December 11, 2013 | Graham

Questions for Labor on car industry

The Labor Party has suddenly become opportunistically very supportive of the car industry.

Why not? Perhaps the South Australian state election, and certainly some South Australian and Victorian federal seats, will turn on it.

But this is the party that under Gough Whitlam slashed tariffs by 17% that set off the turn to globalisation in Australia which led inevitably to this outcome.

They know, as everyone who thinks about it knows, that the car industry in Australia was doomed. Even in countries at the heart of the modern car industry it is in decline, with car manufacturing in Japan declining by around 23% in the last five years

And what is the magic of making cars or anything else here? It might have escaped the neo-protectionists, but at the same time as Australia has been shedding manufacturing jobs it has been climbing the ranks of the richest countries.

You don’t get rich by aping the tactics of low wage, low education economies. You get rich by moving into areas where need is great and supply is limited.

So here are some questions for Labor.

  1. Which program would you rob to put money into the car industry? Gonski? The NDIS? Aged pensions? Unemployment benefits? Be honest. Which Australians are going to be worse off if we follow your advice? Who do you want to pay for your largesse?
  2. Which industries would benefit from cheaper automobiles? Why do you want to load these industries up with a cost to save an industry in terminal decline?
  3. If manufacturing in this country is so important, why did you impose the highest carbon tax in the world on Australian industry knowing that it would kill it off and send it overseas?
  4. If the car industry is so important why did you put an impost on it before the last election by changing FBT eligibility in a way that did maximum damage to domestic car manufacturers?
  5. If money is so plentiful, why did you  impose the changes to FBT, amongst other savings in the last budget?
  6. As wages represent somewhere around 16% of the cost of manufacturing a car, why did you make wages more expensive and less flexible by introducing the Fair Work Act?
  7. What is your vision for Australia? Is it one that involves Australians earning high incomes and standards of living working in the industries of the future? Or do you want to keep us trapped in the past so long as you earn a comfortable living occupying the government benches?

Posted by Graham at 11:13 pm | Comments (13) |


  1. ‘And what is the magic of making cars or anything else here? It might have escaped the neo-protectionists, but at the same time as Australia has been shedding manufacturing jobs it has been climbing the ranks of the richest countries’.

    This is the issue which I would like to explore more.

    I think it is a lot more complex than that; my opinion.

    Comment by Chris Lewis — December 12, 2013 @ 8:37 am

  2. The problem really is that Australia is living largely off its capital assets, its raw materials.
    Where is there anyone who is really giving consideration to Australia’s long term maintenance of a reasonable standard of living.
    Sooner or later we will have a very serious balance of payment problem and we will not then be able to afford our whitegoods, brown-goods, motor vehicles, buses, rolling stock etc., and we won’t be able to manufacture them within Australia because we will have lost our metals production industries such as our steel-plants. They will have died in the interim due to an absence of domestic customers. I wrote the Tariffs and Trade item for a syndicate at the Australian Administrative Staff College in 1972 and said, “The Conservatives won’t be content until the underclasses return to being boundary riders on the squatters fences.”
    We are gradually getting there.

    Comment by John Turner — December 12, 2013 @ 9:57 am

  3. John, can I get hold of what you wrote in 1972, I wuld be interested to have a look. Exact title?

    Comment by Chris Lewis — December 12, 2013 @ 10:29 am

  4. I have moved homes a couple of times since 1972 and have lost many of my old documents. Recently I even searched to find if there were documents saved form the MT Eliza school. I was in Advanced Course 45.
    One of the other syndicates, mainly public servants, “insisted” that I present my paper a second time and answer their questions. At the time I was Manager of seven production departments at Newcastle Steelworks and was even then probably a bit too left of centre for the top brass.

    Comment by John Turner — December 12, 2013 @ 10:51 am

  5. John, you don’t understand the Australian economy if you think it is all predicated on mining, or that mining constitutes living off our “capital assets”.

    Mining is a service industry and a lot of the money Australian companies earn through mining is import income because it isn’t earned here, it is earned overseas.

    Australia is a leader in mining and mining services. Our know how is in demand in places as diverse as Russia, Brazil, Chile, Thailand, Mongolia, Khazakstan and Sierra Leone.

    BHP is recognised as an Australian company, but in fact it is a truly international miner. It is in a league that no Australian automobile manufacturer could hope to be.

    There is no magic associated with assembling vehicles here manufactured somewhere else, which is all that was really going on.

    Comment by Graham — December 12, 2013 @ 5:05 pm

  6. Graham,
    BHP Billiton is hardly an Australian company as there is a second partner company with PLC after its name. Little net cash is repatriated to Australia although the Australian section derives enough profit from within Australia to pay a fully franked dividend to its Australian shareholders.
    Australia runs a current account deficit almost continually and we have made little effort to pay that balance down and accumulate a Norway style portfolio of profitable assets owned in foreign countries. Think about the benefit those assets will be to Norway when their North Sea oil is gone.
    If you understand sector balances you would know that for the private sector to have a positive result in any period there has to be a Sovereign Government Sector deficit larger than the Foreign Sector deficit. Slide 49 of Dr Stephanie Kelton’s presentation at the Field Institute meeting in Toronto, Canada, in early November shows the situation. You cannot deny that coal and other minerals are assets of the country or that they are being exported to buy consumables.
    The Canadian historian John Ralston Saul was advocating as early as 1999 that Australian needed a strong industry policy. We will pay in the future for not having such a policy.
    Even Paul Krugman has come around to accepting the empirically based theories of Bill Mitchell and Economics Department of the University of Missouri, Kansas City.
    A retired university friend and I recently gave a series of talks on economics at U3A. We advertised the following points;
    1.Just like a household, the federal government has to finance its spending out of its income or through borrowing.
    2.The role of taxes is to provide finance for government spending.
    3.The national government borrows money from the private sector to finance the budget deficit.
    4.By running budget surpluses the government takes pressure off interest rates because more funds are then available for private sector investment projects.
    5.Persistent budget deficits will burden future generations with inflation and higher taxes.
    6.Running surpluses now will help build up the funds necessary to cope with the ageing population in the future.
    And then produced the evidence to show that all those statements are wrong.

