Australia’s Manufacturing Crisis
On May 23, Ford Motor Company announced it was closing its manufacturing plants in Australia. Local manufacture ceases in October 2016. This announcement does not end the availability of Ford vehicles in Australia. But it is an admission that manufacturing costs that were twice as high as Europe, four times as high as Asia, were no longer tolerable. And this, from a company that has received millions of dollars in aid from the federal government.
A month later, General Motors Holden (GMH) upped the ante on Australian auto manufacturing be declaring its costs had to come down. GMH, the Australian “version” of General Motors, also has received millions in aid from the federal government.
Now here’s what so interesting. That is spite of the federal aid, auto manufacturing in Australia is uncompetitive vis-a-vis the rest of the world. There are several reasons for this. One is the population size of the country, just passed the 23 million mark. Another reason is the high cost of labor, thanks to union power and tariff protection.
It just goes to show that government aid cannot, in the long run, overcome market conditions. For decades, Australian workers were “guaranteed” a higher wage level by making it difficult for cheaper foreign goods to be imported and sold. But the barriers did not remain. Eventually, market forces won and slowly Australian manufacturing is in more than a spot of trouble. It is having a fundamental shakeout.
The manufacturing companies that are surviving are those with a view to niche markets, making use of high-tech. There are Australian manufacturers who are not closing their doors, but rather expanding their skills in the world-wide marketplace. Medical equipment is one area where Australian manufacturers are contributing with outstanding success. But the numbers are few.
Australia is a physical island – an island continent. But when it has tried to manage the economy on that basis, the tariff barriers could not withstand the economic benefit Australians would have from getting access to cheaper economic good.
Hopefully, with the demise of auto manufacturing in the country, someone in government might be brave enough to suggest that automobile tariffs can now be removed. And then the cost of motor vehicles could come down, providing one example of an improvement in the cost of living for most Australians.
But unfortunately, there are still too many people who argue that a few should get a benefit at the expense of the many.