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Feb 11, 2014

Toyota exit without an industry policy is economic vandalism

Toyota's decision to leave Australia in 2017 sounds the death knell for Australian manufacturing. Who is to blame?

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Toyota’s decision to quit making cars in Australia from 2017 was an inevitable follow-on from Holden’s announcement last December. In global terms the industry was already sub-scale, making roughly 220,000 cars annually, and there were plenty of warnings last year that if Holden quit, Toyota would too.

It won’t be the last announcement of job cuts: the car industry employs some 44,000 people directly and many suppliers to Holden and Toyota will go to the wall. Richard Riley, president of the Federation of Automotive Product Manufacturers, last night warned this was “ground zero” for Australian manufacturing.

If it was the federal government’s intention to end the “age of entitlement” and cut support for the car industry, it would have been nice to know that before the last election.

Instead, we simply had uncertainty about whether the Coalition would match the extra $500 million in assistance spread over five years that would have secured the future of Holden and Toyota into early next decade, with commitments to make the next generation of Commodores and Camrys here. Labor warned of the possible consequences but by then nobody was listening.

The Coalition promised to conduct a Productivity Commission inquiry into further assistance for the car industry. Fair enough. But after insisting, quite reasonably, that the government would work to its own timetable, not that of the car companies, Treasurer Joe Hockey didn’t wait for the findings. Even as Industry Minister Ian Macfarlane tried faithfully to stick to the process, his cabinet colleagues were leaking to the media that Holden “didn’t want to be saved”. Hockey bowled into Parliament, yelling at Holden to stay or go. He got his answer the very next day: GM certainly didn’t need to be here.

Since then we’ve had the Treasurer’s handling of Holden retrospectively dressed up as a principled decision to end corporate welfare. Fine in principle — who could argue? — but it remains to be seen whether this philosophy is going to be applied across the board or is going to be a politically-motivated, make-it-up-as-you-go-along sloganeering as my colleague Bernard Keane has argued along with The Sydney Morning Herald‘s Peter Martin.

In the real world, economic theory has to be tempered with pragmatism — as former PM John Howard recognised by rejecting calls for an end to car subsidies in 2002. When he was opposition leader Tony Abbott’s relentless campaign against the carbon tax seemed to take him to every factory in the country. It is hard to square the enduring image of Abbott in high-viz, hard hat and safety glasses with the PM that is now sitting by and allowing irreplaceable Australian manufacturing capability to wither on the vine.

It is kindergarten-trite for the PM to preach that companies close and companies open. Derr-Fred. Where are the new jobs for manufacturing workers going to come from — if not precisely, at least roughly? What’s the government’s plan? Especially as the investment phase of the resources boom — with its massive skill shortages in engineering and construction — shifts into an operating phase over the next few years, with far fewer jobs required.

“… we’ve had a mix of ad-hoccery, rationalist rhetoric and retrospective justification that is wholly unconvincing.”

If abolishing the carbon tax is the full extent of the Coalition’s industry policy we are in deep trouble. Commentators speculate that money which would otherwise have been given to the car industry could support new manufacturing capability. But how is that consistent with ending the age of entitlement? The Australian Financial Review‘s Chanticleer talks about the importance of science but, hang on, we no longer have a science minister and isn’t the CSIRO about to shed up to 1400 jobs, losing what is described as the “next generation of innovation”? The AFR‘s Alan Mitchell says subsidies have been holding back start-ups, a position David Charles, chairman of the Advanced Manufacturing Co-operative Research Centre, this morning told ABC RN Breakfast was “manifest rubbish”.

Last night, Communications Minister Malcolm Turnbull told the Q&A audience, to rousing applause, that car manufacturing was uncompetitive in Australia and we had to move up the value chain and focus on smarter, more technologically advanced industries:

“The jobs that Australians want — the advanced, successful proficient industries that you need to have, will be created when there is the freedom to get on with the job and you do not have so much of taxpayers’ resources being diverted to prop up industries. We should be focussed on creating new jobs, focussed on the future, and that’s what we’re committed to. That’s why we say Australia is once again open for business and that doesn’t just mean open for businesses that are seeking subsidies, it means open for new businesses, open for innovation.”

Hear, hear. But hang on, if there’s one thing the industries of the future are going to need surely it’s ubiquitous fast broadband? Isn’t Turnbull inching towards a National Broadband Network premised on a hodgepodge of century-old copper, 20-year-old coaxial cable and a mix of fibre to the node, basement and premises which is left to the market? Hardly an NBN at all — or certainly not one that can eventually be sold to private investors.

Beyond IT, what might be the industries of the future? Cleaner energy perhaps? It would be a brave country that pinned its economic future to the coal industry in 2014, in the face of accelerating climate change. But hang on, isn’t the government axing the Clean Energy Finance Corporation that is financing clean-tech development at a profit to the taxpayer, and aren’t the climate sceptics within and outside cabinet pushing for a reduction in the 20% by 2020 renewable energy target that underpins investment in clean energy and lowers wholesale electricity prices?

What about food and agribusiness? With the world’s population rising to 9 billion, mostly in our region, and rising food insecurity, it’s a sure-fire winner that plays to our strength in farming. Food and beverage processing is also Australia’s largest manufacturing sector and, with the dollar falling back to more normal levels, there is huge potential for value-adding. But, hang on, with the SPC Ardmona decision aren’t we pulling $25 million in support to guarantee the modernisation of the last cannery in the country, even as we prop up a Cadbury tourist trap in Hobart to the tune of $16 million?

It would be all right if the government gave the impression it knew what it was doing — flagged it in advance and backed it up with empirical research. A bit of policy rigour. Instead, we’ve had a mix of ad-hoccery, rationalist rhetoric and retrospective justification that is wholly unconvincing.

Shutting down a whole industry employing tens of thousands of Australians based on the fundamentalist belief — nothing more than a prayer, really — that something better will come along in the very near future is economic vandalism.

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