Learning the lessons of Australia’s manufacturing history

As the blame game over the closure of Australia’s automobile assembly industry shifts into overdrive, we must learn the lessons of the history of the Australian manufacturing sector lest it be repeated. At one time or another, Australia has had at least 11 international auto assembly companies producing vehicles here. Not one has survived despite receiving billions of dollars of taxpayer-funded subsidies and tariff protection.

Of the 600 loyal, highly productive workers who lost their jobs upon Ford’s closure on Friday, the 300 who suffered the same fate the same day when Holden’s Adelaide production of the Cruz ceased and the thousands who will lose their jobs when the remainder of the car assembly industry shuts down next year, only one-third will gain full-time employment elsewhere. The experience of the 2008 Mitsubishi closure is that another one-third will obtain casual or part-time work while the final one-third will never work again.

South Australian Premier Jay Weatherill is acutely aware of the devastation that the industry’s closure will wreak on the state, especially on already disadvantaged communities where job opportunities are scarce. He has been working hard to diversify the South Australian economy but it’s easier said than done. Geelong, where Ford shut its doors last week, is diversifying, but workers in Melbourne’s west involved in the auto component manufacturing industry are especially vulnerable.

Did it have to be this way?

When the Hawke government announced the Button car plan in 1984, the industry was struggling against imports despite the protection of 57½ per cent tariff rates and of quotas restricting the number of vehicles that could legally be imported. As with the economy as a whole, the Hawke government sought to reorient the auto industry from producing solely for a small domestic market to an outward-looking, export-oriented activity. Quotas were removed and tariffs phased down, but an export facilitation scheme effectively subsidised every vehicle sold overseas.

For a time the Button plan worked: the Australian auto assembly industry stabilised and car makers began exporting models to the Middle East and even the United States. But nothing lasts forever. Despite the cooperation of manufacturing unions in impressively boosting worker productivity, the Australian assembly plants lacked one feature that even the most productive workforce could not provide – scale. Developing Asian countries, much closer to final consumer markets than Australia, opened auto assembly plants each several orders of magnitude larger than Australia’s biggest operations.

These massive Asian factories are swarming not with cheap labour but with robots enabled by artificial intelligence. Despite their electronic sophistication, modern motor vehicles have become commoditised, which makes economies of scale the decisive factor determining location. In these circumstances, no amount of tariff protection, subsidisation or so-called co-investment could save the Australian auto assembly industry. Protection of the Australian car industry has extended its life but not changed its fate.

My 63 year-old father died of heart attack, traumatised by his retrenchment from a failing sheet metal working business that still enjoyed decades-long tariff protection. As shadow innovation and industry minister in 2002, I gave a speech to the Australian auto industry, pointing to the scale problem and suggesting that a big effort be put into car component manufacturing to produce at world scale for the global market. In a vote of no confidence in their own industry, the business representatives told me bluntly it was a bad idea and that the components manufacturing industry – which employs many more workers than the auto assembly industry – could not survive without four Australian carmakers. The way forward, they argued, was to counter the subsidies offered by governments overseas with Australian government co-investment into the car assembly industry. Mitsubishi closed its doors six years later. Ford has followed. Holden and Toyota will be gone next year.


This does not mean manufacturing in Australia has no future. But the future is in high-end, smaller-scale production embodying large doses of sophisticated technology and skills. Instead of prolonging the life of industries in which Australia’s competitive advantage is non-existent or is inexorably slipping away, it would be much smarter to identify those manufacturing activities in which we have an actual or potential advantage, such as the processing of premium-quality food for Asia’s burgeoning middle classes and advanced manufacturing including aerospace.

Australia already has a small but vibrant advanced manufacturing sector. And the federal government has a modest program of industry growth centres to bring together research institutes and entrepreneurs in prospective areas of competitive strength such as advanced manufacturing, food and agribusiness and medical technologies and pharmaceuticals. As an integral part of a new national reform agenda, governments, industry and unions should come together to identify the industries and jobs of the future, not with the purpose of protecting them from international competition but of removing obstacles to their commercial success. Doing so would signal that we have, indeed, learned the lessons of history.

Source: http://www.afr.com/opinion/columnists/lear...