Many reasons have been given for the closure of the Goodyear tyre factory with the loss of 600 jobs. The strong dollar, high oil prices, and poor management were all to blame. No doubt the dollar and oil prices exacerbated the problem. Allegations of poor management miss the point. Goodyear has been restructuring its global operations and these Australia-centric arguments do not explain what is happening.
Goodyear has made plain its desire to expand production of "high-value-added tyres in low-cost operations". In other words, Goodyear can make better tyres for cheaper elsewhere. This is the type of decision companies make every day -- how best to meet consumer demand and keep costs down. The scale of the decision, of course, is not an everyday decision. Yet over the past six months several high-profile plant closures have been announced in Australia.
These closures have been in manufacturing -- particularly the automotive industry. This must be particularly troubling for the Rudd Government. Kevin Rudd is committed to Australia having a manufacturing base and "making things". To that end, the Federal Government has revived industry policy. Industry policy, however, has a spectacular history of failure.
This latest setback gives reason to pause and reassess. Inconsistent public policy is a source of uncertainty.
Any large-scale, energy-intensive production process operates under the shadow of the emissions trading system to be introduced in 2010. Low-cost energy, which was a key competitive advantage for Australia, is receding into the sunset.
Australian manufacturing costs are already high and under current government policy the costs are only going to rise.
Industry policy fails in so many ways. At the broader economic level, it fails because governments' ability to promote business is limited. Goodyear has made it clear the closure is not related to any lack of government support. If companies can produce higher-quality goods at lower cost by relocating from Australia, then consumers and shareholders are better off. Taxpayers are better off when governments don't not try to delay the inevitable.
The real losers from industry policy failure are the employees. It is here that the failures of industry policy are real, apparent and very human. Though most employees at Goodyear would have generic skills, some would have industry-specific qualifications and skills in what are now dead-end jobs. While most will get other jobs, some won't; those who entered an industry that was buttressed by government industry policy should feel aggrieved. They all, however, face the emotional costs of having lost their job, of having their career paths disrupted, and the angst of finding a new job. Even when they do manage to replace the lost income, those emotional costs are likely to linger.
Some observers will criticise Goodyear for only thinking of the bottom line and trashing the local community. They might suggest that companies have a social responsibility greater than merely earning a profit. Some might even say we live in a society and not an economy. These are popular complaints against business but they miss the mark. Workers are only one interest group in society. There is no reason why employment need be an act of charity. As Adam Smith said: "Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens." Employment has a dignity far beyond begging.
So, what can government do? First, government should have greater faith in the market. Industry policy simply does not work economically, and the social and human costs of failure are enormous.
The Government should heed a less-trumpeted lesson of the Hawke-Keating era: markets work better than government. Though industry plans abounded, these masked a deregulation of the economy in which many protected jobs were lost. Paul Keating was once asked what he had to say to those people. His answer: "How do you like your new job?"
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