Tuesday, November 11, 2008

A$6.2bil assistance for local car industry

Over the next 13 years the government is going to provide A$6.2bil in various incentives to help the car industry to survive. A pure capitalist would be repelled by the idea; survival goes to the fittest, they say. Australia has a small population; as such they would argue that we have an uphill battle against the economy of scale. Let's put some perspectives into the issue (with figures quoted freely from Shaun Carney's article in today's The Age newspaper):

1. A$6.2bil may be a big sum of money, but try comparing that with A$10bil which the government is pumping into pensioners' pockets next month. Unlike the $10bil pensioners' bonanza, the $6.2bil will be spent over 13 years, to help 60,000 tax-paying workers directly employed in car manufacturing, and another 200,000 workers in related industries.

2. Unlike the Malaysian Proton which is well known as being inefficient and surviving on the government's protectionist policies, Australian car manufacturing is world class. Unfortunately it is on an uphill battle - not due to economy of scale - but due to uneven tariff policies. While Australia is going to reduce the imported car tariff from 10% to 5%, we are importing cars from Thailand (tariff on imported cars is 80%), Brazil (35%), Europe (10%), and China (25%). This is a ridiculous arrangement. Why are we spending $6.2bil to keep the car industry alive, while at the same time doing nothing about tariffs? At the least, perhaps all government vehicles should be local productions.

3. About economy of scale, the US has a very large market for its car industries. Yet GM and Ford are reeling over in this financial crisis. Even before the crisis, GM and Ford have seen their market share being taken over by Japanese imports. The US government has pumped in money several times in the past to rescue its car manufacturers, but continues to openly expose themselves to policies that can only result in transferring all their manufacturing bases overseas. This may enrich the rich capitalists in the country (cheaper labour = greater profit), but certainly impoverishes all the workers who make up the vast majority of the population.

Perhaps it is time that governments wake up now and take a bourgeois view of the economy and how it should be managed. Unbridled globalization policies is what dries up employment. In developed countries, the manufacturing base had been replaced by a financial services industry, which everyone knows has now exploded into pieces. Kevin Rudd has done the right thing to help keep the manufacturing base (hence, employment figures) going. A$6.2bil is a good start; let's hope that's not the end of the story.

(Footnote: Columnist Kenneth Davidson wrote in The Age the following day:
"Financial services based on increasingly complex financial products built on financial engineering cannot fill the gap left by the decline in manufacturing, nor can a revival in manufacturing be left to the market when nascent industries must compete on equal terms in global markets.

"... If the government is serious about creating an internationally competitive vehicle industry, it must shape policy to exploit strengths and identify weaknesses.")

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