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66 responses to “Ford goes – and how much does it matter?”

  1. Liz

    I do feel sorry for Geelong, because has been central to it. But, the frustrating thing is that so much money has been poured into it and it’s had to be closed down anyway.

    Undoubtedly, some people who are laid off will bounce back and do well. But, the older works will probably have a hard time of it. Hopefully, they’ll get decent pay outs.

  2. Lefty E

    Yeah, well said Rob – there’s also qualitative things like the demise of particular workplace cultures and networks that mean a lot ot people. I imagine there’s also quite a lot of workers there who just like working with cars – and some other manufacturing job wont quite be the same.

    That said, public mourning about such things is highly selective. I expect the totemic car has a particular place in Australian hearts. Nobody gave a stuff when thousands of film processing shops – an entire industry of small businesses and employees – disappeared overnight with the digital camera. Not a word! So its not ‘job losses’ per se that triggers these things.

  3. derrida derider

    There are quite a few studies tracking what happens to worker after various mass manufacturing plant closures, and the results differ widely across time and countries. The most recent in Australia is actually the follow-up to the Mitsubishi plant closure in 2008, where about the same number of people lost their job as Ford is proposing but with far less notice (really, in five years a good slab of Ford’s current workers would not be at Ford anyway).

    If you read the report here you’ll soon see the researchers had strong priors that the effects on individuals would be devastating but struggled very hard to find any evidence to support that (they’re reduced to “well maybe it’ll hurt the community in the long run…”). In fact the bulk of the workers did just fine. And that was in southern Adelaide – a much tougher labour market than Melbourne.

    Really, this is not that much of a deal locally, let alone Australia wide. And look on the bright side – it might give Holden workers a few years of viability before they go the same way.

  4. Sceptic

    Derrida @ 3 Geelong is not in Melbourne. It will be tough for those workers. I imagine some will end up having to commute to Melbourne. The train to Melbourne is not a speedy one and there are lots of stops. Then there is every chance your workplace may be on the other side of the city. Driving is not much fun either. Family members used to drive from Melbourne to Geelong. Even driving against the peak time traffic was hard going.

  5. Lefty E

    Brumby – whose govt handed out a lot of the assistance – was just on radio noting that much of it was under an agreement that Ford would a. Do a diesel version of the Territory and b. do a left hand drive version for export.

    They did neither.

    So, when examining the complex of factors, lets not forget management incompetence, indifference and / or deceit.

  6. Chris

    This 7:30 report just a couple of days ago about the BlueScope steel workers sacked in 2011 is worth watching. Although the government programs managed to create jobs in the region, they mostly didn’t go to those who lost their jobs.

    Robert – unemployment figures in the local area may not be a great indicator, especially in regional areas where jobs will be hard to find anyway as people will be forced to move elsewhere to look for work. And even though workers may find new jobs that is no indicator as to whether they are paid a similar amount or not.

    Given the inevitability of Holden eventually closing down I’d prefer the government money being pumped into the company to keep it going now was instead spent on either retraining and income support while they retrain for those who are interested and early retirement packages for those close to retirement anyway.

  7. Liz

    Lefty [email protected] Speaking of digital cameras and the structural changes caused by that; the last Australian moving film lab closed down last month. Many jobs were lost and now film can’t actually be processed in Australia. Much weeping and wailing from cinematographers and film buffs. But, the cost of film just couldn’t compete with digital formats. I think it’s sad and not just for nostalgic reasons.

  8. faustusnotes

    what is it with economics papers not having a methods section? The linked article is poorly structured and has very weak statistical analysis. Just eyeballing the first figure, it looks like there was a step change associated with the plant closure in two suburbs – that’s important. Also, adjustment for trend would enable the claim that the national recession prevented jobs from returning to pre-closure levels to be tested. Who gets to write a paper that involves just eyeballing a graph? That’s a blog post, not a paper.

    Also, when we look at job claimants as proportion of working-age population, we don’t see whether the MG workers actually left town to look for work. Is that important?

    Also, why do economists insist on using the word “priors” to mean “bias”? “Prior” as a noun is an identifiable statistical concept, and interchanging it for words like “bias” or “pre-conception” just makes you look like a try-hard. You can do better, derrida derider!

    I think there is a tendency by quite a few people on lp to conflate the terrible uselessness of subsidies for the car industry with the idea that industry policy in general is useless. I guess an economist would say it reveals the hivemind’s Keatinguesque priors. But car industry subsidies aren’t really about industry policy so much as political expediency, which is always a risk with industry policy. I think alternative, more rational industry policy for Geelong could support a more viable set of industries to soak up the employed, but my guess is that won’t happen, and those jobs will be lost permanently. I would like people who think this is not a big deal to present some evidence that the people unemployed by these policies actually do find work elsewhere. My experience of my own father’s life was that once sacked he was permanently unemployed, a fairly devastating situation for our family and I think a common one for older men. That’s important to look at even if the status quo (throwing money at a useless company) isn’t the best or only solution.

