There is something deeply disturbing going on when a group of rent seekers head to Canberra to get a fix — in this case a manufacturing fix.*
Yesterday the national secretary of the AWU, Paul Howes; the ACTU secretary, Jeff Lawrence; the national secretary of the AMWU; Dave Oliver; and, the CEO of the AiGroup, Heather Ridout, all trooped to Canberra to talk about an inquiry into manufacturing.
The plan is to talk to the Prime Minister about the future of manufacturing following recent announcements of job losses at BlueScope Steel and others such as at Bosch Australia.
Howes in recent days has suggested thousands more jobs are likely to be lost in the manufacturing sector in the near future.
Ridout wants the inquiry to be forward looking and focus on securing opportunity for industry, particularly in high-tech manufacturing and upstream processing of our resources — minerals and food. Their wish list can be seen here. Agitate! reads this as just a bit more government-mandated rent seeking.
The union representatives want an inquiry to look at ways maximise and spread the benefits of the mining boom, particularly to manufacturing and to examine opportunities for local manufacturers under the government’s proposed $10 billion fund for clean energy technology development.
All are keen to look at ways to increase productivity in industry including innovation, infrastructure, investment in skills and management capability and seem to be seeking some sort of mandated commitment to “buy Australian.”
Note that there is no mention of labour market reform in the list of things the inquiry should look at.
Howes stated that any inquiry should be separate from Treasury and the Productivity Commission.
Yet these are the very bodies that should be looking at the manufacturing industry, but the players would no doubt be loath to allow this because it would shine a spotlight on past practices of the government and industry.
And those practices revolve around huge industry subsidies by the taxpayer, which do little to preserve jobs or the industries themselves.
The Productivity Commission says $8 billion annually was expended on industry subsidies to the manufacturing sector in 2009-10. The manufacturing sector is the biggest recipient of federal government grants in the country. Yet this industry welfare does nothing to prevent job losses. Since mid-2007 more than 100,000 jobs have been lost in the sector.
One of those sectors is the motor manufacturing industry. Let us look at the industry as a pointer to the folly of subsidies or industry welfare.
It receives $500 million a year and has been since 2001. These subsidies were introduced by the coalition government to assist the industry as tariffs were reduced as a way of managing industry transformation.
The scheme was due to expire in 2015, by which time $7 billion would have been spent propping up the industry and assisting it with its innovation programs to make the industry competitive.
The current Labor government rebadged the scheme and extended it to 2020, by which time more than $10 billion will have been expended by taxpayers on supporting it.
Yet this expenditure does nothing to preserve jobs or create any substantive degree of innovation. As Agitate! has pointed out previously, there was precious little in the way of innovation from Holden with the subsidies it received to build the Cruze model in Australia.
And it is almost impossible to tell just what true economic or industry benefit accrues from these subsidies.
In May the government’s Industry Minister, Senator Kim Carr, proudly proclaimed, on announcing a $40 million subsidy for Holden to assist with design a new Commodore, that the project would “contribute $1.13 billion in wages to the Australian economy over the life of the project and inject $420 million into the local components industry each year”.
In response to a written question from Liberal Senator Chris Colbeck on how these figures had been reached, the Department of Industry, which overseas this government largesse, said “the figures were provided by Holden”.
From Agitate!’s perspective, that is hardly good enough. Before any money is doled out the government should run a very tight economic analysis over the supposed benefit of any subsidy and not rely on the recipient’s claims.
Equally disturbing is that Holden will not or cannot tell taxpayers where the dollars will be expended.
A case in point is the $150 million federal government subsidy for the “construction’ of the Holden Cruze. The subsidy came from the Green Car Innovation Fund where $328 million has been expended to date.
Holden has received more from this fund than any other manufacturer with $188.8 million given to it in grants.
At the time Agitate! quizzed Holden about the benefits and the innovation that would flow from the subsidy. The response was vague at best.
Via email Agitate! asked where the money was spent. GM responded with the statement:
“No we can’t — they offset the entire cost of the program, they don’t go to one piece of equipment for example.”
So for taxpayers, it is impossible to ascertain whether or not there was any direct innovation for their funds.
All we can ascertain from the company’s media releases is that “up to 50%” of the parts for the new Cruze will be sourced locally.
However, GM refused to tell Agitate! just what the value of those parts would be.
“We don’t talk about our suppliers’ relationships — what we purchase how much etc — this is very commercially sensitive information.”
From Agitate!’s perspective this is a disgraceful brush off. By clicking on the article here you can see just how little “innovation” has come from that particular grant.
Agitate! believes it is outrageous that a government minister relies on figures supplied by a grant recipient to prove the value of the grant that has been given to the recipient.
As a matter of course, the government should undertake independent modelling before any grant is given to a company.
The second point is the arrogance of the grant recipient in not revealing just how the money is spent.
Holden, or any recipient of grants or subsidies, should have to appear before Senate Estimates to justify every last dollar of taxpayer funds that they receive.
