Economists undaunted by car industry canning


Toyota logoEconomics has been dubbed the dismal science. The appellation is a strange one, for many of its practitioners are doctrine-driven enthusiasts who are intent on telling us what we must do to be saved. Far from being dismal, they exude the blithe — and blind — faith of religious revivalists. They cling steadfastly to their doctrine, for they believe that only it can sufficiently explain the human world. Any suggestion that this world might not unfold as the doctrine prescribes is to be abjured as the work of the devil.

The revivalists were out in force on the ABC's Q&A this week, in response to the news that Toyota will cease to build cars in Australia in 2017. Following in the wake of decisions to quit the industry by Holden and Ford, Toyota's announcement means the end of car making in this country.

The industry, including the component makers, employs nearly 60,000 directly and 250,000 indirectly. It is the mainstay of Australian manufacturing and its disappearance will devastate the economies of Victoria and South Australia, with flow-on effects in other states. But apparently we shouldn't worry, because something will come along to fill the gap. The revivalists are sure of it.

This confident prediction was made several times by Communications Minister Malcolm Turnbull, to sustained applause from Q&A's studio audience. Turnbull is not an economist. But as a member of Cabinet he vigorously defended the Abbott Government's decision not to extend public subsidy of the car industry, and its more recent one to decline Coca-Cola Amatil's request for $25 million to help retool its SPC Ardmona subsidiary in Shepparton. That refusal is expected to hasten the end of another branch of Australian manufacturing, for SPC Ardmona operates Australia's last fruit and vegetable cannery.

Turnbull could not explain why another multinational company, Cadbury, will receive $16 million in public funds for its chocolate factory in Hobart. The Government has previously argued that Cadbury is a special case because making confectionery attracts tourists. But it is not clear why luring tourists to Hobart is more important than providing jobs in the Goulburn valley, where the unemployment rate (8.6 per cent) is even higher than it is in Tasmania (7.9 per cent). Suggestions that the indulgence shown to Cadbury might have had something to do with the fact that its factory is in a marginal seat were dismissed. The doctrine of the pure does not acknowledge the devil's work of political calculation.

Turnbull might have been speaking chiefly out of Cabinet solidarity. Some other panellists and audience members, however, were unrestrained devotees of free-trade doctrine. Yolanda Vega, director of the Australian Women's Chamber of Commerce, said that since small businesses — she seemed to have cafes in mind — could expect no help from the taxpayer, large manufacturers should not either. Small businesses, she insisted, display an enterprising, innovative spirit that has withered in the large corporations that dominate manufacturing.

And an audience member asked: 'Why are there so many on both sides of politics who refuse to let uncompetitive businesses die a quiet death? If we don't want to eat tinned fruit or if we want to drive a European hatchback instead of a huge Australian sedan, why fight it? Personally, I enjoy not living in 1983 and wonder why others don't.'

Ah yes, 1983, the year when the Hawke Government floated the dollar and began the deregulation of the financial system and the dismantling of industrial protection. It was a time when tariffs, subsidies and the fixed exchange rate not only kept many Australians in jobs by protecting local industry, but thereby also nurtured the specialised skills on which, with due respect to Vega, innovation depends. In 1983 it was understood that if large enterprises employing many people did not survive, many smaller ones were unlikely to do so either. People who don't have jobs don't have much discretionary income to spend in cafes.

It was also understood that only in textbooks of doctrine can economic activity plausibly be depicted as an aggregation of choices made by individuals with more or less comparable buying power. Quips such as 'If we don't want to eat tinned fruit or if we want to drive a European hatchback ... why fight it?' might reveal something about the speaker. They reveal nothing about the plight of SPC Ardmona or Holden.

The gradual demise of Australian manufacturing since the 'reforms' of the '80s offers a surer picture of the prospect for employees of Toyota and SPC Ardmona than the Micawber-like assurances of Turnbull and others that something will turn up. New sources of employment do not magically appear because they have been foretold by doctrine. As former workers in the now almost extinguished textile, clothing and footwear industry can attest, only about a third of those who are about to lose their jobs in car making or food processing are likely to find new jobs on equivalent incomes. Another third will probably never work again.

Doctrine does not prevail everywhere. It reigns supreme among policymakers and, with only a few dissenting voices, among the chattering classes on television panel shows. But in the real world of economic activity — the world in which people understand that chanting mantras such as 'innovation' is not the same as actually making and selling things — doctrine is treated with scepticism, and sometimes even blamed for bad policy.

Consider Toyota's explanation for its decision to shut down manufacturing in Australia. Like SPC Ardmona, the company did not blame union work practices and allowances. It blamed the high Australian dollar and 'the most open and competitive new car market in the world'.

Ray Cassin headshotRay Cassin is a contributing editor.

