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The car industry and protectionist delusion
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You have to hand it to The Age – it’s not at all parochial in its economic coverage. Three times this week The Age’s commentators have looked at the Government’s automotive industry plan. Three columns would normally provide a diversity of views on an issue as important as the multi-billion dollar handout of taxpayer money to multinational firms. Well, not quite. Tim Colebatch looked at the plan on Tuesday. He considered the issue of whether the industry should be left to die and noted the flow-on effects of the industry and the fact that everyone else protects their car industries. The subsequent commentators weren’t quite as balanced, however. Yesterday Shaun Carney also argued that everyone else protects their car industries, that we waste a lot of money on stupid things like sport, and that, well, we just need a manufacturing industry and it can’t exist without government help. Today Ken Davidson went the whole hog. He started promisingly, saying the plan “lacked direction” and that “government shouldn’t be in the business of picking winners, which in practice means the money will become a honey pot for rent seekers.” Then he proposed that the solution was for the Government to build a car plant itself. None of this, of course, would relate to the car industry’s presence in The Age’s markets, or for that matter The Age’s interventionist ideological preferences. The context for Davidson’s call for direct government intervention in the car industry was this illuminating observation:
There’s a manufacturing-good/services-bad logic at work here, one I complained about to the annoyance of a number of readers who thought making stuff was much better than pulling beers or working as bank tellers. The idea that the manufacture of physical objects is a real job, versus the presumably faux-economic activity of providing services, apparently dies hard. Guy Rundle as always put it much more entertainingly in one of his dispatches from the political frontline in the US. What the market faced in the US at the end of the 90s, was a crucial lack of things to invest in, for the free money sloshing around the markets. By 2001, the dotcom bubble had burst and you couldn’t shove $X billion into Ewidgets.com, and so there was a desperate need for another object that would keep the circus going. Mortgage backed securities was it — bricks and mortar, which looked like the most concrete investment was actually the most abstract, the notional capacity of people with no-deposit mortgages to repay. Crazy, but what could you do? For the bitter fact is that without these pseudo-investments, the West is running on fumes. As China and the East roars ahead in classical 19th century high capitalist mode, the West runs on financial services, and rents — such as intellectual property, and debt and debt and debt. For twenty five years, the US has been starving its public sector of investment — investment that would have created jobs and real growth and lowered overall costs — and allowed the rich to shuffle money into luxuries and useless services and waste, as the society decayed around them. Of course not every service job is — was - a Lehman Brothers screen jockey. There’s about 1.1m Australian employed at the moment in the manufacturing sector and another million in construction. But to put that in context, there’s more than 1.5 million Australians employed in retail, another half a mill in hospitality. There’s 1.3m in business and property services, 800,000 in education and 1.1m in health. Oh, there’s 400,000 of them screen jockeys in the finance sector. All service jobs. None of them making anything. Try telling them they don’t have a real job, or that their jobs are less important than the 60,000 people in the car industry, that they’re just an expression of the collapse of western capitalism. Although I’ll leave readers to debate whether journalists and writers are service providers or manufacturers. It’s odd — there’s no real reason why this fetish for manufacturing should reside on the Left. I can recall reactionaries in the 1980s railing against the “Hawke socialist government” which was apparently hell-bent on turning Australia into a holiday resort for Asian tourists. Serving a drink to a Japanese tourist — the Japanese were the bogeymen of that time, you’ll recall — was apparently not a real job to which a young Australian should aspire. But the concept that the only real job involves making stuff seems to have settled over on the Left, possibly because historically manufacturing has been highly unionised, while more recently-developed service industries have not been. It’s a combination of job snobbery and nostalgia, and it’s closely allied — as The Age’s commentators show – to protectionism. And just because the rest of the world believes it doesn’t mean we should participate in the delusion. If we want to protect our industries because China and Brazil and Thailand do, then we can have a standard of living like them too. That’s where we were headed until the reforms of the 1980s opened us to the world and gave us a massive increase in our wealth. |
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8 Comments
Well, I’ll respond to this at more length in an article proper, but for the moment this brief comment will have to do
1 - there is a real distinction between production of capital goods, essential consumer production, and the production of luxuries that is common to both classical economics and marxian economics
2 - in the consideration of the health of any national economy, it’s worth looking at what the composition of the economy is in regard to these sectors. If your economy is increasingly made up of easily transferable services - financial services, IP rents - then you have a problem.
3 - neo-classical economics suggested that economic calculations could be made on the basis of money value only, with indifference as to whether $X billion of your GDP was made up with steel mills or pet care products. Do that and you let your economy be hollowed out without noticing it
4 - the western world has suddenly noticed that the composition of your economy does matter. If you’ve steered a whole bunch of people into luxury production, while exports replace imports, then you are in deep shit.