  9. Graham Bell

    Derrida Derider @ 3

    In fact the bulk of the workers did just fine.

    Really? And not a word about credentialism? Nor anything about a deliberately distorted residential property market that is a major cause of hindered labour mobility? They must have had Merlin the Magician to help them do “just fine”.

    LeftyE @ 2

    My oath. Some occupations really have to go when their time is up: cane-cutting for a start …. but those working in car manufacturing have skills that SHOULD be easily transferred to another type of work – but that just won’t happen; this is Australia – so, as usual, valuable workers will be chucked onto the scrap-heap.

  10. Salient Green

    I strongly disagree that any sort of tariff is “implicitly” thowing money at Ford or any other manufacturer.
    If any Australian wants to put an Australian manufacturer or processor out of business buying imported products then they can bloody well pay for the pleasure .
    I also strongly disagree that car manufacturers get far more attention than they deserve. More accurately, the hundreds of thousands of other job losses sacrificed to the altar of ‘free trade’ DO NOT get the attention they deserve.
    The free trade mantra of the two major parties is moronic. It is killing Australia. Most of the good manufacturing jobs lost are replaced, if ever, by dumbed down work, casual work or less hours. We have NOT done “rather well”. Our true economic state is disguised by massive population growth and a temporary and stupid reliance on mining.

  11. Brian

    Bob Katter said a few relevant things the other day. First, he said back in 1989 or so when Keating spoke out about freeing up the markets he realised that he, Katter, would have to henceforth represent the workers.

    Secondly, he said that his policy was for every government fleet car to be Australian owned. Yes, we would have to pay more taxes, but we’d have a car manufacturing industry.

    There are few countries apart from perhaps NZ which are as doctrinaire in following free trade policies as Australia. The US in this situation would install quotas in a heartbeat, as allowed by WTO rules. Or something.

    That said, I’m not sure we should do the same. How many countries outside Japan, the US, Germany and Korea have more than one car manufacturer? What I am saying is that we can decide whether it’s important to have a car industry or not. Simply leaving it to the market is an abrogation of reason.

  12. Brian

    A point worth noting is that Ford is planning to retain its research and development capacity in Australia.

    I heard some time ago that Australian engineers and designers can work up a new model in about a third the time it takes in the US.

  13. Katz

    Brian, your comment implies that there may be an argument for the existence of a car industry in Australia distinct from satisfying consumers’ demands for automotive transport.

    Such reasons may exist. The question is how much should the taxpayer be expected to pay to satisfy those reasons, whatever they may be.

    Having, perhaps, established those reasons as sound for the automotive industry, then perhaps the same arguments can be mounted to support the resurrection of the long defunct Australian electronics industry. We did once produce television sets, believe it, or not.

    Such a list of industrial priorities could be extended until we have achieved autarky.

    Is that a desirable objective?

  14. Brian

    Katz, all I’m saying is that we don’t just have to let things happen to us. I’m old enough and still have enough memory to know that we once made lots of things. VW ‘beetles’ for example.

    As I understand it, the main argument for having a car industry was that it was a keystone industry which provided skills that could be used in other ways to develop industry clusters. I’m nowhere near having enough information to have an opinion on the validity of that or any other reasons that may be put up.

    We don’t seem to be very good at deciding on national goals and getting behind them compared with, for instance, the Koreans.

    To answer your questions, obviously autarky is not desirable and is in any case impossible.

    How much should we pay? Each case would need to be decided on merits.

  15. Brian

    Katz, the arguments I’ve heard today favouring a car industry seemed to be suggesting that we need to supply quality product made for a world-wide brand to fill a niche in their range. That’s what Nicholas Gruen is saying, if I understand him.

  16. Katz

    Napthine tried, but failed, to add sufficient zeroes to a cheque designed to induce Ford to linger in Australia.

    Apparently, Ford decided to turn off its own life support system.

    This suggests that, for better or for worse, the Victorian government was not merely leaving it to the market to determine the future of the auto industry.

  17. BilB

    Katz,

    You’re talking through your hat.

    Confected outrage at the “wasting of taxpayer’s money”.

    There are 2 sides to that argument and you make absolutely no attempt to even recognise that to lose 2500 jobs plus another 6000 from the componentry industry means the loss of well over 100 million dollars per year in lost taxation receipts while still retaining the government expenditure for all of those people ie schooling for their kids, tertiary education support, hospital and medical support, and social welfare support.

    Apart from that, Australian industry overall loses strength, variety, and vibrancy which in turn kicks off a new wave of imported goods to replace product that becomes uneconomic due to the overall loss of throughput.

