November 19th 2016

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Articles from this issue:

COVER STORY QUT discrimination case exposes Human Rights Commission failings

CANBERRA OBSERVED Triggs in the gun: loaded section 18C to get overhaul

EDITORIAL First Brexit, now Trump - it's the economy, stupid!

ANALYSIS What is possible to a Trump Whitehouse

MANUFACTURING Foreign ownership no sole reason for breakdown

ENVIRONMENT Billionaires bankroll U.S. anti-coal campaign

LIFE ISSUES Abortion trauma link to male suicides

NATIONAL AFFAIRS Commission's "Get Pell" campaign fails on facts

GENDER AND POLITICS Pronouns, ordinary folk, and the war over reality

NAVAL MILITARY HISTORY A WWII encounter that deserves remembrance

INTERNATIONAL AFFAIRS China builds Great Wall in the South China Sea

MUSIC Dylan's Nobel prize causes song and dance

CINEMA Humanity within inhumanity: Hacksaw Ridge

BOOK REVIEW Bill is $500 billion and counting

BOOK REVIEW Arguments and facts: the man who remade Russia

POETRY Sunset at the Perth War Cemetery

Books promotion page

Foreign ownership no sole reason for breakdown

by John Spooner

News Weekly, November 19, 2016

Jeffry Babb’s review of What Happened to the Car Industry (News Weekly, October 22, 2016) was both disappointing and frustrating. As a coauthor of the book, I felt that Mr Babb hadn’t read the book with sufficient care. I was frustrated because he ignored a crucial challenge to his own view.

Mr Babb conceded that the book was truthful about the “facts”, but he insisted on his own interpretation of those “facts”. He insists that the history of the car industry is one of failure due to its foreign ownership. Forget about the ruinously high Aussie dollar or the unrestricted flow of competing imports (unique to Australia)!

Apparently these companies misjudged demand for small cars (which coincided with a demand for SUVs) and for some mysterious reason had no plans to change course. Somehow or other they couldn’t fit into their own multinational game plan? That judgement simply doesn’t make sense.

Cartoon - demise of manufacturing

To complicate his argument, Mr Babb believes that we should start an indigenous car plant that can live in our uniquely free-trade environment, thereby “plugging into the global car manufacturing industry”. But that is precisely what we had up to now with our component manufacturers.

The model for his new car plant would be Mondragon, a product of Basque worker cooperatives. He also points – quite reasonably – to the great Australian Bushmaster military vehicle, but fails to see the irony of its maker’s foreign ownership.

A careful reading of What Happened would not have missed another important part of the problem. Over the last 30 years, Australian supporters of neo-liberal economics have avoided discussion of our balance of payments crisis. We owe the world a net $1 trillion and our current account deficit is about $85 billion. Industry policy is critically relevant to this crisis.

Manufacturing adds value to raw materials. If we sell $10 of iron ore to a customer who adds $20 to the finished product that we then wish to buy, how do we get the money to pay for the difference? We borrow it.

I’ve heard Australian trade policy referred to as Taliban-like in its fanatical adherence to the theoretical purity of free trade. The rest of the world has been happy to abolish tariffs while keeping non-tariff barriers and manipulating their currency. This has not prevented trade but merely controlled it to the advantage of individual nation states.

Until recently Australia had at least two multinational manufacturers supporting a sophisticated array of component suppliers, all integrated into the global chain of production. These companies were often indigenous and earned real national income.

When Tony Abbott and Joe Hockey dared the auto companies to leave, the deal to keep them here was probably about $300 million a year for 10 years. This figure is dwarfed by comparable industry assistance, such as renewable energy subsidies or negative gearing.

Free marketeers will not discuss our current account crisis because, in theory, it shouldn’t exist. In theory, capital released from one defunct carmaker will flow into more efficient industries. In practice this doesn’t happen. Why would an investor risk his capital if he could not minimise his risk? He would face a floating currency in an environment where predatory imports are rampant and the government is hostile to financial assistance to manufacturing.

Of course some industries such as banking, superannuation and climate change receive generous assistance for pressing political reasons. There is nothing wrong with this assistance per se, unless it is a waste of money.

When U.S. President Barack Obama bailed out the U.S. automakers after 2008, he knew he wasn’t wasting money. He knew how hard it would be to recover from industry destruction. He was not complacent about potential for mass unemployment and social dislocation. So for someone to suggest that little lucky debt-ridden Australia could respond to the exit of Toyota and Holden by just “starting up” a replacement is plain fanciful.

Economies are evolving systems; not the static models preferred by economists, politicians and some journalists. Such systems require experienced judgement rather than blind adherence to theory. If our economy has the fifth worst current account deficit of the world’s 190 nations, then something must be wrong. Why don’t we check the hypothesis behind the theory against all the uncomfortable facts?

John Spooner was a political cartoonist with The Age for 40 years and his cartoons, along with those of Mark Knight, illustrate the book, What Happened to the Car Industry, by Ian Porter. John also wrote the Afterword to the book.

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TRANSGENDER: one shade of grey, 353pp, $39.99

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