I joined erudite Drive host Richard Glover, Reserve Bank board member Heather Ridout and former Liberal leader John Hewson for a wide-ranging discussion about government suport for Qantas and General-Motors Holden, climate policy, the 30th anniversary of the floating of the dollar, remembering Nelson Mandela and the importance of tenacity. Here's the ABC 702 audio to listen to. The transcript is below.
Glover: Monday’s political forum Heather Ridout, Reserve Bank board member and former head of the Australian Industry Group, Dr John Hewson former Liberal leader of course and economist and Andrew Leigh, the Labor member for Fraser and the Shadow Assistant Treasurer is also a former professor of economics at the ANU. Andrew welcome to you in Canberra.
Leigh: Thank you Richard.
Glover: And Heather and John welcome to you here in Sydney. Now both QANTAS and General Motors Holden are in the sort of trouble that leaves them vulnerable if not given some sort of government help. So is it a case of the tax payer to the rescue yet again, or do we let such icons sink or swim? Heather Ridout.
Ridout: Thanks for that one.
Glover: Just a hot-ball-pass straight to you.
Ridout: Look, I think both QANTAS and Holden are in similar but different places. Both operating in, their Global players in a Global economy, playing in a global economy with high cost structures and that makes it very hard. But that's where the similarity ends. I mean I think QANTAS wants to be very careful people don't get the wrong impression. It’s a very strong company with a very strong asset base with a very strong balance sheet.
Glover: Their making $300 million dollars also.
Ridout: Yeah and they've got plenty of cash, and yeah, well they are. You know I think that's an issue they've got a lot of options to solve and I think in the airline act restricts their ownership that's one structural issue government can do something about. But they do have options internally and this is an important period in their history. But people shouldn't be concerned about the future of QANTAS.
Glover: Before you go on to Holden should the government liberalize that foreign ownership act?
Ridout: Well I think they should have a look at it. I'm very pro-foreign investment and I think this is one area where business needs to show a bit of good leadership. Australia wouldn't be the country it is if it wasn't for foreign investment. We've always wanted to spend more than we save here and we want to continue to do that because that's given us high living standards etc.
Glover: Okay some people say airlines are different because there's a deference issue about having a national carrier who can help you out in times of trouble.
Ridout: Well I think an awful lot of countries have made that argument but I'm sure there's other ways to skin that cat. But I mean we can still retain a strong interest in the airline and that's only one option. But I don't think, Holden doesn't have those options. I was on the advisory board for Holden for quite a few years. It’s a fantastic company, whenever manufacturers wanted to find a process engineer or a person who knew about innovation… they went to the automotive industry and they still do. Because that's been the hub of innovation, skills, development you name it. But I think there's a much greater ambivalence about the government racing into put more money on the table because people are very concerned the viability of the industry in Australia.
Glover: In other words we might be throwing good money after bad.
Ridout: Yeah, I mean we only make about 200,000 cars now and if you look at a global scale car manufacturer that's a pretty moderate size one plant. But then again I'm very worried that the economy is not that resilient at the moment. To absorb all these people, and there'd be 50,000 direct people that would be affected by this decision. 15.000 or so in South Australia and the average age of the worker in manufacturing, 20% of them are over 55 and you have to wonder whether these people are going to find more opportunities. Whatever government does it shouldn't be about saving money in the short term, it shouldn't be about short term politics, it should be within the context of a very strategic framework about what they’re going to do about those issues.
Glover: John Hewson, are we throwing good money after bad? Does the tax payer need to come to the rescue with these companies?
Hewson: Well in terms of Holden, I mean it’s been on the cards for a long time. I remember answering these questions in the early 90's saying that we'll probably end up wasting billions of dollars and it will end up in tears anyway. It's an inevitability given it’s a global business as Heather said, the decisions are not made in Australia with Australian interests at heart really. So I think what you need to do is look at the reality that it is going to go, and the transition for that which Heather's actually mentioned in terms of some of the problems with older workers and so on. You can argue that they've all known about it for quite some time but nevertheless the government could play a part in facilitating the transition away. And preserving the design and engineering skills that underline the motor industry in some form.
Glover: Is that possible? See some people would say that if you want the motoring industry to do what it’s been doing over the last 40 years which is to provide this training and this sort of basin this knowledge of engineering at the heart of the economy that's difficult to replicate in any other way.
Hewson: It may be true but I’d have to say that the Australian population has moved against Australian made cars anyway. I think we've got more models per capita than any other country in the world and there tastes have shifted away from Fords and Falcons and Commodore's.
Glover: I was told we've sold 98,000 cars this year to date. 12,000 of them were in Australia. The rest of them imported.
