Toyota, closures and protectionism

Toyota is closing down its Australian operations, with production ceasing by 2017. The need to keep chins up is strong. Murdoch presses such as the The Courier Mail extol the heroic Australian character of innovation in the face of the despairing reality. Rather than despairing, there is a sense of "good riddance" in the note. "Industry protection, especially in an economy with a very small market, seldom produces world's best practice and pricing" (Courier Mail, Feb 11).

The reasoning is ideological and to a degree, nonsense. It is certainly the view of the Abbott government, which has made it clear that it wishes to drive a stake through the culture of "entitlement". The age of the hand out is, in the finest, if cruel traditions of laissez faire economics, dead.

The reality is that some industries thrive with a degree of protection. Australia is hardly immune to the protectionist bug – after all, the mining industry is sheltered and protected by an assortment of schemes that would, in the main, be regarded as distorting to the market. It is, after all, Australia's golden calf.

In June last year, the Productivity Commission found that $492 million in direct subsidies had been provided to the mining sector in 2012. The Australia Institute suggested that the amount is even higher, taking into account tax concessions. As the Institute's senior economist, Matt Grunnoff explained, "The mining industry has the lowest corporate tax because is has so many tax concessions" (ABC, Jun 25).

As a comparison, the car industry was receiving, in 2013, some half a billion dollars. The mining industry, by sharp contrast, received $4.5 billion. That very fact must surely make those free marketers in government puzzled, though double standards and the mining industry have always been good company.

National car industries tend to be matters of pride and considerable cost. Not all states have them, and those that do know that governments will back them. The nub of the matter is viability: back industries that give returns. Germany might have protections for its car industries (subsidies of $90 per car), but their products are unstintingly reliable. People will pay a high price if they know they will get the quality that comes along with it.

Australia's subsidy regime comes at a more modest $18, but the consumers have not been convinced by what they see. And much convincing has to be done for both overseas and local buyers. Australians themselves have over 60 brands to choose from, which makes the domestic market a nightmare for contenders. As Talk Torque Automotive's Bill Malkoutzis explains, "It is actually very unusual, we probably have more models and brands in our market place than possibly any market place in the world, even America" (ABC, Dec 11, 2013).

The result of the smorgasbord has complicated the industry strategies of car manufacturers. Tariff protections are minimal; subsidies have been present but hardly high relative to other car industries. Good money after bad has been the backdrop of car industry policy in Australia – some $30 billion has issued from the public purse in the past decade alone. Even Ford and Holden found it hard to stomach after sometime and it is no surprise that Toyota decided to follow suit.

There is one awful truth in all of this: Australian made cars do not sell, at least at a sustainable rate, even if they issue from a Japanese brand label. The Courier Mail is careful to thump the chest just a little: this is not because Australian cars are poor. Heaven forfend, as "we do build and design truly world class cars". (Concepts such as "world class" are meaningless and vague.) Blame, suggests the editorial, the evils of competition and "emerging nations" who have superior economies of scale. Note the subtext here: they do not have cars of class but simply quantity and cost on their side. Cheap, and nasty, works.

While embracing a carte blanche globalisation ideal without reflection is half-baked, a policy that yields no results is almost as bad. The reasoning is scatter brained: on the one hand, globalisation is good yet terrible (there will be tens of thousands of people out of work as a result of the closure); industry protection is bad (yet countries with successful car manufacturing bases do it); and finally, Australian cars are fabulous, but don't sell in sufficient numbers. The future unemployed have every right to be indignant.