Automotive surrender: The demise of industrial policy in the Australian vehicle industry

Abstract

Australia developed a strong and successful automotive manufacturing industry after the Second World War, based on active industrial policy. But in 2017, mass vehicle assembly in the country will cease altogether, as the last global automakers operating in the country close their final plants, with negative spillover effects along the automotive manufacturing supply chain. After 2017, Australia will be the only major industrial country with no vehicle assembly whatsoever. This article analyses the shifts in industrial policy that explain both the initial postwar expansion, and the subsequent decline and closures. Policy-makers incorrectly assumed that the critical goal of stimulating automotive exports could be achieved through trade liberalisation, but dismantling tariffs only stimulated vehicle imports without increasing overseas demand for Australian cars. Production declined in tandem with tariffs, and there was no clear industry policy strategy for facilitating the redirection of released resources to more productive manufacturing activity, when that outcome, predicted in neoliberal comparative advantage theory, failed to materialise. Financial market deregulation, resulting in financialisation of the economy, coupled with high commodity prices, resulted in an overvalued and volatile currency, attracting foreign investors to resources and asset speculation while appearing to increase manufacturing production costs. A clear contrast is drawn between Australia’s policy passivity in recent decades, and the continued policy activism visible in other jurisdictions of all political orientations – including countries which, particularly after the global financial crisis, faced economic and industrial challenges at least as daunting as Australia’s. In the 1970s, Australia had been among the world’s top 10 auto manufacturers; after 2017, it will be one of only two G20 countries completely lacking mass automotive manufacturing capacity. The industry’s disappearance from Australia is shown to have resulted from some unique policy choices: understanding them may help avert future similar policy errors.