The Rudd Government’s foray into the car manufacturing industry looks set to divide expert commentators. The Australian is already running what seems to be a fairly strong editorial line in opposition to the $35m subsidy granted by the federal government to Toyota towards the development of a hybrid Camry, on the grounds that Toyota was going to fund the development regardless. It goes without saying that your average economist is probably going to be very sceptical that such a grant amounts to much more than rank economic protectionism; an approach that should have been buried last century. On the other hand, one would imagine that the average environmentalist is going to feel generally positive about the grant, which has been matched with another $35m from the Victorian Government.
Philip King’s observations in The Australian exemplify the orthodox economic argument:
There’s only one winner out of the announcement that $35 million will be handed to Toyota to produce a hybrid Camry in Melbourne. It isn’t the Government, the car workers, the environment or the Australian consumer.
It’s Toyota.
…
It means threats by a senior executive last year that Toyota might quit Australian manufacturing can now be put on hold, for a few years at least.
Beyond that, the dividends look dubious in the extreme. Toyota was on track to make the announcement in a few months anyway and claims it already had the business case sewn up.
I am neither an economist nor an environmentalist in the formal sense, but I am a little sceptical about the real benefit that this grant will bring. By the sounds of things this grant has been made to Toyota effectively as a kind of reward for exhibiting willingness to pursue the development of hybrid technology. It does not seem that Toyota’s work on a hybrid Camry was contingent on receiving the subsidy; it was going to happen anyway. However, now that the company is to receive the subsidy, it has also been burdened with a greater degree of public responsibility with respect to green car development. Toyota is directly receiving funds from taxpayers, and I am sure that the Rudd Government and indeed taxpayers will make it clear that they want something in return for their investment.
This first grant from the Rudd Government’s $500 million Green Car Innovation Fund does represent something of a watershed, and it does fly in the face of the established economic orthodoxy. It will make the usual suspects angry as a result, but I am not sure we can seriously expect a workable alliance to be built on climate change issues without some give from both industry and the taxpayer. That this grant also represents a pork barrel salve for Australia’s slowly dying car manufacturing industry is perhaps too politically convenient for Federal Labor for comfort, but the mere fact that this is an economically unorthodox step does not mean it is a misstep. Over the coming days, I expect that we will see a number of conservative economic pundits make the mistake of rebutting the rationale for the grant based on a dogmatic argument rather than a reality-based argument.
Tags: Hybrid Camry, Protectionism, Toyota
Is the reporting of a brand name of a product or business in news reports like the ABC amount to advertising?
It is a fine line really. I think common sense has to prevail though – you can’t really have the ABC saying that an “unnamed car manufacturer” was getting a $35m grant from the government. That’s just needlessly evasive.
[...] Guy Beres asks…Is this protectionism or is this investment? [...]
Something is certainly amiss in opportunities lost so far concerning the long awaited Rudd term. There are signs that the economic and environmental impacts of not having established an energy policy framework will be of consequence. Of course there is always the ‘honeymoon’ clause but to date we have 1/ a budget which did not introduce changes to excise or other instruments 2/ an issue called ‘fuelwatch’ which has wasted a lot of steam and seems to have been a quasi policy replacement – which backfired 3/ the toyota hybrid announcement which has buffled everyone and now 4/ announcement that the government will lobby regionally to address asian petrol subsidies.
In sum, nothing of substance which could be called transport reform but government measures in their place which are both costly and not directed at the heart of the matter…which is Australias reliance on imported oil and heavy dependance on road transport.
What is positive is that the media is discussing energy and transport in a mature way which has really not been seen in the last ten years. If the government is wanting of policy direction a lot of relevant issues and ideas have been floated in the media and we can only hope cabinet is reflecting upon the information circulating in commercial media and blog land.
Barney Foran discussed the concept of efficiency very well in the Future Dillemmas Report 2001 and used a term ‘ energy rebound efffect’. This is important because a lot of debate and ideas hinge on the concept that if we have more efficient cars and appliances we will escape an energy crisis. This is quite wrong as the rebound effect theory explains. Without counterbalancing measures to address consumer demand (in short without a ‘holistic’ approach to energy policy) the reverse will occur…ie efficiency gains result in an ovreall net rise in energy use. I found this report very valuable as it looked at the entire physical inputs and outputs of the economy which is a very holistic approach and it supplied some very good answers for policy makers…alas…this report ended up on 4Corners because the Howard government shelved the report and cut out the conclusion….as they say you can lead a hores to water…
Nigel
Well hopefully the government is saving up its reform efforts for after the Garnaut Review concludes. I think its really to early to draw any firm conclusions about this first term as yet, but i agree that so far it does not seem that transport is featuring very prominently on Federal Labor’s agenda for the nation.
[...] fleeced and Jono both speak out against the $35 million offered to Toyota to build a hybrid car manufacturing plant in Australia. Guy Beres has distinct reservations about the Rudd government’s decision to subsidise Toyota. [...]