Hybrid car deal critic calls for Industry Minister to go The...

Hybrid car deal critic calls for Industry Minister to go

The World Today - Wednesday, 11 June , 2008 12:15:00
Reporter: Emma Alberici

EMMA ALBERICI: Another critic of Labor's green car plan is Professor Paul Kerin.

He teaches strategy at the Melbourne Business School and has written extensively on industry policy.

Not only is he a critic of the Government's decision to prop up the local car industry, he's calling on the Prime Minister to sack Industry Minister Kim Carr, whom he says is being held captive by vested interests in the unions and the car industry, and has no regard for the public interest.

Professor Kerin joins me on the line now.

Professor Kerin what's wrong with handing the car industry $35-million if it means some production stays in Australia with the jobs and flow on benefits that initiative brings with it?

PAUL KERIN: Well the issue is does it really actually produce any incremental benefit at all, particularly when Australia is at largely full employment anyway and we've got big supply constraints, that's one issue. I don't think it actually will generate net new jobs anyway.

Second issue is if we want to create jobs there are more productive sectors to create those jobs. In fact even Ken Henry said last year, the Treasury Secretary, that subsidising one industry in a situation where you've got full employment really makes us worse off because we're diverting resources from more able users.

The other issue is just Government should really be maximising value per dollar spent, even the $35-billion which sounds small in the scheme of things compared to $500-million green car fund - you know just a rough back of the envelope calculation on what is the benefit there, well $35-billion that is a one off, assuming there's no other subsidies - when you consider consumers will be paying an extra $4,000 for this car, when you look at the total additional cost per lets say - litre of petrol saved and therefore emissions, even if you believe the jobs are incremental the extra cost per job saved, even if you believe jobs are saved the cost is far too high even in terms of cost per litre of petrol, saved us about 20 cents.

EMMA ALBERICI: In fact the Productivity Commission last week tabled its report to the Steve Bracks review into the assistance for car industry. It found that any kind of protection offered to the car industry would reduce national economic welfare, make no material contribution to lowering green house emissions, and cost $300,000 for every job saved.

PAUL KERIN: That's right.


EMMA ALBERICI: The Government of course says that the Productivity Commission report is like all others, indicative of how the commission is guilty of providing what Kevin Rudd says is a dry hard line on most matters put before it?

PAUL KERIN: Well in fact that is why I suggested a number of months ago, that Kim Carr should not be Industry Minister because that's been a deliberate plan to bypass the Productivity Commission for a long time.

Part of the deal of Kevin Rudd getting support to be leader was that an auto review was fast tracked and that it not be done by the Productivity Commission, which was passed by Labor’s national conference soon after Kevin Rudd was elected.

That was the deal, they're carrying out that deal, it's not Australia's interest, but it was necessary for Kevin Rudd to become Prime Minister.

EMMA ALBERICI: What do you mean?

PAUL KERIN: Kim Carr is very powerful. Putting the Prime Minster and Julia Gillard together on a team, for them to get elected they needed support from Kim Carr's faction and of course the unions are very powerful in Labor. They control 50 per cent of the votes at national conferences, it is an issue in the Labor Party.

While I'm a Labor voter, I'm disappointed that certain actions have been taken that are not in the public interest but are in the interests of certain vested interests.

EMMA ALBERICI: Well Kevin Rudd says he doesn't want to lead a country that “doesn't make anything anymore”, that's certainly a sentiment that resonates in the Australian community.

PAUL KERIN: Yes he's said that many times. And in fact he said that yesterday in announcing the latest $35-billion. It's a remarkable contrast to an article that Kim Carr wrote late last week when he said that it was nonsense that manufacturing was not doing well, and here we are Kevin Rudd saying, “I don't want to be in a country that doesn't make things”.

The messages from Kim Carr and the Prime Minister are totally contradictory. If you compare what Kim Carr was saying prior to the election versus what he's saying now that manufacturing is doing great, and you compare that to so why do we need further assistance. It's very hard to rationalise those statements.

EMMA ALBERICI: But Australia in fact doesn't make much anymore, does it?

PAUL KERIN: Yes it does, in fact total manufacturing has actually grown in real terms.

In fact total manufacturing has actually grown in real terms, total manufacturing volume over the last several decades has grown. And in fact even Kim Carr was pointing that out in his article that manufacturing is growing.

EMMA ALBERICI: Not as a percentage of GDP (gross domestic product) though?

PAUL KERIN: No that's right but even Kim Carr acknowledged last week that that's normal in industrialised countries. As countries advance, customers’ demand for services increase and of course services are going to take up an increasing share of output, and naturally, manufacturing is going to go down in share.

Every country with improving living standards over the last century has seen that. That's normal the fact that auto share of total output goes down, there’s nothing wrong with that.

It might mean that there’s union jobs in the auto sector become relatively more important in the scheme of things, but that's irrelevant to the public interest. Public interest is Australia should produce the goods and services that maximise the welfare of all Australians and subsiding auto-manufacturing is not the way to do that.

EMMA ALBERICI: So you're saying this is more symbolic, tokenistic, than any sort of real attempt to embrace a public interest issue that's addressing the problem of greenhouse gas emissions or creating new jobs.

PAUL KERIN: Well yes it's not the most efficient way to do either and it's a very high cost way to do it.

EMMA ALBERICI: Coincidentally we're in a crucial week for the Doha trade talks, the sticking point as always is industrial market access. Developing countries continue to ask why they are being asked to slash their trade barriers when Australia - a leading proponent of free trade - is itself backtracking.

PAUL KERIN: That's exactly right. Now in fairness to the Labor Government which I voted for, that was also the same issue under the Coalition example with the single desk/

Now to Labor's credit – the single wheat desk, I mean – to Labor’s credit they have now freed up the wheat market and that's terrific and that helps in our Doha negotiations, but they've really cancelled out that effect on what to do on auto-assistance.

The fact that other countries as Kim Carr says, subsidise autos doesn't mean that we should subsidise them to the same extent. In fact for a hundred years economists have known that we can take advantage of other countries subsiding their product. We'll just buy cheap cars and we'll divert those resources to things that are actually more valuable for Australian citizens.

EMMA ALBERICI: Is protectionism for Australia ever warranted do you think?

PAUL KERIN: Only in industries where there are genuine spin off benefits, that is that production from that industry genuinely creates benefits for other Australians that are really not captured by the people who produce those goods.

Now that can sometimes be true but often it's a rationalisation, and the auto industry, I think, they've done that par excellence in emphasising the innovation benefits, for example auto-manufacturing.

Now Kim Carr speaks of what a fantastic innovation record that the auto industry has had over many decades. Well firstly, you could question whether that's true, particularly in a nation that has actually tailored to what customers want.

Secondly if they've got such a fantastic innovation record why do taxpayers and customers need to fork out billions of dollars to support that innovation?

EMMA ALBERICIL: Professor Paul Kerin thanks very much for your time.

PAUL KERIN: Thank you.


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