Holden might be an iconic Australian brand but many locals have decided they'd rather drive something made overseas.

Holden might be an iconic Australian brand but many locals have decided they'd rather drive something made overseas. Photo: DAVID MARIUZ

In his 1998 memoir As It Happened, the Hawke government’s industry minister, John Button, recalled a telling exchange between Paul Keating and the automotive industry. In the government’s first term, a delegation of car makers and unionists came to Canberra pleading for additional assistance. One of the business executives complained that, “if imports continue like this we’ll soon all be driving Daimler Benz”, to which Keating replied: “If that happens, we’ll all be much better off.”

We now know motorists agreed with the then treasurer. Last year, nine out of 10 new cars purchased in Australia were from overseas. In effect, consumers have decided they don’t need car manufacturing in this country. They prefer Daimler Benz and a range of other international roadsters. The industry’s imminent closure was not a decision of government; it was a decision of the Australian people.

Button continued his account of the car meeting, with a harried union official emphasising how “people were getting pretty worried on the shop floor”. Then Keating, “his eyes smiling, speaking softly”, intervened. “You’ve got to remember”, he said, “that the shoe is designed to pinch.” Circa 1984, this was a new and unexpected interpretation of industry policy.

John Button and Paul Keating, pictured in 1998, helped shape the future of the Australian car industry.

John Button and Paul Keating, pictured in 1998, helped shape the future of the Australian car industry.

Later that afternoon, Button accompanied the delegation to the front door of Parliament House. The trade unionist “seemed slightly dazed”. “Shit”, he exclaimed. “Would you believe that? Did you hear what that bloke said? He said, ‘The shoe is designed to pinch’.”

The Labor Party has come a long way in the 30 years since this meeting – a long way backwards. Far from a pinching shoe, opposition industry spokesman Kim Carr wants to fit Australian manufacturing into a big, sloppy Ugg-boot. He has repudiated the Keating-Button legacy with the retro-economics of corporate welfare.

Carr tries to give the illusion of a sophisticated strategy, using fancy terms such as “co-investment” and “industry policy settings”. In fact, he believes in a crude, Third World-type tactic: throwing government funds at multinationals. We know the Australian people don’t support this approach because they have been unwilling to throw their own money at locally produced cars. As taxpayers, why would they want to do something they have refused to do as consumers?

If the shoe doesn’t pinch, companies become complacent and inward-looking. They grow accustomed to living off state welfare, instead of investing in new design technologies and productivity. Under Ugg-boot economics, the private sector is pampered by the regular arrival of government cheques.

The wonder of Australian car manufacturing is not that it’s closing down; it’s that governments wasted so much public money ($30 billion since 1998) on unsustainable jobs in an unsustainable industry. In the past decade, no Australian-based car company has recorded an operating profit.

The industry’s demise is a tipping point in Australia’s political economy. It’s a victory for consumers over the ineffectiveness of subsidisation. It’s a sign that after 23 years of continuous economic growth and wealth creation, the consumption side of the economy has become more powerful than the production side. Cashed-up shoppers are exercising greater purchasing muscle than the feeble industry plans of union hand-maidens like Carr. Consumerism has finally beaten interventionism.

The political class does not want to hear this, but we have entered an era of marginalised government. Each day, the big news in the Australian economy is the strength of millions of consumer decisions, but this is essentially unreported in the electronic media. Where’s the headline or controversy in people shopping? If politicians focused on the importance of consumer decision-making, how could they blame each other for economic uncertainty and unemployment?

In Canberra, it’s business-as-usual. The opposition has latched onto a fear campaign, holding out false hope for “jobs plans”. The media have a new round of conflict-based stories to report, interviewing workers and managers from ailing industries. No one’s told them the war is over. Consumers have won.

Mark Latham writes for The Australian Financial Review fortnightly. Read more of his columns on afr.com.