All we need to do, says Gregory Clark (The Australian, 1 February 1991, p.13), is protect and even subsidise our car-makers for Australian cars to be sold world-wide.

Huh?

If that was the solution, Australia would be one of the world's greatest producers of automobiles. After all, local production has been heavily protected for at least forty years. And it still is! Each car bought in Australia costs about $4,000 more than it need cost because of this.

After all this time it seems that all we can manage are a few niche sales: some station-wagons to Japan, some Capris to the United States. As Mr Clark points out, these rely on the relatively inexpensive marginal costs of production.

Forty years of protection have not made Australia's absolute car production costs competitive with the United States' or Japan's. It seems odd, therefore, to call for more protection to do what it has so far failed to do.

Mr Clark's argument is a restatement of the classical 'infant industry' justification. If a forty-year-old person needs to be coddled as though a child, it is tempting to conclude that the person is retarded, not young.

A couple of corrections are warranted too. As I understand it, motor vehicle export credits are not subsidies. They merely allow car-makers to import vehicles and parts tariff-free to the extent that they export vehicles and parts.

As well as being an incentive scheme, this is an implicit recognition that protecting the motor vehicle industry also imposes costs on it. Imported parts, being excessively taxed (through tariffs) necessarily increase the costs of vehicle production. Likewise the vehicles that a motor company itself uses to conduct its own business cost more than they otherwise would.

This leads to another of Mr Clark's mistakes.

Tariffs do not benefit employment. That is worth restating and rephrasing because so many people apparently hold illusions on the point.

Tariffs cost jobs.

Sure, they are probably good for employment within the protected industry but this is more than offset by the adverse employment effects it generates through the whole of the rest of the economy.

[Remainder of letter omitted from publication.]

Vehicles are such an integral part of modern life that they constitute a significant proportion of any industry's cost structure. An increase in these costs affects everyone, including even governments which must pay more for their fleets at the expense of taxpayers (corporate as well as individual). These costs reduce profits and employment inevitably suffers.

Not only that, if each person's car cost them $4000 less, they would either spend that money on other things (some of which will have been made in Australia -- don't forget that natural form of protection: transportation costs) or not borrow that money from financial institutions, leading to reduced interest rates, a reduced value of the Australian dollar and an improved balance of payments.

The Japanese manufacturing success story should not be attributed to tariffs. It has more to do with a cooperative work force, a high population and, most importantly, a low labour cost structure during the years of strongest growth.

© 1991 - Stephen Dawson