COVER STORY: by Colin TeeseNews Weekly
Mitsubishi - counting the cost of closure
, June 5, 2004
Nobody yet seems to know quite what will happen next with the Mitsubishi motor vehicle manufacturing plant in South Australia, but the signs are not good. In any case the company's future seems out of local hands - unless, that is, the government decides to step in.
And therein lies a tale.
So far the government is playing it cool - as one might expect. But that has not stopped all kinds of media speculation about what could or should be done.
Alan Mitchell, economics editor of the Australian Financial Review
has had most to say; though he does seem to have been all over the place.
His first piece came a day or so after the news broke that the parent motor-vehicle manufacturing arm of Mitsubishi had decided it would not be propping up its Australian subsidiary.No bail-out?
Newspaper reports had speculated that if Mitsubishi's South Australian plant closed - and it was assumed that would happen in the absence of some kind of bail-out - then some 10,000 jobs were at risk, directly and indirectly.
Given what this would mean for South Australia in particular, and, indeed, Australia as a whole, there were suggestions from some quarters that Mitsubishi Australia should be helped - if necessary, by the Government.
Alan Mitchell, as the AFR
's live-in non-interventionist ideologue, wasted no time in offering the contrary view. There was, he insisted, no case at all for government financial help for Mitsubishi. If government money was available, it would be better spent helping Mitsubishi's displaced workforce finding alternative work.
The illogicality of his position certainly does not seem to have troubled Mitchell. He seemed quite comfortable with government money being spent in what would certainly be futile attempts at finding alternative new jobs for Mitusbishi's unemployed workforce, but he absolutely opposed the same amount being spent to save real jobs at Mitsubishi.
Apparently, it is not spending money that troubles Mitchell, but the mere thought of the idea of an industry policy. That's ideology for you. No wonder Mitchell's advice fell on deaf ears.
A couple of weeks later, having re-appraised, he was at it again. There was no need to worry about jobs going at Mitsubishi, he now confidently assured us.
Most of the company's output was, you see, sold to fleet-buyers, and, in the absence of Mitsubishi, the fleet-purchasers would switch to other Australian manufacturers. Thus there would be no overall loss of jobs; though he was kind enough to concede that there could be problems for South Australia.
Neither of Mitchell's propositions hold up against critical examination. The first simply does not make sense. As to the second, it cannot be assumed that fleet-buyers loyal to Mitsubishi won't switch to imported brands if Mitsubishi closes.
But even if, as Mitchell insists, Mitsubishi's fleet customers were to stay with local manufacturers, Mitsubishi jobs could still be lost. It is, for example, quite possible that existing manufacturers might have enough surplus capacity to cover Mitsubishi's output without the addition of capital and/or labour.
Leaving aside Alan Mitchell's ideologically-based objection to government financial assistance to the ailing Japanese subsidiary, it will be said by some that there is no reason to display much sympathy for Mitsubishi. It may not have been a model Australian corporate citizen. For example, it was reported some years ago that Mitsubishi had never paid company tax in Australia.
If the company was indeed profitable in those times, and was so arranging its affairs in such a way as to avoid Australian company tax, then that is, of course, to be deplored.
Nevertheless, we should never lose sight of the fact that, whatever its tax situation, Mitsubishi was a big manufacturer and employer of labour, and, from those points of view alone, made a real contribution to the health of the South Australian - and Australian - economies. Accordingly, the possibility of Mitsubishi closing its South Australian plant is, or should be, a matter of concern for us all.
And if, as has been reported, the job loss from this outcome would be some 10,000, then the issue is truly serious. If we assume that its workforce earns average earnings of about $30,000 that amounts to about $300 million annually. And if we assume PAYE tax on that income of about 20 per cent, the loss of those jobs would result in a shortfall of revenue collections of about $60 million.
But it does not end there. The unemployed workforce which previously supported itself - and, in many cases, families as well - and which contributed positively to revenue, suddenly becomes a charge on welfare. Let us say to the extent of $15,000 for each worker - another $150 million.
The unemployment of the Mitsubishi workforce therefore costs revenue directly around $210 million annually. If one wants to think about it in different way, that's the amount the Government could afford to spend annually to keep Mitsubishi in business with no cost to the economy.
Almost certainly, nothing like that sum would be needed to keep the company operating. And if we don't happen to like Mitsubishi, or believe its inefficiency does not justify support, the government does not have to keep it going.
It could, instead, pick up Alan Mitchell's initial idea (in a way in which Mitchell most certainly would never have intended, and would not support) and direct an amount equal to that lost to revenue by Mitsubishi's closure, towards helping the start up of a new industry (or industries) in South Australia. Such new industries could take up the displaced Mitsubishi workforce and make a similar contribution to the economy.Direct government involvement
It will, of course, become immediately obvious that this approach amounts to nothing less than direct government involvement in industry development. And, while it makes perfectly good sense, it is, as the rest of us know, anathema to current economic orthodoxy.
Far from being a cost to the taxpayer, this kind of industry help would, at the worst, be revenue-neutral. Much more likely, it would deliver a positive return to the taxpayer and to the economy, far in excess of any amounts which would be outlayed. And all of this is without counting how much might be saved on our import bill, which, given the state of our international indebtedness, certainly should be a consideration.
And there is reason to believe that this kind of assistance would most likely work with Mitsubishi. Indeed, we have the example of how the rest of the Australian vehicle manufacturers have flourished under a policy of targeted industry assistance. The industry has even become a significant force in export.
Of course, we need to take into account of the fact that any industry assistance policy comes with a cost, but we should set this cost against the cost of no assistance. Making the calculation in respect of the Mitsubishi sets out clearly what are the consequences of doing nothing. Based on the Mitsubishi example, it is also sobering to consider what might be the cost of not assisting the rest of the local vehicle manufacturing industry.
And if we are ever to become serious about rebuilding our manufacturing sector generally, perhaps a close look at the way we have helped the vehicle manufacturing sector into prosperity will tell us how to go about it.
Meanwhile, what is likely to happen with Mitsubishi? It's always hard to tell in an election year - especially with a government which appears to have its back to the wall.
And, even in this era of non-intervention, it is possible to point to examples of the government adopting a bail-out strategy.
Perhaps Mitsubishi will join that small select band. If not, the rest of us taxpayers can look forward to a significant increase in welfare outlays to sustain those who previously were supported by the productive efforts of Mitsubishi.
Surely neither they, nor us, would prefer the unemployment option.