Hewson: Yeah and this is making the point, so you are in that sense you are throwing good money after bad. Trying to just save them, give them another 150 years which I thought one proposal was today, which you know is not going to achieve the result. The decision I would guess has been made on global considerations. You source the parts, you source the people, you source the processors in the cheapest location that gives you the product you want. Globally they are going to do that and they've been doing that in the car industry for a long time. A car is a global product not a national product whatever we might like to think.
Glover: If that's a hopeless cause what about QANTAS?
Hewson: QANTAS is difficult because I mean it’s an icon there's no doubt about it and there're arguments about it, but I personally think QANTAS has been very badly managed over a long period. I mean there were opportunities back it the 80's I believe the link QANTAS or merge QANTAS with Cathay pacific, which would've given us a really genuine, significant Asian-based airline ahead of everyone else, ahead of Singapore, ahead of Emirates and so on. Which would've been a very good opportunity, and it’s still probably there. You could change the foreign investment restrictions and allow someone like Singapore or emirates to buy 25% of QANTAS for example. But the value of QANTAS is not reflected in its share price, I mean Heather's right its inherent value its breakup value is much more than the share price. So, there's a lot of options internally that they could pursue?
Glover: You mean if they sold Jet Star or they sold frequent flyer?
Hewson: Yeah and focus their activities more directly. You know I guess that, I remember Alan Joyce a year or so ago when his bonus was in question because it had been tied to the share price. The share price had collapsed and he was still arguing that he still deserved a bonus even though the share price had collapsed. Those sorts of things actually leave a lasting a lasting taste in your mouth, and then you turn around and ask the tax payer to bail you out. When your borrowing status is junk status and you ask to government for a triple A borrowing status, I mean you're asking an awful lot. I don't think that should be perused and I don't think putting cash in or the government buying shares is sensible. But perhaps easing the foreign investment restrictions and allowing them to link sensibly with another major regional global airline would make a lot of sense.
Glover: Andrew Leigh your side of politics has said firmly no today to that idea of loosening the foreign ownership requirements on QANTAS.
Leigh: We have Richard and our view is QANTAS ought to remain a majority Australian owned Australian Airline. It’s the national carrier it’s one that I think Australians are pretty proud of and so we've taken then view it ought to be a majority Australian carrier.
Glover: What if that makes it impossible to run successfully in a modern world?
Leigh: Well I think there are a range of approaches that can be taken here. Chris Bowen for example has suggested a modest equity injection by the government as a show of faith to the markets. But I think it is time for careful and consider deliberations on this. And I do get a bit worried when I see fraught by so much in-fighting over these questions rather than that sense of unity and purpose that I think you need on both QANTAS and Holden.
Glover: But let’s talk about Holden for a second. I think it’s been put quite firmly by Heather and John, really this is not sustainable that we could throw $150 million at it and not really see anything in the end for our money.
Leigh: Well I think it also has to do with the confidence that you send to the markets. Again the in-fighting between Ian MacFarlane and Joe Hockey over this hasn't been helpful. And when you look at the Wall Street journal report today suggesting Holden pulling out of Australia, I think that's in no small part driven by the sense that there isn't a sense from the Australian Government that they strongly sought to keep a strong manufacturing base in Australia. I think that is important. As an economist we talk about the two economical reasons for industry support as being spill-overs into other industries and geographic concentration, and those things do exists in the car industry. Highly geographically concentrated and tied into a very large network of part distributors all of whose jobs are at risk if Holden falls over.
Glover: But if Australians don't want to buy the cars what can you do about them? You can’t force them to buy them?
Leigh: Absolutely not unless you're talking about the government fleet, in which case the federal government has been doing very well in purchasing Australian made cars and some of the states could frankly lift their game. But overall I think it’s about making sure that there's good product on offer. Australian made cars aren't a majority in the market but they are a significant minority and they are good vehicles.
Glover: Okay, the tax payer money is valuable. I mean they've been given such a lot of money over the last 20 years, do you really give them more?
Leigh: Well the point that somebody like Kim Carr would make for example, is that there isn't an automobile on the road that isn't supported in some way by government assistance from a government around the world. And Kim would argue Australia needs to make a strategic choice about whether we want to remain one of the dozen or so countries in the world that can make a car from scratch, or whether we want to step back from that and be a nation that can't manufacture an automobile.
Glover: Heather Ridout, Lez on the email makes the same point. He says check out the sort of assistance given by the Germans and American governments to their car industry. In other words the idea of subsiding cars is done around the world.
Ridout: Well it is and we're per capita quite a low subsidizer, but you know the thing is American and German productivity is much higher than ours. They've got much more scale and their industries have much more future and I think that's very important to recognize. The other thing we have to remember we don't just make cars in Australia, we make trucks, we make caravans, we make a lot of fuel intensive things like cars and if we employ 50,000 directly say in automotive manufacturing we'd employ another 25,00 or so in this other area. They get very little assistance and they're doing not too badly and the supplier industries to them are not doing too badly. So the end of car manufacturing would be I think regrettable but it’s not the end necessarily. These trucks go to the mining industry; we make half of the trucks that go into the mining industry in Australia. We make them you know all over the place.
