Car makers cling to subsidies of old

Bookmark and Share Economics & Deregulation | Chris Berg
The Drum 17th January, 2012

Seeing a Commonwealth minister beg on behalf of a special interest is embarrassing.

The Manufacturing Minister Kim Carr wrote in The Australian over the weekend that automobile manufacturing is "an industry at the core of the society we want to be".

Less than half of one per cent of the labour force works for the car industry. Yet it is, according to the Minister, absolutely central to our national identity.

Perhaps he's right; insofar as our national identity is tied up with handing taxpayer money over to a few politically well-connected and otherwise uncompetitive businesses.

It's all well and good to believe that Australian industry should be encouraged to "make things". But in practise it leads to the complete subordination of an entire industry to politics, backroom dealing, and electoral calculations.

Few other industries get such hands-on cabinet attention. Every investment, every new product announcement, every decision to open or close a factory is met with a media release and ministerial statement.

In the lead up to the 2007 election, Carr spoke about how he would "thump the tables in the boardrooms of Detroit, in Tokyo, in Beijing" if Labor won government.

The promise was apparently kept. The car industry appears to have their own Minister of the Crown deputised to help with business negotiations, and their own pool of taxpayers' money on hand to sweeten deals.

This naked corporatism is surely no person's idea of the "society we want to be".

The first federal tariffs in 1907 covered vehicle components, as part of "protection all round". Since then, state support for other industries has fallen away. The car manufacturers' stubborn hold on their subsidy is only thanks to close political friendships.

Carr's demotion in the reshuffle late last year was widely noted. But his new roles are important too. Carr is not only the Minister of Manufacturing; he is also the Minister for Defence Materiel - that is, minister in charge of the wasteful sink-hole of military equipment acquisition.

The two roles have a perverse synergy.

Carr has long argued that that a domestic manufacturing industry is needed for national defence. He told ABC radio back in 2008 that "You can't make a jet fighter without having a strong car industry".

This is obviously ridiculous. Holden needs $100 million just in case World War Three starts and the international arms market no longer sells Joint Strike Fighters? Australians will need to beat their ploughshares back into swords? If the Government truly believes this scenario is anything other than fantasy, well, aircraft production is the least of our problems.

Carr firmly believes that taxpayers' money should artificially prop up domestic manufacturing. Now that he is also in charge of defence acquisitions, it is easy to see how Australian-made military equipment will be favoured even when there is better, cheaper, foreign equipment available.

On The Drum last week, Annabel Crabb pointed out almost every other country pours cash into their automobile industry.

But that doesn't mean that we need to keep supporting ours. Right now, the rest of the world supports the car industry for the same reason we do - because during the second half of the 20th century, manufacturing unions built extremely close relationships with political parties. Those relationships have paid off handsomely in subsidy, protection, and parliamentary representation.

There's nothing special about automobiles that demands government support. They're not particularly challenging to make. They're not particularly central to the economic structure. They're not particularly hard to buy from overseas. Their manufacturing is not particularly high-tech, at least compared to any other industry. Yet they are particularly well connected. And that's it. That's why we support them.

Happily, this week has demonstrated how increasingly hard it is for the automobile industry to justify their claim on our money.

But what on earth is the Coalition thinking?

A big part of Joe Hockey's plan to reduce government spending is a $500 million cut to car industry subsidies. That would be great.

Yet last week there were suggestions the cut may be abandoned.

Shadow ministers now talk about how critical the automotive industry is. How "savagely" the Government abandoned the Cash for Clunkers scheme. How cruelly the Green Car Innovation Fund was decimated.

The Coalition was rightly scathing about these boondoggles when they were announced.

Hockey and Andrew Robb - both described by their colleagues as "economic rationalists", in a neat throwback to the 1990s - are apparently holding firm on the cuts.

That the Coalition is going wobbly on spending reductions is no surprise, given Tony Abbott's deliberate attempt to take Labor's industrial base, and his embrace of economic nationalism to do so.

Still - car subsidies? If the Coalition can't even bring itself reduce this irrational, wasteful, pointless, politicised corporate welfare program, they're going to struggle to cut anything at all.

This article originally appeared on The Drum on 17/1/12 and can be accessed at http://www.abc.net.au/unleashed/3778642.html

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