Saturday, December 14, 2013

Holden's fate will have little effect on economy

Contrary to appearances, the economy is not falling apart nor has the Abbott government taken leave of its senses.

The threat to the economy from Holden's decision to cease making cars has been greatly exaggerated by those with axes to grind - the opposition, the motor vehicle union and other industry apologists, plus the overexcited media.

The greatest threat comes not from what happens to the car industry - nor from Qantas' plan to lay off 1000 workers - but from the risk that all the talk of job losses could leave people in industries far removed from the troubled sector with an exaggerated impression of their chances of losing their own jobs, prompting them to become more cautious in their spending and housing decisions.

There is no denying the Abbott government is off to a rocky start, with its backing and filling over the Gonski education reforms, its ruminations over continued Australian ownership of Qantas, and its refusal to permit the foreign takeover of GrainCorp casting doubt over Tony Abbott's election-night claim that Australia is now ''open for business''.

What we have had from Abbott is clunkiness. It's been hard to detect the hand of a government that knows what it is doing and where it is heading, let alone one that can articulate its destination and reasons for wanting to take us there.

But its most controversial decision so far - to decline to keep paying the protection money demanded to defer General Motors' departure from production in Australia - offers hope that this is a government with the courage to give genuine leadership, to make the unpopular decisions needed to secure our economic future.

If we want the economy to return to a healthier rate of growth, with rising job opportunities, the answer is for our businesses to find new and better ways to make profits, not for them to become ever more reliant on government subsidies.

It is for us to face up to, and adapt to, a rapidly changing world economy, not use taxpayers' money to try to prevent change, eventually turning our economy into an industrial museum.

If we want the federal budget to be returned to balance without huge hikes in taxation, part of the answer is to stop providing welfare to industries as well as people.

It is understandable for older Australians to be sentimental about the end of car making by our first car maker - even though most of us stopped buying locally made Holdens many moons ago, just as most of us have stopped using Qantas to fly overseas.

How much tax are you prepared to pay for sentimental reasons?

It is also understandable for older Australians to worry about the decline of manufacturing. If we stop making things, where will the jobs come from?

Employment in manufacturing has been falling since the early 1970s, during which time the workforce has doubled. Manufacturing now accounts for only about 8 per cent of total employment.

Do you really believe the remaining 92 per cent of us have phoney, inconsequential jobs? The big jobs growth has been in education, health, community and business services. Where will the jobs come from? That's where. The same thing is happening in all the rich countries.

The prospect is for the rate of unemployment to keep creeping up next year until the effect of record low interest rates causes spending on consumption, home building and business investment to recover and take the place of the now-declining investment in new mines.

What happens in car-making will have a negligible effect on what happens to unemployment everywhere except Adelaide. For a start, few jobs will be lost until the plants close in 2016 and 2017.

It's planned that 2900 jobs will go from Holden, with a greater flow-on to the parts-makers. But car and component manufacturing account for only about 0.4 per cent of total employment.

Even the end of local car-making wouldn't mean the end of cars. Saul Eslake of Bank of America Merrill Lynch reminds us there are five times as many people employed in the wholesaling, retailing and maintenance of cars as are employed building them.

Car-making ended in Sydney in the 1980s. Steel-making ended in Newcastle in 1999. Since then, both cities have not only survived, but prospered.