Topic tags: Ray Cassin, Toyota, SPC Ardmona, economics, Malcolm Turnbull



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Existing comments

Ray: Hong Kong, 1950s to 1990s and beyond. Most free trade economy worldwide by far. Was Hong Kong a basket case thereby and so a prime recipient of foreign aid? To the contrary: she exhibited the most spectacular leap in GDP (especially PPP) in documented economic history. And in the Ethiopian famine of the early 1980s, little Hong Kong donated more than Australia! Please account for these facts, or withhold from advocating barriers to trade which impoverish consumers.
HH | 11 February 2014

I have no problem with the 'dismal' part of 'dismal science.' I have a problem with calling what they do a science. As 2007 came to a close, a group of 50 highly paid American economists and analysts predicted that their country would not “sink into a recession” the following year; in fact they predicted that 2008 would be a solid but unspectacular year. Not one of them foretold the crash. That was economics. Three hundred years earlier, Edmond Halley used the mathematics of his friend Newton to predict that the comet which now bears his name would appear in 1758, which it did. In our own lifetimes, we were confident that it would appear again in 1987 (it did) and we know it will come again in 2061. That is science. So, why could a 16th century amateur correctly predict events 350 years in the future, but a slew of modern computer-aided experts couldn’t manage to guess one year ahead? It is quite simply because one prediction is based on science, the other comes from entrail-gazing guesswork and shows how misleading it is to couple the words economics and science.
Frank | 12 February 2014

Thank you Ray for a reasoned, sensible article. You're right: most of these laid-off workers will end up without a job. This morning on RN Industry Minister MacFarlane refused to answer the question as to what would happen to these workers, except to paint a picture of cloud cuckoo-land where 'new' jobs would be 'created' - presumably out of nothing. Perhaps the time has come for Christians to borrow a critique - and some rhetoric - from the Hebrew prophets and our long tradition of social inclusion and equity to counter the false faith promoted by so-called 'economic rationalists'.
Paul Collins | 12 February 2014

It seems obvious to me that the present Coalition government is wearing different coloured ideological spectacles to its predecessor. Subsidies for our declining traditional manufacturing sector, including cars and food (with the odd exception of Cadburys), are not part of its remit. It has other subsidies in mind like paid parental leave. The debate between it and the Labor opposition also seems along mainly ideological lines. As you and others point out, the decision on SPC was odd, especially when compared with the contrary one on Cadburys and it appears many of the "facts" on workplace practices at the former given by the Prime Minister were incorrect. There was apparently opposition to this decision in Cabinet. Toyota's decision to cease manufacturing here by 2017 was based on a number of factors including labour costs. I would suggest the decisions on car manufacturing closures could have been postponed but not avoided given all the prevailing factors. Australia has a number of economic factors it currently faces. Whether the government is making the right decisions in regard to these is a moot point. I think it needs to be less doctrinaire and show the ability to reverse incorrect decisions (as with SPC).
Edward F | 12 February 2014

You're spot on, Frank. Much as I hate to admit it, Economics is more a branch of Applied Mathematics but, as any mathematician will tell you, in Mathematics, your theory is only as good as your assumptions. Over and over again, we see the economists' assumptions are ludicrous at best and downright deceitful at worst. A pox on all their houses. HH, one example does not prove a theory.
ErikH | 12 February 2014

The Federal Government asserts that people who lose their jobs in the car industry will find work in new hi-tech businesses starting up. Hi-tech businesses are inherently smaller employers than traditional manufacturing businesses. And all start-up businesses are necessarily small employers until they are well-established and able to grow in size and number of employees. The skills required in hi-tech manufacturing are typically not the skills-sets of ex-employees from the car-parts manufacturing businesses, who are the majority of employees to be retrenched in the loss of the Australian car manufacturing industry. And they are certainly not the skill-sets of ex-employees from the food processing industry. The Victorian government expressed hope in current infrastructure projects absorbing people displaced from the three car manufacturers. Again, consider the skills required for infrastructure (read road-construction). The unsupported assertion that retrenched employees will readily find other work clearly does not consider the wide variation of skills required in different industries.
Ian Fraser | 12 February 2014

Dear H.H Economically rationally righteous to your core. Let no contrary facts get in the way of your pristine ideology. Let all those bleeding heart lefties eat cake. All welcome to your free marketeer nirvana where the serfs and masters know exactly where they stand.
vincent | 12 February 2014

Great1 Back to the good old days of high tariffs and import restrictions, Meant Australian cars cost twice as much as overseas and ordinary working people like my parents couldnt afford one. How about thinking of consumers?
MJ | 12 February 2014

What I cannot understand is that if Ardmona is owned by Coca Cola/Amatil, why can't CCA prop up the company as it has millions to spare!!
LynneZ | 12 February 2014

Ray Cassin is absolutely right in saying economic rationalism requires faith rather than reason. The Govt. is subtly or not so subtly blaming workers' wages for the current closures. What about the pay packets of managers - indeed what about the high pay (relative to our region) of most Australians? Workers should not be blamed just because some of them belong to unions.
Rodney Wetherell | 12 February 2014

