Macfarlane's 'problem child'

The Abbott government has inherited the ongoing problems of the car industry which Australian governments have attempted to address for decades. It is caught between economic liberal critics of industry assistance and those arguing for its strategic importance.

The terms of reference for the promised Productivity Commission inquiry into public support for Australia’s car industry aim to examine national and international markets and regulatory factors affecting a range of issues. The review will compare international assistance, tariffs, barriers and opportunities as well as domestic workplace arrangements. It will evaluate ways of improving the long-term profitability and productivity of the industry, with consideration of innovation and component technologies as well as Australia’s international trade obligations. The review will release its preliminary findings just before Christmas, completing the final report by 31 March next year.

We need to keep in mind that the influential Productivity Commission supports the expansion of a neoliberal approach, which will colour its recommendations and in turn affect the upcoming policy debates and developments. The Productivity Commission’s chair, Peter Harris, argues when considering economic reforms that government intervention may be “unreasonable, even unhelpful” and that “government is not always part of the answer”. It is up to “firms to address the productivity task, across most markets”.

Meanwhile Industry Minister Ian Macfarlane recently visited the Holden manufacturing plant in Adelaide and declared that he wanted to wean the company off taxpayer assistance. He also visited Toyota’s offices in Japan to discuss the Productivity Commission review.

Macfarlane says he supports “a sound, long-term plan that starts with the Productivity Commission report”. However, the minister also admitted that it was possible that car manufacturing may not be saved because the sector needs too much financial support (Do we need a car industry?, October 16). Therefore “a blood transfusion” may be necessary to keep production going until mid-2014. It is difficult for Macfarlane to avoid giving mixed messages when he talks about survival funds on the one hand and industry plans on the other.

Can the Productivity Commission’s review provide an escape clause from the approach that governments have adopted for decades? This approach encompassed a hotchpotch of policies and practices in allocating what amounts to public favours, via traditional protectionist policies and industry assistance. The previous Labor government developed a co-investment strategy, but was unable to produce a vehicle industry that could survive without significant monetary injections.

It did not attempt to restructure the car industry or integrate it into regional or global production structures. It continued a process of managed decline begun with the Button Plan of the Hawke Labor government. Some attempts were made to build industry capacities for a sustainable car industry, but these were weak attempts at best.

Despite the introduction of A New Car Plan for a Greener Future in 2008, Labor did not restructure the industry in an effective way that would help to manufacture low-emissions cars, or electric cars. It did not really create innovation or export opportunities. More automotive workers lost their jobs, while car companies continued consuming generous public funding, much to the annoyance of other struggling sectors which did not receive the same kinds of bailouts.

Similar dilemmas now face the Abbott government, which is likely to continue the policy of managing the slow but steady deterioration of car manufacturing. Macfarlane and his colleagues are operating on fragile ground, because if the industry’s demise is too rapid it would be politically damaging for the government. Nevertheless, it is unlikely that the Productivity Commission will recommend any significant strategic restructuring. The major problem is how long the assisted process of decline will continue. Let’s face it, no government wants the final termination of the automotive industry to occur under its watch.

This article was originally published at The Conversation. Read the original article.