Making ‘stuff’ doesn’t cut it: why Australia shouldn’t have a motor industry

Australia shouldn’t have a car industry based on corporate welfare.

Australia shouldn’t have a motor car industry – well not an industry dependent on corporate welfare. Many Australians struggle with that idea – after all shouldn’t we be “making stuff”? When former prime minister Kevin Rudd said he didn’t want to be prime minister of a country that didn’t make stuff, he struck a chord with many Australians.

To be sure, making stuff is better than not making stuff, but there is much more to economics than that. Australians need to produce goods and services that consumers want to buy at a price that covers the costs of production - including the cost of capital.

Making “stuff” just doesn’t cut it.

A debate about the auto industry is really a debate about manufacturing in the Australian economy. There is a widespread perception that manufacturing is dying and that this is an economic problem. To my mind, the story is a bit more nuanced than that. First, it isn’t clear that manufacturing is dying. Australian Bureau of Statistics data shows the profit margin for manufacturing to be quite stable (with a blip during the GFC). That is an aggregate meaning that some parts of manufacturing are struggling while other parts, no doubt, are thriving.

Second, even if manufacturing was dying, it isn’t clear that this is an economic problem.

Over the last 30 years, the total number of manufacturing jobs has decreased from over a million to less than a million. In a growing economy with a growing population, the relative number of manufacturing jobs has certainly declined overall – yet the economy has continued to generate new jobs. Both the participation rate and the employment to population ratio have increased over time.

That means that a relative decline in manufacturing hasn’t yet adversely impacted the economy.

A dynamic growing economy creates new jobs and new job opportunities all the time.

The economy has not been generating net new manufacturing jobs. The question we need to ask is: do Australians have the right to a manufacturing job? A moment’s reflection indicates the answer must be “no”.

Certainly, I can’t see an argument for government propping up large-scale production line jobs that have little value-add and can be undertaken in any number of low-cost economies. Given the time, effort, and money lavished on our education system, we shouldn’t have low-skill manufacturing at all.

The bottom line is that we should concentrate of doing the things we do well – that are profitable – and trade for the things we don’t do well (or are unprofitable). Specialisation and trade is the key to future prosperity. Propping up dying industries will not add to our wellbeing.

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