    It is all bad news which only people with a very shallow grip on business understanding could celebrate.

    Austalia is heading for recession at breakneck speed, and this is very much the achievement of Tony Abbott and his relentless campaign of negativity. Electing this idiot, and I can’t find the words to be nice about it, to be Prime Minister will accelerate that process to recession and consolidate it.

    With Australia’s very high minimum wage, fully double that of the US Australian industry walks a commercial viability tight rope. The last thing that this country needs is to loose key productive sectors or acquire a lunatic as national leader. It is all very distressing.

    On the bright side I see the announced shutdown date as being a political statement in that Ford hope that an Abbott government would survive less than one term before national intelligence is restored and the shut down notice could be withdrawn.

  18. Salient Green

    Brian “Simply leaving it to the market is an abrogation of reason.”
    Hear hear.
    I would add that simply leaving it to the manufacturer to continue to sit lazily under the umbrella of tariffs and assistance without conditions is equally an abrogation of reason.
    The thing about the car industry is the huge range of skills which can contribute by a kind of osmosis to workers in that industry being highly skilled.
    Even the least skilled workers have a wide range of tasks either assigned to them or going on around them. The sheer complexity of the organisation means all workers are constantly upskilling either by management directives – conflict resolution, OH&S, new procedures etc -, by observation and participation or defined career paths.
    The car industry provides jobs for all levels of ability from the person who is content for whatever reason to remain as a janitor or spot welder to all manner of trades to engineers and scientists to people management.
    You don’t get that from a meatworks, a mushroom farm or a warehouse and distribution facility which is all that’s left around here.

    Katz “The question is how much should the taxpayer be expected to pay to satisfy those reasons, whatever they may be”
    This partly acquiesces to the free trade mantra by failing to put tariffs back into the picture. Tariffs cost only the consumers of products which threaten our manufacturers. Assistance costs all taxpayers regardless of whether they are causing harm to our economy or not.

  19. Salient Green

    I see that while I was toiling away on my post, BilB was also pounding the keys to good effect.

  20. nottrampis

    I have you and Nick together.

    There is no reason we need a car industry and no valid reason to subsidise one!

  21. Salient Green

    Robert, do you mean the spillover of supposed economic benefit from increased trade due to free trade ideology and practice?

  22. Katz

    For the record BilB, I have not used the word “waste” or any of its derivatives in this conversation.

    You appear to prefer invective to debate. I defer to your knowledge of your areas of expertise.

    Salient Green, a tariff is a tax on all residents. It’s called an indirect tax. Tariffs tend to increase the costs of all items, whether tariff end or not, in the interests of those who own the firms that produce the tariffed goods. Your formulation of this issue suggests that there is no upper limit to the tariff you would be prepared to pay. Surely this cannot be the case.

  23. Jumpy

    Spare a thought for the worker of THESE companies.
    None got redundancy packages, any of their ” entitlements ” or company retraining. Lucky if they got their last weeks pay.
    Government ( read taxpayer ) didn’t prop up their employers.
    Lets face it, it’s historically tough and getting tougher to be an Australian business owner and the result is layoffs.
    So a few politically pampered car manufacturing employees get a golden handshake, big woop.

  24. BilB

    Katz,

    Sorry, my tone is one of frustration at the bad place that this country, and the world, is heading towards. That coupled with the greed and negativity that makes this an irreversible progression is just cause for despair.

    As a product designer I know what is possible, what can be achieved, how we can live sustainably in balance with nature. As a manufacturer I know how difficult it is to build a productive capability and sustain a profitable business. So when I hear of enterprise being casually cast aside in almost celebratory manner, I get annoyed. Yes, Ford made product out of step with the Global Climate Change reality, but their resouces would be better retasked than summarily abandoned. That comes down to inspired leadership, something that is in very short supply.

  25. Brian

    I don’t have time to engage this morning, so I’ll make two points.

    First, in radio interviews I heard yesterday it seems Ford didn’t do much right. They never tried to export. They didn’t integrate their Australia design, manufacturing etc into their global strategy. They failed to develop a small car strategy here. Their large car strategy was a dud.

    So supporting Ford was probably always throwing good money after bad.

    Before the GFC apparently Australian car exports were worth $5.8bn. This took a hit with the GFC. Toyota and GMH are trying to rebuild their markets. Time will tell if this is possible, but the Australian dollar can’t be helping.

    Secondly, people should understand that the push for ‘free trade’ in GATT and the WTO was a matter of the major financial powers’ governments acting on behalf of domestic peak industry lobby groups. In the WTO the US, EU, Japan, Canada caucus was known as the Quad, and what they decided was largely what happened. The idea was to open up the rest of the world while limiting access to their markets. They bullied, blackmailed and used corrupt process within the WTO to get their way, while falsely claiming that free trade had ‘lifted millions from poverty’ when by and large the opposite was the case.

