The Cars That Ate Reason

Mitsubishi folded car manufacturing in Australia in 2008.  Last year, Ford closed. This October, Holden closed its plant at Elizabeth, with stacks of local workers shown the door and associated industries going to the wall.  It is not as if we made crap cars.  It wasn’t from lack of an enthusiastic local market for Holdens and Fords. And it’s not as if the good old Aussie taxpayer hadn’t stumped-up its fair share of subsidised cash to keep the embers glowing.

Market forces are many and varied. But they tend to follow immutable, organic, rules.  When organised car-making started up in Australia in the 1920s and 1930s, a gap in the market had certainly been identified.  But was there a market in the gap?  It took about 60 years to stave off answering that question, during which successive governments adopted policies deprecated and synthesised by Ronald Reagan: “If it moves, tax it. If it keeps moving, regulate it. And when it stops moving, subsidise it.”

There are several hand-wringing books on the death of motor manufacturing in Australia, notably The Death of Holden: The End of an Australian Dream by Royce Kurmelovs and End of the Road? by Gideon Haigh.  In their search for blame, key reasons for failure, they seem to evince regret for the golden age of subsidies, tariff protection, market-tinkering and union feather-bedding.  The real reason has been muddied by politics, hidden by the mutual consent of vested interests, and eaten by a curious, yet understandable, love of the cars themselves.

What, then?  You don’t have to be Friedrich Hayek to work out some simple home economics.  Economies of scale: 10 million adults, most of whom had one or two cars already, made to last, and a better buy used than losing 15% of the retail price driving off the lot.  And the only real Law of Economics: the price of a good is determined by the forces of supply and demand.  As the Penguin Macquarie Dictionary of Economics & Finance (1988) observes, “supply and demand are like the two blades of a pair of scissors: you cannot tell which one does the cutting!”

Only, don’t expect our friends in power to make the correct guess. The modern trend for government to blunder in, to palliate ‘market failure,’ to develop ‘industry policy,’ and to establish ‘public-private partnerships,’ amounts to little more than theft by decree.  As Adam Smith pointed out in The Wealth of Nations (1776), “There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.”