October 29, 2013

Horse 1563 - Is Australia Stupid and Deluded?

What follows is not the bleating of a protectionist: I am in favour of free trade. I am also in favour of not being stupid or deluded.
Yesterday, Toyota Australia announced 100 redundancies because exports are falling. Australia's car manufacturing industry is on the brink of collapse. Ford has announced its closure; Holden and Toyota will soon follow without further cash subsidies from taxpayers, and negotiations are underway with the new Government to agree on the amount.
- Alan Kohler, ABC's The Drum, 16th October 2013.

Yes Mr Kohler, why should we subsidise what amounts to a sunset industry? Perhaps not surprisingly, Ford have announced the closure of Australian manufacturing by 2016 and it would appear that Holden are perhaps about to do likewise with a possible announcement that their Ute will also cease production.

THE homegrown Holden ute is about to be retired forever, after clocking up almost 65 years on Australian roads. The Aussie icon has had its sales - and hopes - crushed by a flood of pick-ups imported from Thailand.
One in five of all new vehicles sold so far this year comes from Thailand, second only to Japan.

Australian-made cars now account for less than one in 10 of all new vehicle deliveries; local production is at its lowest level since 1957.
Enthusiast buyers have less than three years to decide if they want a new Holden ute before it is relegated to the history books alongside arch rival Ford's Falcon ute by the end of 2016.
- Joshua Dowling, Daily Telegraph, 27th Oct 2013.

Of course this raises an interesting point, if it's too expensive to produce elaborately transformed manufactures like motor cars, why should Australia produce anything at all?
It's really telling that the ASX200 doesn't contain a single corporation that describes itself as a manufacturer. The last reliable World Bank report that I could find, indicates that less than 10% of Australia's GDP comes from manufacturing.
It's also really telling that there is no longer an S&P/ASX200 index for manufacturing on the boards because it was deemed insignificant.

In fact so dire is Australia's manufacturing sector that I did a survey of my house to try and find out exactly what I owned that even was produced in Australia. I found that none of my clothing was produced in Australia. None of the consumer goods such as TVs, computers and mobile phones were made in Australia, our washing machine was made in Thailand, the kitchen sink was made in China and our car was made in France.
Really the only things which actually were made in Australia were some of the food in the pantry, some books, our two cats and myself.

If the ASX200 is anything to go by, Australia has only three main purposes, to borrow from and lend each other money, to sell and rent each other buildings and to dig stuff out of the ground which magically gets turned into everything else we have in a magical place called "overseas".

You could look at all of this and suggest that the reason why manufacturing costs are so high in Australia are because wages are too. Ideally, to bring manufacturing back to Australia, firms would love to lower their input costs and pay workers less. The problem with this is that there are underlying issues with the cost of housing being ridiculously expensive and the double whammy that that pushes wage earners to demand higher wages, which drives input costs even higher.

I hold the opinion that with proper economic incentives, you can design an economy to produce any outcome you like; it's just that it takes at least a generation to get there. Here we are 20 odd years after the introduction of compulsory superannuation and people by inference demand investment choices that are stable and will provide stable incomes in their retirement; thus Australia went from a nation where we used to be able to make... things... to a nation of landlords. We could have chosen to invest in education and manufacturing incentives but no, we did not.

Of course it could be argued that Western Society generally has always been about lowering input costs. Once upon a time, the vehicle for doing that was slavery, then machinery was employed, then children working on machinery because paying adults was too expensive, and now the search for ever cheaper labour and other input costs means that a factory worker in places like Bangladesh or Laos can be paid even less than total input costs of keeping slaves in the 1860s. I find it quite insulting that a shop in Sydney would want to charge me $60 for a shirt, which a factory worker was paid $4/week to produce and yet even at those prices, the same shop can not afford to keep enough sales staff around.

It's not only Australia's car industry which has an insurmountable cost barrier but rather Australia's everything industry. Even places like Woolworths and Coles which are some of the very few companies on the ASX200 who don't move money about, dig stuff out of the ground or expect us to pay through the nose for the privildge of living in our houses, don't bother to pay staff when they can replace 5 staff with machines.

It's okay for Mr Kohler not to be "stupid or deluded" because quite frankly he's right. We shouldn't bemoan the loss of a few car manufacturers because that's just the sunset of a 30 year program of economic re-engineering. Arguably it's also alright because the loss of Australian manufacturing can just as easily be spun to suggest that it's really an aid program - that is, the export of manufacturing jobs from Australia, improves the lot of some people in places like Vietnam and Thailand.

What I find really disappointing about Mr Kohler's opinion is that he is one of Australia's most experienced commentators and journalists. This means that his opinions carry a lot of weight and do their part to shape public opinion and policy more than an average person. If he suggests that we should abandon manufacturing and the jobs that go with it, then people and policymakers are more likely to respond to his opinions. For my money, that just further validates the position that Australia should abandon manufacturing; truth be told, I used to hold higher hopes for this country.

Once upon a time, someone of great import said that "No longer content to be just the lucky country, Australia must become the clever country". Well, seeing as we've decided by economic design to be a nation who merely digs stuff out of the ground instead of bothering to manufacture things and innovate new products, we aren't the lucky county, we are very much the stupid and delusional county. Perhaps I should just lower my expectations and hope that China just buys us.
They know how to manufacture things.

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