trade Practices Act allowed for exceptions; I presume it’s still in the replacement Act.

    This relentless “homo economicus” approach doesn’t seem so strong in Europe, and I’m wondering if there is influence from Karl Polanyi’s “social economy” ideas. I’m not very familiar with him, sounds like a corporatist, stakeholder capitalism, a soft alternative to marxism for centrists.

    On GMH, rather than cost issues which I doubt can be addressed further, I think we can put the car industry collapse down to mainly govt policy decisions – not just acceptance of a high dollar but, as the GMH guy also said, Aust allows much higher market fragmentation they don’t experience elsewhere so the local product doesn’t have the scope for scale economies. And why was govt purchasing not local preference by default? If the mining tax hadn’t been botched, and Howard had banked more of the boom windfall, we would have a fund of “patient capital” to finance the things you mention. But with this lot in charge and David Murray at the Future Fund, no chance. It seems as a country we have bought the purist TINA model, and there is virtually no influential person in public life who is an open sceptic of the ideology.

    GM’s share of sales in the US have declined by half over the last 10 years, so probable that Detroit running the local show heavily didn’t help. The rise of multiculturalism probably diminishes these product “icons”, and they get stuck in nostalgic pitches to their traditional base.

  42. John Quiggin
    December 15th, 2013 at 12:08 | #42

    @TerjeP

    “I take it you have ruled out tariffs. Although I’m not sure why. If you want to shelter the industry tariffs seem like the most direct and transparent option.”

    I haven’t ruled anything in or out, because, unlike libertarians, I judge policies by their effects, not on the basis of religious taboos. If someone produces a policy designed to sustain car production either indefinitely or to smooth the transition out, I’ll judge it on the merits, not on ideological tests.

    What annoys me is that libertarians will pretend to argue about the merits, as long as the arguments are consistent with their taboos, but will always stick with the taboos in the end. Same as religious types who claim eating pork is unhealthy, when they really mean that some sky fairy two thousand years ago told them not to eat it. Or, Greenpeace on GM foods.

  43. TerjeP
    December 15th, 2013 at 12:41 | #43

    If someone produces a policy designed to sustain car production either indefinitely or to smooth the transition out, I’ll judge it on the merits, not on ideological tests.

    Speaking of religious type positions I think the pot is calling the kettle black. Why is sustaining the car industry or smoothing the transition important? Is the natural level of smoothness to such transition incorrect? Is the production of cars in Australia a sacred activity? I don’t see you providing a basis for these positions other than some sort of quasi faith that it is the proper thing. However perhaps you have your reasons and they are just not on show today.

    If sheltering the car industry is necessary and important then a tariff seems like one of the better policy options. I just don’t see why this industry should be sheltered or protected.

  44. kevin1
    December 15th, 2013 at 12:56 | #44

    Just for the record, Peter Roberts at the “Australian Manufacturing Forum”‘s Linkedin page has compiled a list of industries on the wane in Australia at the post “Going, going, gone…”

    Textile, clothing and footwear – only remnants remain.
    Wool and cotton processing, spinning and weaving – remnants.
    Food manufacturing – severely under threat.
    Groceries – shrinking fast and now in trade deficit.
    Resource processing and metal refining – closing down as gas prices rise.
    Chemicals and plastics – closing as gas prices rise.
    Oil refining – shrinking fast.
    Pharmaceuticals – production strong but no major investments attracted.
    Dairy products – healthy and expanding.
    Wine making – undergoing change but healthy.
    Computer and IT equipment – remnants.
    Communications gear – remnants.
    Satellite and space technologies – almost non-existent.
    Silicon chip manufacturing – one small factory remains.
    Solar electric power cells – last large factory in mothballs.
    Wind generation equipment – low-tech components made here, high value is imported.
    Transport equipment – needs no comment….yet Australia suffers a $50 billion balance of trade deficit in transport equipment.
    Batteries – gone.
    Tyres – gone.
    Ship building – fast ferry making suffering the high dollar and warship production under attack.
    Defence equipment – mainly imported.
    rubber gloves and condoms – gone.
    Mining equipment – healthy and globalising.
    Large furniture such as beds and sofa manufacturing – high market share but under threat.
    Household accessories – gone.
    Whitegoods – only two world-scale factories with Electrolux set to close refrigeration manufacturing. Hot water heater making remains.
    Small appliances – almost non existent.
    Medical equipment – three niche manufacturers

  45. John Quiggin
    December 16th, 2013 at 02:16 | #45

    @TerjeP

    I’m not at all concerned about the car industry. I am however, concerned about the people employed in the industry, many of whom are unlikely to work again if they lose their jobs. Having looked at the actual evidence, rather than forming my views on the basis of a priori dogma, I conclude that interventions that slow the rate of decline of the industry at modest cost are likely to be beneficial.