    In the case of the US trade negotiations were also a part of power projection.

    The pushback became very evident in Seattle in 1999. Doha in 2001 promoted the Quad agenda by corrupt process and some George Dubya pleading post twin towers. But in Cancun in 2003 the developing countries stopped the push in its tracks, they simply wouldn’t take it any more and wouldn’t be bullied, and the Quad splintered as the EU and the US couldn’t paper over the cracks that were developing between them.

    Since then the push has been in bilateral and regional initiatives.

    Our problem is that we are rather naive, or even free trade purists. That was based on our leadership of the Cairns group which tried to open agricultural markets. By and large we failed and agricultural markets are still corrupt. No-one else that matters in the world believes the free trade gospel. They adopt it as a strategy to pursue national self interest as seen by their domestic lobby groups.

    I’m in favour of opening trade, but not as a leading part. It’s a complicated argument. Meanwhile we need to apply a bit of intelligence and discrimination in individual cases and look for pragmatic solutions. It’s matter of balance. That’s all.

    Sorry for the long post. Gotta go.

  26. derrida derider

    sheesh, faustusnotes, I would not defend the technical quality of either the MG (especially) or Mitsubishi papers. But they are all we’ve got on this question.

    As for your damned pedantry about “priors”, surely you prior probability estimate is indeed a product of your pre--conceptions. That, after all, is precisely the point of frequentist complaints about Bayesians’ “subjectivity”. I was actually praising the researchers for being willing to update those priors, their crude technique notwithstanding.

  27. Katz

    According to John Brumby, Victorian government aid to Ford was granted on the understanding that Ford would build diesels and develop an exportable product.

    Typically, Brumby did not define the nature or status of this understanding. Was it ever put in writing?

    Nevertheless, it is probably true to say that Ford and the Victorian government discussed an alternative future for Ford.

    Brumby blamed Detroit and not Broadmeadows for Ford’s inflexibility. Yet government money continued to flow. Could it be that priority one for governments is to forestall bad news until after the next election?

    This is one important reason why good money is thrown after bad?

    For dirigisme to have credibility it needs to have developed a catalogue of success. Until Keating, Australian industries had slumbered behind high tariff barriers that were 80 years old. What successes had they achieved?

    Germany was the gold standard of dirigisme. Why did Germany succeed and Australia fail?

  28. faustusnotes

    derrida derider, I think the MG paper was posted up by Robert, so I hold him personally responsible for its quality not you. And I certainly am being pedantic about the use of the word “prior.” I don’t disagree with your point (and I agree it’s very good that researchers don’t make their results fit their preconceptions), I just hate cloaking simple statements in jargon that is essentially pointless and intended to make economics sound special. I mean, look at the MG article – no Bayesian stats (or any stats!) yet economists want to pretend that they’re sophisticated enough to talk about “Priors.” Blah.

    The MG article implies (though a lack of statistical testing makes it impossible to make reasoned judgements) that there was no long term effect of the closure and that nationwide unemployment trends were more important. This could have been tested, but it wasn’t. I can certainly see evidence of a step change in two suburbs. And if this is, as you say, “all we’ve got on this question” then it’s time economics either admitted it has nothing to say on important questions about the social effects of unemployment, or bucked up and did some decent research. I mean, really, is this the best that we have on this topic?

  29. faustusnotes

    Katz, I think the points you’re making there are often used deceptively by opponents of industrial policy, by confusing poor governance (state govts are crap) with fundamental problems of a policy instrument (industrial subsidies will always fail). I also think that there are other ways to support industry than just throwing money at particular companies (which again, is a sign of bad governance leading to bad policy). I had a few thoughts on this in a recent post on my blog, based on my experience of Greece.

    It’s worth bearing in mind that part of the reason Australian car companies are failing is that they can’t compete with Japanese companies, and Japan makes no bones about its willingness to support its manufacturing industries through a variety of subsidies and wide policy support. It may be that there are smarter ways for Australia to support industry than just throwing money at particular companies, but the fact that the current policy isn’t very effective or efficient doesn’t mean that the alternative should be abandoning all our manufacturing industries to the mercy of international competition.

  30. BilB

    The problem goes all the way back to Whitlam. When he kicked off the process of exporting our industries to China in opening up the Australian economy there was a celebratory tone in the government’s attitude to the long procession of business closures following the elimination of the licensing system, and then the progressive reduction of tarrif protection.

    Since that kick off point the Australian economy has been an experimental plaything for political ideologies. Stability? We don’t know what that means. Germany does, that is the difference.

  31. Katz

    FN: the onus is on supporters of industrial policy to promulgate a workable model of industrial policy.

    These proponents have had a century to get it right, without success.