    Comment by John Turner — December 12, 2013 @ 6:32 pm

  7. To support my comments the release today of the video at the site below couldn’t be more timely.
    The title, Dr. Kelton’s Graduate Macro Students’ Video Project, is also appropriate
    Dr Kelton, Chair (Dean) of the Economics Department, University of Missouri, Kansas City, produced an excellent set of slides for her presentation to the Field Institute meeting at Toronto, Canada, early last month. The slides are at;

    Comment by John Turner — December 13, 2013 @ 6:03 am

  8. @ John Turner,

    Agreed, An industry policy is a necessary condition for economic development. particularly indicative planning, The clique of neo-liberal ideologues now, regrettably, in power would do well to read the post WW2 economic history of Japan and South Korea where the planners understood that economics isn’t a science or a religion.

    The policy of reducing real wages and pandering to transnational miners will leave the country an economic desert, except of course, for the 15-20 percent of income earners who are actually the Coalition’s real constituency. Class warfare is back on the agenda. The Labor party which should be the natural promoter of industry policy seems to have surrendered the high ground to the neo-liberal ideologues.

    Fifty years ago, even conservative politicians accepted the idea of ‘nation building’, how did we start on the road to Argentina?

    Comment by RussellW — December 13, 2013 @ 9:19 am

  9. To suggest class war is back on the table because some of us favour policies that would give Australians from lower socio-economic backgrounds a job is ridiculous.

    The problem in the car industry isn’t one of wages per se, but output. It was a much strangled by the industrial system as it was by a high dollar and small and fragmented market. Workers in Japan and South Korea earn similar wages to workers here, but produce more than double the output.

    When wages are 16% of costs and you are in a high volume, low margin business, that 8% makes a real difference – in an industry worth $11B in turnover it is a figure of $880 million dollars.

    So the workers want the taxpayer to make a contribution, but they’re not prepared to make a contribution themselves, even though you’d expect them to be working at least as efficiently as workers overseas.

    If it wasn’t for the heavy unionisation in the sector those people would probably still have a job paying what most of us would see as a reasonable wage.

    Comment by Graham — December 14, 2013 @ 5:32 am

  10. “… policies that would give Australians from lower socio-economic backgrounds a job”

    Yes, very admirable, the real test is which job under what conditions, perhaps the US model of the working poor a permanent underclass who live on tips?

    “Workers in Japan and South Korea earn similar wages to workers here, but produce more than double the output.”— So the solution is to lower wages? Unlikely.

    (1) There are economies of scale in those countries not available to Australia and their industries are local.

    (2) There’s a far superior and innovative management in East Asia in contrast to Australia.

    (3) The East Asians implemented industry policies and also some good old-fashioned mercantilism, they also were sceptical in regard to Western economic orthodoxy, they didn’t ‘set the parameters’ and wait for the market to work its magic. East asian economic history is very instructive.

    The idea to set up multiple foreign auto manufacturers in Australia was hare-brained from the start, even a single manufacturer might not have been viable, the result was a clique of rentiers relying on either tariffs or taxpayers’ subsidies.

    “… but they’re not prepared to make a contribution themselves, even though you’d expect them to be working at least as efficiently as workers overseas.”

    Why would we, on what measure, how can Australian workers be as economically efficient as the huge-volume foreign plants because of reduced production due to poor product choice by management and the tiny size of the Australian market?

    Actually I agree with the Coalition, the local auto manufacturing industry is moribund, unfortunately the present government is probably ideologically incapable of implementing policies to alleviate the social and economic consequences. Of course the class war is intensifying.

    Comment by RussellW — December 14, 2013 @ 8:52 am

  11. RussellW, you really need to read what is written. My point was about productivity, not wage rates. If you can produce four times what another worker does, then you can probably justify more than 4 times their salary, because after you allow for the effect of fixed costs, the effect from your extra effort on the bottom line is probably more than 4 times.

    All this talk about class warfare being prosecuted by the Liberal Party is just left-wing defamation of your opponents. What class do you think most Liberal Party members come from? It’s certainly not what passes for the upper classes in Australia. It’s the middle and lower classes.

    They do what they do because they want people like themselves to have a chance to better themselves.

    Comment by Graham — December 14, 2013 @ 9:48 pm

  12. Graham,

    I did indeed, read what is written, particularly this–

    “So the workers want the taxpayer to make a contribution, but they’re not prepared to make a contribution themselves, even though you’d expect them to be working at least as efficiently as workers overseas.”

    So I pointed out that poor management, low economies of scale and other factors were also involved that would constrain Australian workers even if they were technically efficient, so the current debacle is not necessarily all their fault, as your comment states.

    The class composition of the Liberal Party is one aspect, the other is the question in whose interests does the Party govern? Probably the Abbott government will serve two terms then, we will then be able to answer that question.

    Comment by RussellW — December 15, 2013 @ 7:28 am

  13. Russell you can already answer the question by looking at their policies. It’s a government focussed on getting the country back working efficiently again. It’s in favour of a higher standard of living, and taking taxes off those who can least afford them.

    I didn’t say the fault lay entirely with the workers, but I’ve always noted that ever time the government agrees a further assistance package it is followed by a wage rise in the car industry. The whole thing has been a collusion between managers and workers.

    Comment by Graham — December 16, 2013 @ 6:19 am

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