Glover: So you're agreeing with what John Hewson said earlier, is that if you want to keep manufacturing and engineering skills supporting the car industry is not the only way to do it?
Ridout: It’s not the only way. High tech manufacturing in the defence industry is another way. A lot of people who used to supply to the car industry now supply defence and government need to get their act into gear in that regard. So there are opportunities that I cannot underline the fact more that this decision will be very important to Australia and it needs to be very carefully handled because a lot of people will be badly affected by it.
Glover: …We'll check the Sydney traffic in a tic, but first this. It’s the 30th anniversary of the floating of the dollar. Part of the push under Paul Keating [was] to see tariff walls removed, foreign investment embraced and government owned enterprises privatised. Was it a great period economic rationalism or economic liberalisation depending on how you look at it? Looking back at that period did we take some of the changes too far or too fast? Or is it a case of as Mr Keating has clearly been putting television to Kerry O’Brien that he created the basis for Australian prosperity during this period, John Hewson?
Hewson: Look I don't want to get into the debate between Bob and Paul as to who did what and when and how, but I've heard both versions. Look I think there is an inevitability, when I came back from working in the IMF in the early 70's to work in the reserve bank, I was absolutely convinced our inward looking, insinuator, un-competitive financial and economic system was going to have to change, it was going to have to be opened up. We couldn't have centralised wage determination the way we'd had it, we couldn't live with the tariff levels we'd had, we couldn't live with the regulated financial system we'd had. So that process was actually started in the Fraser government and I thought there was an inevitability that whoever was in power come the end of 83 or early 84 when there was the next run on the exchange rate that they'd float and I actually predicted that. I did see that happening.
Glover: Why couldn't we stay as we were?
Hewson: Because you could not defend the indefensible. We had an exchange rate that was set at an artificial level, we had a regulated baking system which lacked any form of effective competition and tariff walls were unsustainable in a world that was globalising. So I think there was inevitability about it. Having said that give them credit where credits due. I mean they did take the decisions when they were there. I remember for example I think in the Labor party platform in 1983 they still had bank nationalisation listed and they licensed 16 foreign banks. It was inevitability, they had to change. To their credit they did, they managed the process very well without entering the fight between Bob and Paul.
Glover: Andrew Leigh did we take things too far or too fast during that period?
Leigh: It's funny Richard when I heard you ask the question I though John Hewson was going to answer (c) not fast enough, given the debate over it that happened in 1993. But the credit really has to go to John over this as well for not pushing the raw politics of the issue. I think trade liberalisation and a floating dollar have always been inherently tough issues. They are complicated economic areas and I guess the distinction I'd draw, and I don't want to be too political about this but is between the view that John took in 1993 and his former media adviser Tony Abbott in 1994 was still against the float of the dollar. I think the float of the dollar was a great thing in that it provided a shock absorber if you like against the Asian finial crisis, the tech wreck, the global finial crisis. You know previously these terms of trade shocks when they came along in the 30s, the 50s, the 70s, they blew the place up. We had inflation, unemployment going through the roof and thanks to a floating dollar we didn't have any of that and thanks to good politicians on both sides of the house. Keating of course but also national interest Liberals who supported him.
Glover: Let me ask about tariff walls coming down. I ask because partly because of course because we're still talking about this with QANTAS and with Holden in particular in a sense. What do you say to people that were employed in the clothing and footwear industry and saw their jobs disappear as the tariff walls disappear and now face a world where you really can't with ease buy an Australian shirt or an Australian pair of undies?
Leigh: I think it goes back to something that Heather said before about the importance of moving up the value chain. She was talking about manufacturing but it holds in textiles as well. We moved from making kids pyjamas and school shoes into doing high fashion, that's the Australian clothing and footwear sector today.
Glover: It’s a lot smaller though, it’s a much smaller sector isn't it?
Leigh: It is but consumers have benefited to the tune of a few thousand dollars a year in the pockets of the typical house hold. I remember my parents used to have to save up for a pair of kids school shoes and now you can buy them for $6 or $7 in Aldi. And that's a big difference to a family that's struggling to afford the essentials
Glover: Was all that stuff that happened 30 years ago a good thing Heather? Did it go too far, too fast, not far enough?