  32. faustusnotes

    Japan and Germany got it right, Katz, can’t we look to them for ideas?

  33. Jumpy

    On a topic like this I think it’s appropriate to declare there brand of car I ( and family) spent what’s left of my income on.
    Me- Mazda
    The Taipan – Toyota.
    1st son – Toyota
    2nd son – Holden

    Anyone else want to fess up ?
    I think morally we all should.

  34. Jumpy

    OUR not my.

  35. wilful

    This post probably could have gone in the earlier one by GuyB about Maggie and the coal industry, but it’s relevant here too.

    The Latrobe valley was extremely hard hit by the corporatisation and subsequent privatisation of the power industry under Kennett in the 90s.

    I’m not saying it shouldn’t have happened, just like it is inevitable that the remaining workforce can’t be employed burning brown coal for too much longer, but it had very severe local social impacts.

    The jokes about Moe? All true. All sorts of indicators of social inclusion and cohesiveness pointed down, and remain down for Moe and Morwell. Anyone suggesting that society can be resilient to these sorts of impacts, well I invite you to come down and express your views at the Moe Hotel some time. While you’re at it, visit the Vinnies off the main street and talk to DHS. Finally after 15 years they’re picking themselves up and getting back on their feet a bit, but the main street of both Moe and Morwell still have lots of vacant shops.

  36. Salient Green

    Katz “Salient Green, a tariff is a tax on all residents. It’s called an indirect tax. Tariffs tend to increase the costs of all items, whether tariff end or not”
    Please tell me how a tariff applied to and paid for by a Getz buyer is also paid by a cruze buyer, and increases the cost of coffee beans or cocoa.

  37. Chris

    There are 2 sides to that argument and you make absolutely no attempt to even recognise that to lose 2500 jobs plus another 6000 from the componentry industry means the loss of well over 100 million dollars per year in lost taxation receipts

    Ford in Australia lost $140 million last year. Now assuming Ford was willing to stick around in the long term for $0 return (unlikely) there seems little point spending $140 million in support to get $100 million in tax revenue. Surely we can get a better ROI elsewhere?

  38. Katz

    Please tell me how a tariff applied to and paid for by a Getz buyer is also paid by a cruze buyer, and increases the cost of coffee beans or cocoa.

    Thank you for your polite enquiry.

    Tariffs on individual commodities increase effective demand across the entire economy. When demand increases, everything being equal, the price of all other goods goes up.

    To clarify with the case of cocoa: the world price is hardly effected by Australian demand. However, wholesaler and retailers of cocoa in Australia set their prices according to effective local demand, which has been stimulated by increased economic activity and elevated real wage levels that have been enabled by the removal of foreign competition by means of tariff barriers.

    The big losers here are producers who supply the export market.

  39. BilB

    Chris,

    Ford’s making a loss in one year does not mean they would continue to make that loss thereafter. The problems for Ford were in decisions made five or even ten years earlier. The Climate Change denialist Howard government would certainly have been giving this company false signals on the future investment environment for a fossil fuel business as usual. Toyota were developing hybrides through this time and this has turned out to be a more correct rading of the future. Certainly it was Ford’s management team who made the choices, but changes in government policy and vehicle purchases will almost certainly have played a part in this failure.

  40. BilB

    Katz,

    Politely, I don’t think that

    “Tariffs on individual commodities increase effective demand across the entire economy”

    is correct in real terms.

    Tarrifs should reduce demand within the applied economy for the target product, but increase the return to producers for less throughput. Removing tarrifs does redistribute purchasing power in the short term, but in the long term results in a loss of living standard, lower overall product quality, and higher real estate prices. It requires ever cheaper products and a rapidly changing technological platform to maintain the illusion that living standards increase in a free market.

  41. Chris

    Ford’s making a loss in one year does not mean they would continue to make that loss thereafter.

    BilB – they’ve lost 600 million over the last 5 or 6 years so its not just a temporary state of affairs. And having been shopping for a small car in the last couple of months my opinion is that they simply haven’t been able to manufacture a car with the same level of features and be able to sell it at a similar prices to their competitors.

    If we’re going to subsidise manufacturing then why not target areas that will also help us achieve other goals than just employment – eg just one example would be manufacturing of wind turbines for renewable energy.

  42. GregM

    Removing tarrifs ……in the long term results in a loss of living standard, lower overall product quality, and higher real estate prices.

    ????

    How does that work?

    Particularly higher real estate prices?

    You seem to be drawing a very long bow there indeed. But I am open to convincing. What is the relationship between tariff levels and real estate prices?

    But while you are about it how do tariffs, which reduce competition from goods of otherwise equal or better quality, improve the overall product quality of those protected goods that have that competition removed or reduced by the tariff?

    Or do you mean that the tariffs increase the overall product quality of those goods upon which they are imposed so that those goods can overcome the barrier created to them by the tariff and therefore still compete with the inferior tariff protected goods?

