Sunday, August 24, 2008

Throwing more money into the glove box

Mr Bracks must have considerable wisdom.  He has examined the car manufacturing industry, had a damn good natter with its workers, managers and shareholders and concluded that more support is necessary.

Currently the industry has taxpayer subsidies valued at $4 billion between 2006 and 2015.  In addition, it has tariff protection which increases import costs by 10 per cent.

Together, these measures are worth the equivalent of more than $20,000 annually per automotive industry worker.

Mr Bracks recommends increasing the direct subsidy by a further $1.5 billion, re-orientating it towards green cars and extending it to 2020.  Tariff assistance is scheduled to be cut to 5 per cent and he supports this.

Lower protection in recent years has brought a more competitive auto industry.  This includes Holden "muscle" cars, the Ford Territory and the general excellence of Toyota's build.  We have also seen the components sector reaching out to overseas markets.

But Bracks' proposed enlarged and extended assistance places the industry on permanent cardiac support.

Justifying additional support, Steve Bracks' patron, Industry Minister Kim Carr, said:  "This industry is a major exporter.  It is a major source of research and development.  It's strategically vital for the rest of manufacturing.  It provides the skills formation base for so many other industries, from plastics to aerospace."

But wait a minute.  Is that not what every industry claims?  All activities have solid links with promising growth areas like electronics, plastics and new materials.

Many would argue that pharmaceuticals, medical technologies and precision instruments offer better prospects of tapping into such potential.

Industry support does not come out of thin air.  Somehow, Mr Bracks has calculated that the support for the car industry will pay richer dividends than support for other industries.

Moreover, in opting for additional car industry subsidies, Mr Bracks is saying this is better than consumers themselves retaining the $1.5 billion.

And he is also saying $1.5 billion is better spent on supporting the car industry than on hospitals, global warming programs, higher pensions or any other measures governments are pressured to support.

Mr Bracks has his share of smarts but does not, of course, have the extraordinary wisdom that requires such judgments.  He does, however, recognise what gels with his sponsors -- the Federal Government.

Many within the Rudd Government have considerable faith in their abilities to pick winner industries.  They consider that a bit more help to "strategic" industries will allow us to build world excellence in promising fields where we would otherwise be laggards.

The green car is the latest in a long line of such hopes.  We have just emerged from the failed investment in a wind power industry which was to catapult Victoria into the position of leading supplier in the region.

Previous failures in picking areas as the crucible of manufacturing growth have been the clothing industry, whitegoods, agricultural equipment and earlier versions of the car industry.

None of these have ever been successful.  But hope springs eternal in the breasts of politicians with access to our bank accounts and greater faith in their own judgments than of those collectively made by buyers and sellers.


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