Business Spectator’s Rob Burgess has written a great post today encapsulating the challenges facing the labour market and explaining why the auto industry should not be left to die as the once-in-a-century mining investment boom unwinds:
When veteran journalist Kerry O’Brien asked former prime minister Paul Keating what happened to all the workers who lost their jobs as import tariffs were slashed in the early 1990s, Keating claimed they “found a better job a week later”.
While that’s factually wrong, the spirit of the statement is right – by removing Australia’s decades-old scaffolding of protectionism, the scene was set for new jobs to emerge in more profitable areas.
It was only a few years after Keating lost power that education exports began to boom and mining boom mark I began to take off. The dotcom bubble created thousands of jobs and then, pop, they were gone.
And an army of tradies watched their incomes rise through a decade of home renovation fever that tapped into rapidly rising house prices – in turn spawning thousands of jobs for mortgage brokers and other finance industry jobs.
The factories of the Hawke era were swept away and a more vibrant, dynamic economy emerged. Services, construction and engineering, education, high-tech, biotech, health. Jobs for everyone!
Or so we thought.
Now that Holden is teetering on the brink of oblivion, that old Keating formula of “they’ll find better jobs a week later” is looking strained… While there is no good rationale for going back to the ‘good old days’ of protectionism, there are few signs that South Australian and Victorian auto workers will find a job in a week, a month or perhaps even a year.
The structural transformation of the Australian economy that was delayed by mining boom mark II is now upon us…
Overall, this is a bad time to lose the auto industry. Like many, I’ve read the textbooks, and know, in theory, the comparative advantage arguments for letting Holden and then Toyota collapse…
Textbooks aren’t all that useful sometimes…
This is a time for pragmatism. Keating had all the fun of playing with theoretically pure economics. Tony Abbott must make his decisions in a very different world.
Paddy Manning of Crikey chimes in with similar:
In the end it’s not all about Holden. It’s about critical mass for an automotive industry that employs some 45,000 people directly — who pay some $720 million a year in income tax, according to one submission to the Productivity Commission inquiry — and up to 200,000 people indirectly. Without Holden, Toyota will go and myriad suppliers could close their doors.
Those supplier submissions to the PC make painful reading. Futuris cites figures showing the proportion of locally made cars produced (including cars we export) versus total cars sold here has fallen from 53% to 20% over the last 20 years. Of cars sold here, 86% are imported of which 44% are from Japan, 21% from Thailand, 20% from Korea and 10% from Germany.
But our tariff at 5% is completely out of whack with those competitors: Thailand makes 10 times as many cars as us, but has an 80% import tariff; China has 25%; Korea and Germany have 10% tariffs. It is a recurring theme of the submissions: that we have the least protected automotive industry in the world…
Let’s be pragmatic, rather than ideological. We do not have a competitive advantage in car-making, which is increasingly geared to global platforms on a huge scale. But if the dollar gets back in its box our car industry could yet find a clever niche, and it is the foundation of what’s left of our manufacturing sector. Are we so committed to yanking subsidies to the car industry that we are prepared to outlay more money in foregone income tax revenue and welfare benefits and subsidies like payroll tax concessions for other industries that will be needed to prop up the economy, especially in South Australia? Is it rational to spend more money destroying an industry than it would cost to save it?..
There’s no question of a blank cheque. Our car industry is in painful transition, it’s a question of how rapid it has to be. Surely at least we can wait until the Productivity Commission has delivered its report next year before we abandon a manufacturing capability that, once lost, is gone forever…
I largely agree with these summations, although I see car industry assistance more as a tool to see us past the mining investment contraction rather than a long-term policy (the so-called “managed decline” articulated earlier today).
The problem, as I see it, is that the major economic drivers: rising household debt initially and later the once-in-a-century mining capex boom were not sustainable. Now that both have been largely run their course, the Australian economy faces a growth vacuum that will weigh on job creation and ultimately lead to rising unemployment.
Unfortunately, there are also no easy solutions. All that Australia can do is attempt to become as efficient and competitive as possible in a bid to grow the non-mining tradable economy – or at least forestall its decline. This will require a widespread program of structural (micro-economic) reform, as well as concerted attempts to lower the Australian dollar.
None of it will be easy, but we don’t really have a choice. Adapt or die.
unconventionaleconomist@hotmail.com