    That was, after all, the Australian experience in the 1970s when tariffs were still high.

  43. Salient Green

    http://www.stwr.org/imf-world-bank-trade/10-protect-import-tariffs.html
    The above link has an especially good section a little over half way down titled “Box 19: Rejecting the free trade dogma”
    The article is taking aim at the environmental, economic and social damage to developing nations being forced to embrace the free trade mantra but the same consequences apply to smaller developed nations like Australia who have little power against much larger economies.

    “Justified by the theory of comparative advantage, each country is told to specialize in whatever they grow or manufacture best and purchase everything else from abroad, regardless of the social or environmental consequences .”
    “The primary beneficiaries of free trade are the corporate executives and shareholders of large multinational corporations (MNCs), around 500 of which control 70% of world trade.”

  44. akn

    I wonder whether Dick Smith might launch into car manufacturing in the name of Ozzie pride? To save the nation? A totally indigenous car! We’d need both an good Brand Australia name, but something with a little style and class too; what about the Tool? That way we could talk endlessly about ‘my tool’, hers, theirs, ours and Dick’s Tool.

  45. Chris

    akn @ 46 – heh, local car manufacturing is something even Dick Smith couldn’t afford to fund.

    GregM @ 44 – high tarrifs will lead to higher input costs for all exporters making them less competitive. So whilst you might save a few manufacturing jobs its going to come at the expense of jobs spread through the economy.

    I bought my current car in 2000 for about $25,000. I put a deposit down on an equivalent sized car (with a lot more features such as much better fuel efficiency and safety bits) a little while ago for almost exactly the same dollar figure. That’s pretty amazing given how much wages have risen in that time (average weekly earning has almost doubled). About the only other goods that has occurred for is consumer electronics/computers.

  46. Brian

    Chris @ 39, Ford claims they returned $6 for every $1 of government money invested. I don’t know the basis of the calculation, but that’s the claim.

    Robert @ 19:

    Brian, with respect to the very fine R&D work done at Ford Australia, the claim that they can design a car in “one third of the time” doesn’t pass the smell test.

    To be honest it was a while ago and I can’t remember which company, but the time taken in elapsed years was a fraction, whether a half or a third. It was said that the Australian design team was smaller, tighter and better integrated. It passed the smell test for me at the time. It wasn’t a simple assertion, rather an explanation.

    Yesterday, I heard several commentators with industry knowledge say that R&D and design was one of the strengths of the Australian car industry. Today’s CM reckons Ford is retaining 1000 workers at its Broadmeadow design centre, which sounds a lot.

  47. Brian

    I can’t find a link, but Bill Scales had an opinion piece in the AFR today on this topic. He chaired the authority implementing the Button car plan for the Hawke and Keating governments and is currently Chancellor of Swinbourne Uni and President of the Business Higher Education Roundtable.

    He says that Ford was never interested in using the skills and capabilities of Ford Australia in its global operations, right from the 1980s. He says that an assembly plant of 200,000 to 300,000 minimum is necessary to be economic. Ford has about a 10th of that.

    The government should step back from manufacturing’s “death spirals”. In his view specific industries or companies should not be subsidised.

    If governments really want to help industries to successfully operate in our complex, contemporary and ever-changing world, we need sound fiscal and monetary policies: we need a world-class education system, and we need to ensure that our social and economic infrastructure is also world class. It won’t guarantee the survival of Australian firms, but will give them the best chance.

    He may be right but I need to point out that he has a conflict of interest. Last month he was saying, cut car funding not universities.

    Clearly we should do what he says in general industry support, but I think there can be instances and times when more specific help is warranted. If we want a film industry, and I think we do, we’ll have to stump up some cash. They call it “co-investment” and that’s the norm around the world.

    Even Garnaut sees merit in supporting the development of the renewable energy sector.

    The AFR’s article on the supply industry is worth a read. Apparently they employ 37,000 as against 13,000 employed by the three manufacturers.

  48. BilB

    GregM,

    ????

    These are iterative effects, there is no formula upon which to calculate the progression.

    Real estate.
    When buying real estate average people, that is the bulk of us who own the greater volume of real estate, buy the maximum that our income at the time will allow ie what is on offer rarely fully meets our needs or expectations. Real estate on offer will always ask for above the buyer’s ability to pay (tell me some one who sought less). Therefore if there is an effect in the economy which substantially reduces the cost of living it has that effect until there is a real estate ownership decision at which point that improved position becomes substantially absorbed into real estate prices (not value as the value of the real estate does not change).
    Any increase in real estate prices instantly increases the price of all real estate, as all price setting is based on previous prices and the ability to pay (which is a function of income and cost of living). Reducing interest rates has the same effect.