Ridout: I thought it was fantastic and you know I think those reforms set Australia up, and they coincided with a time when the whole world economy was globalising. When we really needed to take advantage of the freeing up of world trade and I think that it was a series of reforms, they were very hard won. You might say that we had some bi-partisanship around them but it wasn’t easy because outside of parliament. There were piles of vested interest lined up against these, so they were very well executed. I think going to what Andrew said I was going to make the same point the floating of the dollar did help us whether our way through a number of shocks to the world economy and we haven't had recession in 22 years in no small part due to that. Now the high dollar at the moment has got everyone exercised and that's really causing a lot of structural change across industries and Australia. But there is no doubt that Keating and Hawke and his predecessors and everyone around did a great job.
Glover: What about the privatisation part of it? I mean some people still say QANTAS if only we hadn't of sold it. Commonwealth Bank would've given us a means of controlling things through the economy, setting interest rates, stopping profiteering. Even the situation with Sydney airport people say natural monopoly why was it sold?
Ridout: Well I don't think the government owning those things solves the problem. I think you have to have very smart regulation and you have to have incentive for private sector investment to keep them current, to keep technology up to date, to keep their business practices sharp and that's what competition and the private sector can bring to it. You know the idea that the government would go back to owning 100% of QANTAS, well forget them ever making a profit. So I just don't think that's the answer. For one thing I think Australians have become much more risk adverse, it might be a GFC type response but it’s not reform complacency in Australia I think we're rather risk adverse. This is a real challenge to leadership who want to start arguing we ought to privatise Australia Post. Oh god what would happen? Nothing much you know it would probably be better.
Glover: And of course complacency is its own risk.
Ridout: Yes we'd probably get letters delivered on the weekend rather than just five days a week. You know and you'd probably get a whole lot of other things happening and I think this risk aversion that is really endemic in Australia and can be really easily re-enforced by conservative leadership that isn't willing to make some of the big calls. I think it’s a really dangerous thing for Australia
Glover: Monday’s political forum with Heather Ridout, Dr. John Hewson and Andrew Leigh. Now Australia has won the second test after a long series of defeats. What’s the thing in which finally victorious after number of less successful attempts? Andrew Leigh.
Leigh: I used to be a race walker Richard, it’s not exactly the sexiest sport in the world. But I took it up when I was fairly unfit as a kid at school.
Glover: A race walker?
Leigh: Race walker yes. And worked and worked and worked at it and wanting to at some stage win a medal. And then finally after 5 years of training 3 times a week and racing on the weekends I finally managed to win a nationals team medal at a competition down in Tasmania.
Glover: And then you've slumped back have you?
Leigh: Exactly, exactly. I think I switched sports and then out of race walking but it’s a tight knit community and I remember so many times getting disqualified from it. It broke my heart Jane Saville was disqualified in the 2000 Olympics. Because I'd trained with Jane and I'd gone through a tiny fraction of what she had but race walking is that kind of sport where you can work really hard, you can get disqualified and you’re just out of the game.
Glover: Heart breaking. John Hewson, victory after a number of defeats?
Hewson: I attempted to focus on some sporting achievements and so on but look I think at a very personal level I think marriage. I didn't think I'd find the love and peace that I found in my current marriage.
Glover: A few people put up their hands a victory after following defeats if you talk about romance I guess. Heather Ridout.
Ridout: Well I'm trying to figure out a few things that I've done that really challenged me like race walking or several marriages.
Glover: What ones been enough?
Ridout: Yes ones been enough. One and a few kids and a Job and the whole thing. I think probably skiing, I'm so unco you know I fall over and I'm scared of heights. I think years ago when I did that and I was desperately unsuccessful and I learnt to do it and I quite enjoyed it, and now I don't do it anymore because I'm frightened of hurting my knees.
Glover: But you could remember the fear that you had to get over.
Ridout: Yes the fear, the absolute fear you know and then the thrill when I actually felt comfortable that I could go down. That was pretty heavy stuff.
Glover: That’s what the Australian cricketers have experienced a victory after a number of defeats is far sweeter.
Ridout: I hate that talk. I think Australians should be really magnanimous in defeat and all this sort of silly talk that goes on I think it’s quite unfortunate.
Glover: Between Australia and England?
Ridout: Yeah they're good teams and you know you understand a bit of banter on the field. But I think we've got to get a bit of the testosterone out of it all although that might make us win it I don't know. If you got that out of it they might be pussy cats and we'll lose.
Glover: Well this was a great issue wasn't it in the Bradman tour of 48, I've recently read a book about it. The people that had been serving during the war on both sides wanted to play all matey mates because they'd just been through hell together. The people who hadn't for various reasons been in the war said lets go back to the old style cricket of trying to pound each other into the ground.
Ridout: I guess we do it more with words rather than actions.
Glover: Back to the World War II spirits on the cricket ground. Thank you very much to Heather Ridout Reserve Bank board member and Dr. John Hewson here in Sydney thank you very much. And former professor of economics and now Labor member for Fraser in our Canberra studios Andrew Leigh Thank you very much
Leigh: Thank you Richard
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