The statement that proposed subsidies are unprecedented is pre the looming Detroit bailout, to be some $US24bn initially just for GM I believe. As Michael Moore says having spent that they'll come back for another handout next year. The problem I think is that the car market is set for a major transformation but nobody is quite sure what form it will take. Some people's mobility needs will be met by plug-in hybrid electric cars and they will have the purchasing power to buy them. Others will miss out on both counts. People doing heavier work or long commutes could benefit by natural gas cars, except that few garages have the filling points and home fuelling equipment is expensive. So any retooling by car companies is a leap of faith that may backfire disastrously. The natural reaction is to ask for protection and try to resume business as usual.

I'd be inclined to give timed out protection to develop green cars to see if they meet market needs. If after say two years the market is paralysed then try something else.

I'm surprised that an economist as esteemed as the author would ignore the fundamental concept of "knowledge spillovers'. The diversity of high level technical skills in the automotive industry eventually show up in other industries and enhance them as staff turn over. This is different from the immediate economic multiplier (which is generally close to 3 with high local content industries). A good example of the knowledge spillover is Telstra. Technical people trained in Telstra became the wellspring of our electronics industry. The downscaling of Telstra's research labs was a national calamity because of the loss of ongoing knowledge spillovers, although there was an immediate gain (Ergas wrote on this 20 years ago comparing various national technology strategies). As Ergas would know, knowledge spillovers are a "market failure" because they can't be appropriated by the knowledge generator. Inappropriability, along with indivisibility (eg size) and risk (eg R&D) are the well-accepted areas for Government subsidy to induce a socially desirable level of activity.

Personally, I suspect that hybrids as we know them won't do much to improve the environment (see my OLO of 28 October on Net Energy Analysis). However, it will take time to figure all this out and the meantime we need to preserve our skills base as best we can. It won't be done by the hamburger flipping children of classical economists.

The 'assistance' package is all the more absurd when one considers there are three manufacturers serving just 17 per cent of the population (more than 80 per cent of the population buys imports). One can say therefore that there is ONE car manufacturer for a ONE MILLION of population. Absurd to think this is sustainable where countries with 20 times this dont contemplate manufacture, but Australia does.

This is real beggar-thy-neighbour stuff when one considers that 80 per cent of Australians are paying inflated prices for cars to keep that other 20 per cent supplied with oversized, old-technology cars (mainly bought by the commercial sector.

A word comes to mine, obscene and naive economics.

Jedimaster is rather optimistic (and demeaning of the writer) in asserting that he is not aware of knowledge spillovers. Spillovers (and externalities, multipliers etc) are oft quoted by those seeking to amplify their industry's contribution to the economy. We have been making cars for five decades, and while during that time there may have been some spillover, the cost from assistance measures has been huge. More than that, if the same assistance (or money left in our pockets, for lets be clear "assistance" is our money)was applied to new technologies, how much bigger would the value of the spillovers have been than applied to car production?

Nice try to talk of green cars, hybrids etc, just like what the Big Three are doing in the US in pleading for survival money, but lets be clear, five decades to produce old technology.

It will hurt but its time to pull the lifesupport system. The patient is brain dead.

REMCO
If you read my posting properly, you would see that I did not say that Ergas is unaware of spillovers. In fact, my reference to his earlier work recognises that he is clearly aware of knowledge spillovers. In about 1988 (I have lost the exact reference) he wrote a very illuminating article on different national technology strategies, For example, the US style was to build up a national vision (like project Manhattan, race to the moon, etc) and then kill the project, thus ensuring that the competencies did not remain in an enclave. I found that many of the NASA engineers turned up in the solar energy businesses of the 1970s when I worked there. As I said, there was an immediate benefit for Telstra downsizing and outsourcing, but we have lost critical mass for further training. Most small subbies don't train apprentices for example.

Further, if you read what I wrote (including my previous article) I am skeptical about the present (global) approach to green transport.

As usual, I make a plea for INFORMED on line opinion, not Pavlovian responses at the first trigger word.

OK it gets on my goat to bail out large American corporations who got into difficulty because they made the wrong decisions and use the wrong business plan. These are corporations that have operated in Australia with Australian financial backing since they opened their factories in 1946.

The car industry employs people directly at Ford, Holden and Toyota and indirectly at Ion, Johns Valves, Nippondenso, Lucas, Bosch and all the myriad of small component manufacturers. However if the car plants close what do the unemployed workers do? Become computer programmers? work for Bunnings? go on the dole? ACTU longtitudinal statistics show that 55% of retrenched workers will never work again. When we close plant we quickly lose that skill base - even if we used to pay those skilled workers poorly.

It took 40 years to build at IT industry in Australia that employed 250,000 people by 1992. In that year Telecom was responsible directly and indirectly for $1 in every $4 spent on IT in this country. After retrenching over 100,000 skilled workers large organisations believe we are no longer able to undertake large software projects so the Victorian government invited 5 foreign firms to tender for a large software project 2 weeks ago.

You have to wonder what jobs are available for Australian youth - sales and service jobs with face to face customer contact. Do we go the Brazilian route and confine the labour that' surplus to requirements in slums riddled with disease and poor educational outcomes?

Since 1946 there have been a number of Australian cars, Harnett, Sarich. Can't we build a car for Australian conditions again? If Detroit wants to close its doors then reuse the plant for an Australian design.