    So if you substantially reduce tariffs on goods then this over time pushes real estate prices up. That does improve the postion of the real estate holder at the time when they no longer need their property as that stored purchasing power is greater relative to the cheaper consumer goods, but that usually only occurs when the real estate holder dies. This is a long feedback loop.

    Tariffs and prices.

    I don’t have the time right now to expand this fully, but the principle is that if something is cheaper then it must be less in some material or processive form or another, else it is substantially different.

    GregM, if you understand the real estate loop then I will expand on the other.

  49. Salient Green

    Chris “high tarrifs will lead to higher input costs for all exporters making them less competitive. So whilst you might save a few manufacturing jobs its going to come at the expense of jobs spread through the economy”
    High tariffs will only increase input costs if imported goods are purchased. High tariffs encourage local industry. High tariffs will save more than just a “few” manufacturing jobs.

    Running what is virtually an open economy is to abandon all hope of competitive manufacture and mass employment in Australia.
    Read more: http://www.theage.com.au/comment/with-no-factories-how-can-we-build-a-future-20130523-2k3va.html#ixzz2UFxtwv7m.

    There are strong suspicions that there is a deliberate unofficial policy to de-industrialise Australia. If there was no such policy, then current industry policy setting and administration is, to use Brian’s phrase ” an abrogation of reason” and to use mine, egregiously incompetant.

  50. Katz

    Real estate is merely one commodity among many whose price is responsive to effective demand.

    Tariff regimes typically protect inefficient industries that employ large numbers of workers. Behind tariff walls the purchasing power of these workers is enhanced at the expense of the export sector of the economy.

    Accordingly, everything else being equal, this redistribution of purchasing power into the hands of more marginal consumers increases their spending power, which tends to increase the price of many commodities, including real estate.

  51. Brian

    Geoff Kitney tells us today in the AFR that the car subsidy in Australia is $18 per person. In Germany it’s $90 and in the US $300.

    He points out that Abbott is basically telling us nothing about what they would do

    It is simply not acceptable for the Coalition to blame the Labor government for the things that have gone wrong and offer vague explanations of how a Coalition government would fix them.

    So far he’s said cancelling the carbon tax, less industry regulation and working with the companies to increase exports. He neglects to mention his new tax to pay for parental leave.

    In other words, basically nothing. This morning they are talking about a Productivity Commission review of car subsidies to guide what they’ll do when the current subsidies run out in 2015, meanwhile refusing to increase them.

  52. BilB

    Katz,

    “Accordingly, everything else being equal, this redistribution of purchasing power into the hands of more marginal consumers increases their spending power, which tends to increase the price of many commodities, including real estate”

    This is just a string of clicheic catch phrases (Katz phrases) with no evaluative substance. Can you substantiate any of this? You haven’t mentioned any of the downsides of open market trading. Do you have any appreciation of what these are?

  53. Chris

    High tariffs will only increase input costs if imported goods are purchased. High tariffs encourage local industry. High tariffs will save more than just a “few” manufacturing jobs.

    Higher costs of imports also allow local manufacturers to increase their prices (and in the case of car manufacturing make less of a loss or perhaps a bit of a profit). But everyone ends up paying more for the protected goods. And so the cost of our exports goes up.

    Brian – well if the US and Germany want to subsidise the purchase of cars in Australia I have no problem with that. I’d rather we don’t subsidise theirs though. I’d prefer we concentrate on things like selling our design and IT services to them.

  54. GregM

    GregM, if you understand the real estate loop then I will expand on the other.

    I think I’ve got it BilB.

    If you reduce or hold down prices on one set of goods (by, say, reducing or removing tariffs) then people will save money and then, down the track, spend their savings on something else such as houses and this means house prices will rise.

    That’s it isn’t it?

    Wouldn’t it be sensible to increase housing stock (thus increasing employment in the house building sector) to soak up that housing demand and keep real estate prices down?

    Of do you think that the Reserve Bank, in having an inflation target of between 2 and 3% and thus using its control of interest rates to hold down prices, has got it wrong and should reset its inflation target at, say, between 20 to 30% to stave off increases in property prices?

    Also I am now ready for your explanation of how removing tariffs results in lower overall product quality in the long term.

  55. BilB

    Chris,

    Yes tarrifs will have an effect on exports. Minerals? neglible. Farming significant but small. Manufacturing? Significant and medium.

    Manufactured exports benefit most from a high technological production platform. What effects our exports more is the high level of tarrifs on manufactured goods into emerging markets such as China. One would think that China does not need tarrif protection from the west, especially Australia.

    What also affects our manufacturing sector is the very high level of organised intellectual property theft by countries such as China.

  56. BilB

    GregM

    “then people will save money and then, down the track, spend their savings on something else such as houses and this means house prices will rise”

    Actually what happens is that people commit their future earnings including a substantial share of their discretionary spending for many years to securing real estate.