    But, as I observed above, there is no point arguing this with you. In the end, you will always retreat to the safety of your religious views, rather than say something heretical. Having said that, you are much more open to discussion than the great majority of libertarians, who would pull up the drawbridge a lot sooner. I hope that, at least you are getting some food for thought.

  46. Troy Prideaux
    December 16th, 2013 at 08:04 | #46

    @kevin1
    It’s nothing but a crying shame:(

  47. TerjeP
    December 16th, 2013 at 08:22 | #47

    JQ – so a transition plan moving these workers out of the industry to other jobs, perhaps with retraining, would work just as well for you?

  48. Troy Prideaux
    December 16th, 2013 at 08:37 | #48

    Most will probably eventually find jobs – warehousing imports [sigh]

  49. Hermit
    December 16th, 2013 at 12:39 | #49

    The webosphere is buzzing with talk of retraining retrenched car workers. I’d imagine they will do courses on Shakespeare, partial differential equations and web design. However there will still be one problem… they’re middle aged. Second hand car dealers are said to wind back the odometer on rustbuckets so perhaps the car workers could get facelifts and forged birth certificates.

    There many be many reasons not to hire the middle aged. Suggested reasons include lack of IT skills and inflexible attititudes. However I think a big part of it is that bosses expect unquestioning servility, the same reason I suspect telecommuting is limited. I think the best hope for the redundant workers may be to pay off debt, get a tinnie and trailer and find somewhere nearby to wile away their days fishing.

  50. Troy Prideaux
    December 16th, 2013 at 12:55 | #50

    We recently put on a middle aged steel worker. He’s actually very good. We’re very happy with him, but we’re part of that dying manufacturing industry.

  51. TerjeP
    December 16th, 2013 at 15:47 | #51

    The misery of ending subsidies should not be blamed
    on those that end them but on those that enact them in the first place. I am sympathetic to the transition pain for those exiting the industry but keeping the industry afloat with subsidies just draws more workers into the scheme. Continuing an industry that should not exist by pumping in subsidies is in my view reckless.

  52. kevin1
    December 16th, 2013 at 16:49 | #52

    @TerjeP

    Many of these discussions have the feel of a palliative care ward. Should we up the morphine dose, when do we turn off the life support, we need to talk to the patient about their preferences for ending their life. It’s all workers as victims, losers, rejects – not the best frame of mind to confront a threatening future.

    Bill Mitchell estimates unemployment, underemployment and hidden unemployment (such as discouraged workers) as around 13%. http://bilbo.economicoutlook.net/blog/?p=22954 As SA premier Weatherill came out the meeting with Abbott the other day saying ““This is a government that was calling for this decision to be made. You would have thought there would be a plan, but there is no plan. The sense of urgency is completely lacking.” Vic Premier Napthine estimates 13,000 workers will lose their jobs.

    Talking of youth unemployment, Mitchell is critical of Labor’s approach of “endless training initiatives (supply-side approach) without significant benefits. The research shows overwhelmingly that job-specific skills development should be done within a paid-work environment.” For the older group now to be made redundant, rather than applying half-hearted “palliative care”, tea and sympathy, this unutilised labour needs to be reframed as an available productive asset which reduces potential GDP if not used. As the manufacturing sector shrinks, how can these skills be redirected rather than abandoned for speculative attempts to develop new skills? Are there public projects which can use these thousands of professional, skilled and semi-skilled workers?

  53. December 16th, 2013 at 22:11 | #53

    We could look to the future and invest in driverless electric cars. The technology will be very exciting. Great opportunities for smart young Australians to get involved with something really challenging without leaving home.

    Taking the money out of salary packaging and putting it into subsidies for an emerging industry – lets face it, its not something the Libs would be up for.

  54. paul walter
    December 17th, 2013 at 02:35 | #54

    I agree with Quiggin as to the lack of imagination at best of US oriented local maufacturers, or duplicity, in not adjusting to a small car world rather than relying on Australian auto consumer force of habit for sales.
    This unimaginative slovenliness, along with ultimate decison making now centred off-shore might be the real reason for thousands of workers losing their livelihoods and this country losing a whole skills base.