Hiding behind a cloak of commercial confidentiality is not good enough when it comes to spending taxpayer funds.
Equally it is hard to see how it can be justified as preserving jobs.
A 2009 study by Manufacturing Skills Australia reveals that 329,000 people were employed in the automotive industry, but of that less than 40,000 were employed in manufacturing.
The bulk of people employed in the automotive industry were those in automotive repair and maintenance – some 137,000 or 41.6% of the total workforce. The next highest employment category was vehicle retailing with 60,000 people employed.
Agitate!’s argument is that you do not need subsidies to support the automotive industry. The actual sector will still thrive even if every car is imported into Australia.
The jobs are not in manufacturing. For that reason alone the industry should not be on the public teat.
The fact is that subsidies do not preserve jobs, but they can underpin profits.
And in Saturday’s Age it was revealed that mulitnational car parts maker Robert Bosch “made more than half its Australian profits from a federal government grant program, internal company documents show”, as a union attacked it for taking public money while sending work offshore and laying off 380 workers.
A ”strictly confidential” Bosch presentation, obtained by The Saturday Age, reveals that between 2001 and 2009, the Clayton car-parts maker received $187 million in automotive competitiveness and investment scheme payments.
The Bosch Australia presentation, from November 2010, described this funding as ”over 50 per cent of our profit for that period”.
Agitate! has previously pointed out the GM Holden also has its profits underpinned by subsidies.
The facts are simple. While subsidies exist, companies will avail themselves of them, but they will not preserve one job or save an industry.
Mitsubishi Australia also received federal and state government grants, but that didn’t prevent the closure of its manufacturing plant in South Australia and the loss of hundreds of jobs.
Ford also has recently laid off 240 workers. More may be in the wind.
Simplistic calls to tie industry subsidies or assistance, in this case that automotive industry subsidies be tied to some sort of community return or employment guarantees, is not the answer.
Jobs in any sector will flow to that part of the world where the best return on capital can be achieved and that is what we are progressively seeing with the auto industry.
Over the decades we have seen successive motor manufacturing plants closed across Australia and in Agitate!’s view there will be more to follow. It is increasingly clear that Australia cannot sustain three auto manufacturers — maybe we can’t sustain any, particularly if they rely on subsidies.
Subsidies distort economic activity and waste scarce taxpayer dollars and as pointed out they will not guarantee one job.
Using the auto industry and this Holden study in particular, it is increasingly hard to justify the extraordinary $8 billion in subsidies that is lavished on the manufacturing industry by the federal government annually.
Manufacturing is declining in Australia and has been since the tariff walls were first pulled down.
Subsidies and industry welfare are effectively being used by the manufacturing industry as substitutes for tariffs as they search for their “innovation” grail that will preserve them.
The manufacturing sector has been in search of that grail for decades now and still hasn’t found it. Industry assistance has delayed the inevitable and blinkered the sector from market reality.
Proponents of industry welfare claim it is necessary for “structural adjustments and as a way of “transitioning” to a new economy or to adjust to unexpected pressures such as a high dollar, but more often than not industry welfare becomes a permanent way of doing business; it becomes almost an entitlement.
Which brings us back to yesterday’s call by industry and unions for yet another inquiry into manufacturing.
Before launching yet another inquiry the government and opposition should state unequivocally that they will wean the manufacturing sector off welfare.
A clear timeline should be put in place and funds that are destined for an industry should be reduced annually by a rate that will see them at zero by 2020.
The manufacturing sector must realise that it will be genuinely innovate or perish, but innovate at your own cost, not the taxpayers.
In Agitate!’s view, that timeline should expire no later than 2020 and each year manufacturing industry welfare should be cut by $1 billion annually.
Further, there should be a commitment by both parties not to indulge in quasi subsidies by insisting on mining industry subsidising the manufacturing industries, or government purchasing guarantees etc.
After all, it is taxpayer money we are talking about.
Once those commitments are made, then sure, have an inquiry that deals with the manufacturing industry; one that deals with what is, not what we romantically want or yearn for; one that deals with the industrial realities of the labour market; one that deals with the changing nature of Australia’s economy and celebrates its instead of being afraid of it.
An inquiry that unshackles the Australian economy from its past and recognises that the future will be vibrant and exciting and built as much if not more by services and innovation rather than subsidised manufacturing.
And that inquiry should be conducted impartially by the Productivity Commission, not by some industry acolyte such as former premier Steve Bracks.
* Since this article was first posted the government has confirmed that there will be no inquiry into the manufacturing industry, which is the right decision. Now what is required is a commitment to wean manufacturing off its reliance on industry welfare.
Ian Hanke is the former chief of staff for Peter Reith and Director of Communications and Strategy for the HR Nicholls Society which is dedicated to promoting discussion and reform around industrial relations. This first appeared on Agitate!.
This is part of a Crikey series Make or Break: the state of Australia’s manufacturing sector.