Who killed the car industry? For the end of motor-vehicle manufacturing in Australia is now virtually certain after this week's announcement by General Motors that its Holden subsidiary will cease making cars in this country in 2017. With Holden's longtime rival Ford already set to depart in October the year before, it is extremely unlikely that the remaining car maker, Toyota, and the crucially important components makers can survive.
Without the big two the components companies will not have a sufficiently large market to justify production, and their demise will force Toyota out, too. An industry that directly employs more than 45,000 people and indirectly employs nearly 200,000 will soon disappear, ripping a $21.5 billion hole in the economy and quite possibly triggering a recession in the manufacturing states of Victoria and South Australia.
That would have flow-on consequences in other states, generating, among other things, a welfare bill that dwarfs the $400 million a year now paid in 'co-investment' — i.e. public subsidies — to the car industry. Even the economic rationalists, to whom all subsidies and trade barriers are an abomination, and who for decades have cheered on the demise of the car industry, are registering faint signs of alarm about that prospect: their holy grail, the balanced budget, would become more elusive than ever.
So then, who dunnit? The immediate responsibility for this looming economic disaster rests with the Abbott Government, and not merely because of its extraordinary use of a bullying speech in Parliament by the Treasurer, Joe Hockey, to goad Holden into announcing a decision that its masters in Detroit had probably already taken.
The Government had decided to cut the $400 million co-investment payments to $200 million a year, with no guarantee of public assistance in the longer term. For the carmakers, who like all manufacturers have struggled to compete with overseas rivals because Australia's overvalued dollar makes domestic products too expensive, the Government's refusal of support was a death sentence.
In the longer term, however, this should be seen as a bipartisan disaster. What happened this week was the culmination of a process that began under the Hawke Government, which floated the dollar and began the withdrawal of protective tariffs and subsidies from local industries. Labor introduced economic-rationalist assumptions to policymaking in Australia, and the chimera of the free market continues to dominate most economic debate in the federal and state parliaments and in the mainstream media.
When the history of these times is written Australia will be seen as an oddity in this respect, for only here and in New Zealand has the pure doctrine of neoliberalism, to give economic rationalism its international label, been embraced so wholeheartedly.
It is true that most countries pay lip service to the ideal of a free market when participating in international trade negotiations. But then they do what is in their national interest anyway.
Compare the Obama administration's bailout of General Motors during the global financial crisis with the attitude that successive Australian governments have taken to the car industry. GM was offered massive public subsidies to stave off collapse — but in return the administration demanded, and was given, the right to appoint the president of the corporation, and membership of the corporate board was broadened to include a representative of the United Auto Workers of America. In effect, President Obama nationalised GM for the duration of the crisis.
The executive government of the United States, the nation that is the ideological and financial centre of global capitalism, did not shrink from treating a corporation that is an icon of global capitalism in this way. But imagine the howls of protest from neoliberal commentators if the Australian government attempted a similar hands-on intervention in the car industry or any other form of manufacturing.
Because neoliberalism is such a narrow ideological frame through which to view economic activity, much commentary on public subsidy of the carmakers reduces the issue to a question of whether there is any point in continuing to pour taxpayers' dollars into a loss-making industry. Among other things, this evades the question, not commonly asked, of why we continue to subsidise other industries whose profitability would suggest that they do not need assistance.
Mining, for example, receives a $3 billion a year diesel-fuel rebate that makes $400 million a year for the car industry look measly. And it is measly in international terms: Australia's per capita contribution to the car industry is $US18, compared with $90 per capita in Germany, $96 per capita in the US and $334 per capita in Sweden. Apart from Australia, every country that has a car industry accepts that it will not survive without public subsidy.
The narrow frame of the debate also ignores what the industry returns to the wider economy. In the past 12 years Holden received an average of $150 million from the public purse but in that time it generated $2.7 billion in economic activity, mostly through contracts with the now threatened components makers.
In terms of income-tax revenue alone, the industry was hardly a drag on the national economy. Yet comparatively few media commentators — former Age economics editor Tim Colebatch, The Guardian Australia's Mark Skulley and industry analyst Ian Porter are honourable exceptions — have explained this broader context.
Most important of all, the car industry has been the chief skills repository of Australian manufacturing, and without new sources of employment for the bearers of those skills they will eventually be lost to the economy. The cost of losing these jobs, in human as well as financial terms, will be immense. We are living in a time when governments can contemplate economic catastrophe with apparent equanimity.
Ray Cassin is a contributing editor.