Economic rationalism: another misnomer in the neoliberal project that has created a situation where 50% of the world's wealth is possessed by 1% off the population. Economic rationalism: a system based on infinite resources and with no concern for the environment or social justice. A system that only survives on 4% annual growth: exponential growth which is an incurable cancer. Rational indeed!
Evagrius | 12 February 2014

While the chances of this country ever being involved in an all-out war again are extremely remote, the last century showed that the auto industry provided the backbone of armaments production. The loss of this know-how will leave us strategically vulnerable; we already depend on our "great and powerful allies" for much of our defence capability. This dramatic drop in our industrial capacity accellerates the "dumbing down" of Australia. But who cares? We will have cheaper 4WDs, and no doubt those displaced workers will find jobs as advertising executives, real estate developers and motel managers.
OwenH | 12 February 2014

Enough with the bluster, Vincent. Just explain, given Ray's assertions, how a free trade open market economy like Hong Kong (or Singapore, Mauritius, Switzerland, etc,) could do so spectacularly well given the alleged evils of a free trade economy. I'm all ears.
HH | 12 February 2014

Yes LynneZ, you have a point. While my prior comment targeted glib assurances from Federal Government Ministers re employment prospects for retrenched workers, I agree that corporations making high profits in their core lines of business also have obligations to the stake-holders of their subsidiary companies. Allowing its subsidiary, SPC Ardmona, to close despite the corporation as a whole gaining a significant annual profit brings no credit to Coca Cola Amatil. The short-sightedness of governments, in not supporting manufacturing especially in regional areas, is shared by corporate owners who are happy to purchase a struggling enterprise on speculation, but lack the commitment to stay long enough to turn the business around to a sustainable position.
Ian Fraser | 13 February 2014

Bluster? really H.H. 1% of worlds population monopolizing 50% of worlds wealth is a compelling fact for me. Nothing against free trade as such just predatory corporate capitalism. And Singapore? yes a winner but hardly a small government big business neo liberal case study. For all your winners more than enough losers. The free market trickle down that supposedly floats all boats drowns those without vessels and mostly floats mega yachts. Check out the connection between Walmart and rising crime rates. In your free market wonder land there is no both/and only either/or. Plenty of room to for the strong to eat the weak. Serfs and masters galore outside the privileged realms of your Switzerlands and Hongkongs
vincent | 13 February 2014

Vincent, your 1%/50% "monopoly" figure reveals how much we are at odds as to how wealth comes into being. In my mind, it's analogous to saying Don Bradman "monopolised" the number of runs scored in first class cricket when he was playing. The Don created his runs. He didn't take them from anyone else. Similarly, most of that 50% wealth is created by that 1% itself. It wasn't stolen from anyone else. It wouldn't exist AT ALL without their creative ideas, hard work and risk taking. The tragedy is not that individuals can create vast amounts of wealth, just as others can great art, epic sporting feats and acts of virtue or sanctity. That's actually brilliant - hardly something to whinge about. The tragedy is that statist regimes all over the world actively PREVENT billions more getting in on wealth creation. Fortunately many countries are waking up to this and allowing their citizenry to become wealth creators alongside their brothers and sisters in Hong Kong, Singapore, South Korea, Mauritius, etc. As a result of this movement towards capitalism, systemic world poverty is nosediving. (Quietly though - the leftist mainstream media don't want anyone to know.) Thus, between 2005 and 2010, half a billion people moved out of dire systemic poverty, according to the Brookings Institute, at a rate unprecedented in history. At this increasing pace, there will be no systemically dire poor at all within a few decades of expanding market capitalism. So who will be all those "losers" your dogma says are the inevitable byproduct of market wealth creation?
HH | 13 February 2014

It's interesting how those who champion the virtues of the free market and the free movement of goods, services, and capital are often the same people who oppose the free movement of that other factor of production, labour.
Ginger Meggs | 14 February 2014

Good point GM. It's inconsistent to exclude free movement of labour while arguing for free trade. I believe anyone should be permitted to get a job anywhere in the world on terms agreeable to them and their employer. Moreover, that freedom entails that prospective employees and employers should be free to discriminate on any basis they like - the quantum of the wage, the race, age, sex, health, intelligence, language, religion, culture or politics, etc, of the prospective employer/employee. Individual employees and employers should be allowed to negotiate these arrangements on their own terms. Not have overweening bureaucrats and politicians dictate their lives. Life's tough enough already for many. Beyond that, we should, as an incredibly blessed national community, take in refugees, and especially, those of no "economic worth", since they will be the first to be abandoned by poorer nations who simply don't have the resources to give them the dignified life they deserve as human beings and children of God. (I reject the argument that 'we should take on refugees because refugees have been good for the Australian economy'. The statement is true as historical fact, but the utilitarian rationale is deplorable.)
HH | 14 February 2014


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