  55. TerjeP
    December 17th, 2013 at 03:54 | #55

    Kevin1 – lots of people in Australia routinely lose their job and need to adapt. Some say 7000 mining jobs in Queensland have been lost in the last year alone and nobody is suggesting we subsidies mining to minimise hardship to workers. It will be difficult for many of the Holden workers but they have four years to prepare.

  56. John Quiggin
    December 17th, 2013 at 05:08 | #56

    @TerjeP

    Actually, the Qld LNP government is proposing precisely this, and of course the FBT decision was advocated as preventing the loss of jobs in the salary packaging industry.

  57. Ikonoclast
    December 17th, 2013 at 08:00 | #57

    @kevin1

    Bill Mitchell has the right end of the stick in most respects. But tell that to more orthodox economists and they won’t believe it. It is clear that the current approach to macroeconomics (neoliberal, monetarist, supply-side and austerity-type) has failed working class people. Labour under-utilisation of 13% is a total failure. Youth unemployment of over 20% is a total failure.

    Clearly, if private enterprise fails in this regard (market failure), the state ought to step in with a job guarantee (JG). The JG can set a minimum wage and government be the employer of last resort as it were. Anyone who says a JG is un-fundable does not understand government budgeting nor basic macro-economics. I’ll post support for this last statement if people query it. It does not even require an MMT argument to support it.

  58. kevin1
    December 17th, 2013 at 08:56 | #58

    @TerjeP

    Well yes, if carworkers got mining workers’ wages (ABS says 63% of fulltime adult non-managers got >$2000 per week last year) then I’m sure the conversation would be quite different.

    You have questioned why “smoothing the transition” is important, proposing a “natural level of smoothness” to transition for these workers; natural is obviously a synonym for hands-off without reference to the empirical situation ie. ideology. I’m more interested in seeing if history can support intervention as beneficial: eg. the support scheme introduced when BHP closed down Newcastle in 1999.

    According to Alicia Payne (@ Crikey, 30 May 2013 “Jobs lost, but skills gained: lessons for Ford from Steel City”), the 1800 affected were males, average age 44, with average length of service of 21 years. Her paper says “Pathways was a personalised and flexible retraining program that supported employees to train in almost any area of their choice if it was likely to help them find employment. The program was not based on financial constraints or a set training program. Instead, each employee was interviewed about his or her aspirations in a post-steelworks world. BHP would cover whatever was required, including university or TAFE fees, textbooks and flexible work arrangements around study. The scheme gave rise to a wide range of individually chosen career changes – everything from nursing to flying to public relations. In several instances, employers experiencing a skills shortage approached Pathways and offered guaranteed employment. The match between the experience of the employees and the shortage of technology teachers in NSW sparked collaboration between BHP, the NSW Department of Education and the University of Newcastle.” Using existing skills in new ways, eg. the tech teacher recruitment, was intrinsic. Whether the unions will extract something similar from GM (I think we can drop the veil of the H now) is unknown but unemployment in the Hunter region is now about 3% I think. There are alternative views about the program’s success: Bill Mitchell was interviewed on ABC Radio the other day talking about small business failure rates and the shift of breadwinner roles to women who took on more than one paid job; it may be that mining expansion saved the day.

    Funny that we are in an age when soft rather than hard is ascendant: intellectual capital in skills and knowledge, many companies have intellectual property as their main asset, soft skills in workplace relationships and international diplomacy are prized. But, as pointed out by submission 67 to the current PC inquiry from a professional engineer, what does the gearbox design engineer, the robotic welding engineer, engine combustion engineer, the fuel systems engineer, the production planning engineer, the car body designers, or any of their associated support drafters do now? Specialised automotive employees may find they have more to lose than most.

    Keeping up morale is important and I suspect many people affected look for some empathy and committment from the political leadership as representing validation from society, but so far Abbott has shown that wary, disengaged, scripted style we have come to expect. If he wants the people affected to be independent and resilient in the future, not dependent on the state and socially disaffected, he needs to snap out of it fast. As said by others, this mob have a lot of political experience, but it doesn’t show. (I can’t resist adding that some have too little experience outside politics and that shows too – Christopher Pyne’s 2 years as a solicitor between uni and parliament!)

  59. December 17th, 2013 at 10:34 | #59

    kevin1, did Pyne actually have a real job at same stage? You learn something every day!

  60. TerjeP
    December 17th, 2013 at 14:58 | #60

    Actually, the Qld LNP government is proposing precisely this, and of course the FBT decision was advocated as preventing the loss of jobs in the salary packaging industry.

    Fair point.

    On a separate not what will the unions that these workers paid their dues to for many years be doing to assist with retraining and job placement. I presume they will be stumping up to assist.

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