    House prices used to be managed with mandatory deposit levels. The problem with managing property values is that this opens up real estate for exploitation by wealthier economic sectors, unless that is legislated against. In China for instance the government owns all of the land. Property owners really only have a 99 year tenure, as I understand it to be, this is another method of price control.

    Now when you mention interest rates of 20 to 30 percent I know that you are treating this as a joke unless the M is for Murdoch in which case you are just away with the fairies on values and costs. The Reserve bank does not have a lot of room to maneuver on interest rates, a couple of percent each way at the most. Consider a young family with the main earner on $20 per hour and $3470 per month buying a low end property at $350,000 , at nine seven and five percent interest component in their monthly property cost this means $2625, $2041, and $1458. If this couple decides that 50% of their income for interest is as far as they can go then that means they either need an interest rate nearer to 6% or a cheaper property. That is the calculation and in doing so they are making a commitment for the next 30 years during which time their family running costs will oscillate wildly.

    I’m not sure that you are ready for the rest yet.

  57. faustusnotes

    If high tariffs cause higher house prices, how come the peak of home affordability was during an era of high tariffs?

  58. Katz

    Consider yourself instructed, GregM.

  59. GregM

    Bilb you have misunderstood me. I didn’t say interest rates at 20 to 30%. The very opposite indeed. I was asking about an inflation target of 20 to 30% to wipe out savings and therefore avoid a real estate bubble by keeping people out of entering the real estate market. That would involve keeping interest rates very low and printing lots of dollars.

    But I can’t see any connection between reducing or removing tariffs on imported goods and increased property prices. From what you have said increased property prices have arisen because of the removal of mandatory deposit levels. That could have happened whether or not tariffs on imported goods were reduced or removed.

    I really think I am ready for your explanation of how removing tariffs results in lower overall product quality in the long term.

  60. BilB

    faustusnotes,

    You will be hard pressed to substantiate that claim. I Googled “housing affordability Australia graph” and every one of the graphs (from documents tabled in Parliament) that come up in the small images pane support my argument completely. You’ll have to go and google for yourself as none of the image links hold up in cut and paste.

    So how’s about fleshing your argument with some inspired thinking, solid logic and/or data.

  61. BilB

    Comment coming from New Zealand (ABC reporting)on the abandonment of their automotive assembly industry is that their manufacturing industries did not fully recover from the loss which also resulted in a lowering of the overall affordability level for the replacement imported vehicles.

  62. BilB

    GregM,

    House deposit regulation was a Menzies era property price management device.

    You can’t separate time, population, technology, state of knowledge, and politics from the economic reality. From Keynes to the present time has passed, technology has changed dramatically, and the global population has tripled.

    With Whitlam’s first wave of deregulation came a softening of deposit control and, coupled with more open boarders and the first oil shock, we experienced your golden solution of high inflation and mid twenties interest rates in the 70’s and 80’s.

    You are operating on the assumption that economic circumstances either stay the same or cyclically repeat themselves. The fact is that global economics are evolutionary rather than constant or cyclic. And with human population skyrocketing that evolutionary process is very rapid, with now the ultimate complication of Climate Change.

    You certainly have not looked at the graphs that I indicated above as these very clearly show that as tariffs evaporated real estate prices skyrocketed in Australia. The mechanism is a simple one. More discretionary spending quickly becomes consumed by real estate price inflation.

    No, you’re not ready for the rest.

  63. Harry May

    “Ford has been the weakest of the local manufacturers for some time. Nick Gruen – who worked with Hawke government industry minister John Button whose car industry plan delayed this day for at least 20 years – observes that despite continued subsidies Ford has been underinvesting in its local manufacturing for a decade.”

    People often site subsidies to show that we must not be meant to have this or that industry. Sometimes a mystical approach to comparative advantage is implied. But the implication is that subsidies work, or that they ought to work. So already in this story we so often see basic economic ignorance from the commentators.

    There is no reason why we ought not have a car industry. But having said this its basic ignorance to imagine that subsidies are the way to build such an industry, or that years of past subsidies are evidence that this industry was simply not meant to be. “We subsidised them for fifty years and they are still not competitive hence we don’t have a comparative advantage in this area.”

    This sort of statement would show basic ignorance in economics.

  64. Harry May

    “…….Similar industries have departed offshore over the last 30 years, and we’ve done rather well ……..”

    This is an astonishing claim. In reality our performance has been appalling. So we ought not be surprised to find the following irrational comparison.

    ” …… and nothing like Campbell Newman’s decimation of the Queensland public service. Indeed, across Australia there were 390,000 retrenchments in the 12-month period starting February 2011, which makes the 1600-odd job losses from Ford’s manufacturing shutdown look like a piddle in the ocean…… “