General Motors has confirmed it will cease manufacturing in Australia from 2017, citing a “perfect storm of negative influences”.
GM chairman Dan Akerson said these forces include “the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world”.
The decision will lead to the loss of around 2900 jobs, including 1,600 from the Elizabeth vehicle manufacturing plant and around 1,300 from Holden’s Victorian workforce.
It’s easy to forget amid the economic policy focus of this week’s Holden discussions that the decision will have real human impacts and consequences.
For many of us, the temptation is to focus on the political and policy implications rather than the hard-to-imagine impacts on workers, their families and all those involved in the automotive industry.
Economic change is a reality and, perhaps, an inevitable outcome of our economic system, but the current debates in Australia need to be put in context: just this week, the US Government announced the end of its support for GMH in the USA, a program of intervention that was estimated to cost US$10.5 billion. This program was implemented at the height of the global financial crisis and it’s reasonable to assume a comparable level of support was furnished to Chrysler and a lesser amount to Ford.
The flow-on impacts for the economy of Holden’s closure in Australia will be substantial as a globally-exposed industry contracts further and as our national economic base narrows. One of the risks we face in the longer term is even greater exposure to volatility in world commodity prices and a dependence on minerals for our prosperity.
Moving beyond a short-term focus
There is no doubt that governments around the globe continue to provide explicit and implicit subsidies to industries they see to be of strategic importance. But that should not push Australia to provide unthinking and unquestioning support to industries. Yes, industries such as automotive construction are important, but not so critical to national economic performance that we cannot rethink how we respond to change or plan for their future.
Australian governments often respond to economic change through programs of assistance that seek to prop up firms in the short term, but such measures are - by design - reactive and defensive rather than forward-looking. Too often they lack the transformative capacity needed to bring about the fundamental reform of an industry that is required to guarantee their future.
Australia is not alone in having a history of responding to shocks, many parts of the developed world have struggled with the challenge of finding effective responses to the challenge of economic change. While it is somewhat deflating to realise that our difficulties are not unique, on a positive note we can also learn from the experience of others.
Lessons from Europe
Recently the European Union has published some highly relevant reports that have reflected upon the experience of its member nations and the programs that the EU funds directly. There are clear messages that come from this body of work, including:
there is a need to focus on the development of skills within the work force in order to ensure long term competitiveness within either the affected industry or other industries that may emerge;
the most effective actions focus on improving the productivity and competitive position of Small and Medium sized Enterprises in the supply chain. Helping them makes the end user plant more competitive and adds flexibility to the local economy; and,
programs need to take a medium to long-term perspective and recognise that building a competitive position within the global economy takes time and sustained effort.
Australia has been experiencing profound economic change since the 1970s, a process that was accelerated in the 1980s as the economy was deregulated.
The manufacturing industry benefited at first as the Australian dolllar plummeted to 55c US, but such levels are unlikely to reappear in the foreseeable future. The challenge, therefore, is to develop intelligent industry policies.
Such policies cannot be simple handouts to individual industries or businesses, instead they need to be the manifestation of well-considered strategies to build long term competitiveness. They need a labour market component, a focus on research and development, a whole of industry perspective and a vision for the future.
The closure of major plants such as the GMH plant is not a trivial matter: many currently employed in such places will struggle to find employment in the future and we may need to face up to a harsh reality that sees us discount the future of the current generation of workers, and instead concentrate on ensuring employment for their children and grandchildren.
Some European regions have seen a resurgence in their manufacturing sectors.
England’s Midlands has been reborn as a manufacturing district, partly because of a significant fall in the value of the British pound. But before that, locally-informed action by Advantage West Midland and the West Midland Regional Development Agency, helped the region transition away from conventional manufacturing to advanced manufacturing. In Tampere, Finland the value of focussing on skills was demonstrated with the demise of Nokia. The presence of a significant cohort of software engineers attracted new investment into the city including new Intel and Samsung facilities.
Economic development and growth has never been easy and the new global economy has made the challenges even greater. To be successful as a nation and as a set of communities we are going to need all parties - governments, unions and industry - to set a new agenda for growth.