Time to put an end to auto-sector subsidy

Toyota has just announced it will close its manufacturing plant in Melbourne, Australia, ending more than five decades of building cars in the country. On the heels of similar decisions by Ford and GM, it means by 2017 Australia will no longer have an automobile manufacturing industry.

This is obviously dreadful news for the plant’s 2,500 employees and their families. It is not obvious that it is such bad news for Australia. Indeed, while the country’s Liberal government insists Toyota did not ask for aid, what is clear is that the government did not offer it. It’s almost as if Australia believes it does not automatically have to give the auto industry whatever it wants to keep it from leaving — as if it did not believe, as a matter of almost religious conviction, that it had to be in the auto industry — as if it were just

an industry like any other.

Contrast this with events in Canada, where the auto sector has long succeeded at playing on politicians’ peculiar car fetish. Over the years, Detroit has demanded, and won, a seemingly endless series of subsidies, tax breaks, quotas and tariffs, all backed by extravagant promises of job creation — or, in the alternative, massive job losses, plant closures, even the death of the industry. Chrysler’s latest contribution to this oeuvre, a demand for nearly $500 million in public funds to keep its Windsor minivan plant open, is distinguished only by its brazenness. (Ostensibly the company is in “negotiations” with the federal and provincial governments, but with elections coming in both jurisdictions, who’s kidding whom?)

Of course, even with these periodic ransom payments, plants have still closed and jobs have still been lost: Since 1965, the National Post reports, nine assembly plants have closed, while employment in the broader industry has shrunk by more than 50,000 jobs in just the last decade alone. But there can be little doubt the industry is a good deal larger than it would have been in the absence of all this special treatment — including the 2009 bailout, to which the two levels of government contributed a combined $13.7 billion, only a fraction of which has been repaid, or ever will be. Because, as it was patiently explained, the alternative was a Canada without an auto industry.

Whether this was ever true may be doubted: Even if GM and Chrysler had gone out of business, or moved all of their operations south of the border, the notion that all of this unused capacity would not have been snapped up by the other industry players — as if the plants had gone up in smoke — always seemed fanciful. But it’s the underlying, a priori assumption, that Canada must be in autos, that’s noteworthy. Because Australia is in the process of calling that particular bluff.

To be sure, autos do not occupy nearly as large a part of the Australian economy as they do Canada’s: At 220,000 vehicles per year, the Australian auto industry is less than a tenth the size of ours (though not for lack of trying: even there government assistance runs to $500 million a year). But this is the point. The primary effect of our continued generosity to the industry has been to make ourselves hostage to it. Just as the willingness of governments the world over to throw money at the industry encouraged the massive overbuilding that brought it to its knees, so it has created, in Canada, the automotive equivalent of “too big to fail.”

The industry is fond of citing its “contribution” to the Canadian economy in terms of jobs and output, but what it is really talking about is its claim on productive resources, notably labour and capital. The more we have subsidized it, explicitly and implicitly, the more of these have been diverted into making autos that might have been more productively employed elsewhere: That is, in industries that make things of more value to society, measured by what consumers are willing to pay for them, than they cost society to make. But having launched us down this path, governments have been petrified to undo what they have done.

I’m not saying we would be better off without an auto industry. But we would certainly be better off without taxing our own industries every year to pay off Detroit’s extortionists. If there aren’t sufficient economic reasons for the industry to operate here without subsidy, then let us do as the Australians have done: Let it go, and don’t look back.