“We don’t operate on the basis of a bailout,” Kim Carr said this morning, suggesting that no further assistance would be forthcoming from Toyota despite its planned workforce reductions, and that the federal government’s approach to its automotive industry handouts remains motivated by some form of overarching strategy.
Wonder what John Button, who handed over tens of millions of dollars to keep Kodak from following through with its threat to shut up shop here in the early 1990s, would have thought.
But it’s a more coherent approach than Ted Baillieu appears to be adopting, with his comments this morning that the Victorian government might throw in some more money — beyond what it has committed to provide GM along with the federal government — to keep those jobs at Toyota from going.
Debate over industry assistance tends to happen at the federal level in Australia. State governments are able to get away with shocking examples of protectionism unscathed, particularly around government procurement. State governments have all of the political imperatives to protect industry that the feds have, without any of the restraints that exist at the federal level, like the Productivity Commission or national media attention.
The result of propping up jobs is the same, though, regardless of where the money comes from — delaying and making more painful the structural change underway in the Australian economy.
Remember we are engaged in a major economic reform in Australia. Unlike previous major reforms, we didn’t choose to embark on this one – the Communist Party in Beijing did. But just because we didn’t choose it doesn’t mean the impacts aren’t real or dramatic.
The last major shake out of the manufacturing sector, in the early 1990s, was about as badly-timed as humanly possible. The Hawke government embraced a further round of tariff cuts (accompanied by what now looks like a piddling transitional assistance package) just as the long-term decline in Australian manufacturing was accelerating and the world was entering a major recession. The unemployment effects were still being felt nearly a decade later.
This time around, unemployment is low, there’s a booming sector that needs all the people it can get, and we’re at the end of an extended period of real income growth across most households. It’s hard to think of a better time to be undertaking this sort of restructuring.
Alan Mitchell said it best in his excellent piece today in the Fin Review. Why was it buried on p.8 when Peter Roberts’s nonsensical rant against unions was on page 1? But the AFR also carried a Page 1 story this morning that highlighted the odd thinking about manufacturing in this country, and how it’s quite often the successful companies that get ignored by business, the media, governments and unions, but not by their competitors. It was a report on a $267 million agreed bid from a Danish company for Queensland company, Ludowici Ltd, a 154 year old, still family dominated company which has become the world leader in a rather arcane, but vital (for the relevant industry) bit of kit.Danish engineering group FLSmidth has offered $7.20 per share to acquire Ludowici. The bidder, a $3.5 billion a year multinational specialising in mining services and equipment, already has 450 employees in Australia and will add Ludowuci’s 1,000 here and in countries like South Africa, India, China, Chile, Peru and the US. Ludowici is a mini-multinational, home grown, and unheralded to all but old stockmarket hands and those in the coal mining industry. It’s the world’s leading provider of coal centrifuges, vibrating screens and other products and services for the minerals industries, especially coal. Buying the Brisbane-based company would enable FLSmidth to complement its coal processing technology and improve its copper and iron ore offerings with leading technologies and brands.
The AFR report quotes a family member and board director as saying that Australian companies have approached them but were never willing to pay enough. But the Danish company, which already operates in Australia, saw the value and the opportunity. Nor has the company ever received government assistance.
There’s nothing wrong with the bid from the Danish company: it’s what the market is supposed to do. More worrying this bid slid right under the radar for most, if not all the alleged stockmarket experts and analysts, and yet Ludowici is a performer with sales of $212 million in the June 2011 year and pre tax earnings of more than $25 million (and $28 million for the December half year, according to the AFR). But it’s a pretty sorry state of affairs that a bid from a foreign company alerts us to the value of a local manufacturing success story.
Meantime, governments are focussing on propping up industries that have a minimal future in a market like Australia; in the case of state governments, purely for political reasons.
So a coal equipment manufacturing company is doing well as our Dutch Disease takes hold? Good for them. How’s everyone else doing not connected to a dig’n’burn industry?
You have confused me – how is the takeover of one (admittedly cool sounding Australian success story) a justification for State Governments abandoning industry policy?
Please try again mate.
Some points:
Car manufacturing is the keystone of our manufacturing base, just as Combine Harvesters once were – do you really think cars are going to go the way of Kodak?
And yeah I’ll say it; please do enjoy the humour of a man with my Surname making this point. Car assembly lines can be converted into Tank and Armoured Personnel Carrier etc assembly lines – we have oil, coal, iron and steel – and with these trained people the ability. Why would we willingly lose the option of a massive expansion in military production in a time of need?
“Car manufacturing is the keystone of our manufacturing base, just as Combine Harvesters once were – do you really think cars are going to go the way of Kodak?”
4-litre straight-sixes and V8s are, at the very least. At which point, we’re an assembly shop bolting together kit invented in Asia and the US.
“Car assembly lines can be converted into Tank and Armoured Personnel Carrier etc assembly lines”
I suspect they can’t – infantry and civilian vehicle technologies have both moved immensely and in very different directions since WWII, when this was last tried. Even if they could, a WWII-style conflict involving total war, trade blockades, *and* massive mechanised infantry battles seems distinctly unlikely given the nature of modern warfare.
Personally, I’d like to see a reduction in the fossil fuel car
manufacturing subsidy and a commensuarte increase in
a green car type scheme (pity the policy was dropped).
In terms of subsidies generally, there seems to be a need to (re)think through
the theory of comparative advantage being at the centre of trade –
particularly in light of the increase in value of the Aussie dollar. If
costs rise primarily for reasons of exchange rates, then this seems
to undermine notions of comparative advantage and hence the animus
of neoclassical economists towards subsides. I would be interested in any
reanalysis of comparative advantage that factors in floating exchange
rates. If I am right, then comparative advantage looks a bit shaky as
the reason not to use subsidies.
So, then the issues becomes what kind of technological knowledge best
suits Australia’s need going into the future and hence who anad what should
be supported. You may be right Bernard
in terms of the type of cars we build – hence Karen’s point makes sense
here. However, basic manufcturing skills are easy to lose and difficult
to build. If we take the argument that we need to shift our skills primarily
to mining and mining related manufacturing this creates a one sided
manufacturing base that mirrors our dependence on mining itself for
income. It leaves us vulnerable as an increasingly one sided economy.