5. Thats the situation the US is in (Australia less so, due to primary extraction). That’s why Kevin Rudd - wisely in my view - drew a line in the sand, and said that we’re going to keep making cars, and whatever follows from them using R and D. The only western economies that have weathered this crisis well are those - such as, yes, Sweden - who have retained a high-end manufacturing base through a. national industry policy, and thus continue to have an export base on which luxury service jobs can depend.
6. What really worries me Bernard, is that I don’t see any critical thinking in your response. All I see is a rather hackneyed mobilisation of old economic ideas, which were briefly fashionable in the 80s and 90s. Rudd’s auto plan may not be the answer - but the idea there’s no problem with the approach you’re suggesting seems naive and behind the game
Abandoning the car industry during a time of economic downturn is madness.
Economic rationalists would sacrifice our car-manufacturing industry to appease their crass and craven deity, Loki. Thanks to their mischief, we have a private sector of fake jobs and mock industry: people who produce imaginary goods and who invest in nothing but their own promotion.
Had we the courage and vision to resist their poisonous doctrines years ago, our economy would still be powered by the coopers and wainwrights and roof-thatchers who might have made our country the envy of the world. Can a PR expert or a CFD trader turn urine into dye? I don’t think so. (Or, maybe, but not without a grant for retraining.)
Maybe its about getting our priorities right. While outlaying billions to prop up a car industry, owned and controlled multi nationals, the razor gang cuts the budget of the CSIRO. It’s not just about making things, it’s also about intellectual property. If we are simply going to become reliant on service industries we are destined to become the white trash of Asia.
Thanks Robert. I won’t be taking up the opportunity to read Lyndon LaRouche.
Bernard Keane reveals his own persistent delusion that services and manufactured goods are both products, with equal viability in global markets, and equally essential components of life’s rich tapestry.
In Bernard’s scenarion, it may be OK to dismantle Australian manufacturing of cars - and replace the sector with say, services related to the management of compulsory superannuation. Both products have, no doubt, extensive markets in the Middle East.
If Australia makes nothing exportable except debt, it’s hard to see how we will not in the long run become a mendicant population, about as lucky in global commerce as our seemingly luckless indigenous population is locally. People whose acknowledged skills lie in anecdotal history, music, land and livestock management are likely to be forever inadequate when trading for Toyota Landcruisers or information technologies.
The nub of the issue is whether we can ever again export anything much except primary products. Exceptional world-class exporters like Cochlear and CSL have arisen because of past public-sector intervention in the market.
These days it’s ABSOLUTELY CRAZY that 44% of our share market capitalisation is made up of BANKS and INSURERS and FINANCIERS!
Thanks for promoting this debate Bernard. As usual out come the vested interests and blind Freddies.
There are two problems that emerge here:
1. The car industry, in spite of decades of subsidies, tariffs etc etc etc remains a basket case. And we just go on throwing money year after year at international corporations who simply cannot be trusted to keep Australia’s interests in proportion to the money we taxpayers throw in.
2. $600 billion committed to the CSIRO over 10 years is far more likely to provide useful outcomes in the long-term interests of Australia, than is this hand-out to the internationals.
What we will watch with huge interest is the “deal” that requires the recipients of this largesse to “match” the hand-out. How? When? Where? What??
No problem with Government propping up Australian industry, but I only hope the advice taken by Rudd and Carr did not come from Treasury.
Sorry if my lack of “critical thinking” doesn’t meet your high standards Guy. But then I don’t see too much evidence of same from you - all I see are value judgments and adjectives in place of argument. “Hollowed out”. “Luxuries”. “Indifference”. “Essential”. Why not just say “manufacturing good, services bad”? Same diff.
But one line I can’t let pass. “we’re going to keep making cars and whatever follows from them using R and D”. I hate to break it to you but we’ve doing that for decades with no discernible result except to keep industries with their hands out for more money and deprive employers in other industries and other manufacturing sub-sectors of skilled and semi-skilled labour. Cars aren’t high tech, and aren’t the basis for anything other than long-term industrial mendicancy.
Your attitude is, as I said, job snobbery. The idea of people making money buying and selling securities on a PC, or earning income from a patent, offends you. It frankly offends me too, but not so much that I begrudge them the right to do it, or want to force them to go work in a factory.
Oh, and arguing that they do it in Sweden and therefore we should do it is no more sound than saying that Thailand has massive tariffs so we should too.
The problem with trying to debate Bernard Keane’s assertions, is that economic circumstances are overtaking the debate, and free traders are — thankfully — about to become extinct. Then he’ll discover the difference between services and manufacturing goods, and the difference between a massive increase in debt and a massive increase in wealth. It’s the difference between eating and starving. There’s a consumer choice for you. I urge Bernard to take a hint from the French, Italians, Russians, Chinese and the “fruitloops” at the CEC, and read Lyndon LaRouche, learn something about economics, and report current economic developments like the New Bretton Woods.