How Governments Develop Industry Policy in a Manufacturing Industry - Australia and Japan - Case Study Example

How governments develop industry policy in a manufacturing industry How governments develop industry policy in a manufacturing industry The manufacturing industry is significant to the economy as it is a source of employment, it contributes to the growth of a country’s GDP, it enhances a country’s exports, and it is a source of innovation and competitiveness. This paper evaluates the manufacturing industry policies of two countries – Australia and Japan and specially looks at the trends in the automotive manufacturing industries in these countries. The paper also discusses how the governments of the two countries develop policy in the automotive manufacturing industry and presents and compares the interest groups in the industry in both countries. The manufacturing industry policy in Australia has been based on the formation and consolidation of the industry through developmental, protective and redistributive national policies (Capling & Galligan, 1993, p. 3). Capling and Galligan (1993) argue that the Australian government has shifted its industrial policy from protection to correction. Before the 1980s, the manufacturing industrial policy focused on protecting the industry with very high tariffs and stiff import quotas. The main policy instrument in the automotive sector during the 1980s was the Motor Vehicle Manufacturing Plan, which required vehicle manufacturing firms to maintain local content at 85 percent on a company-average basis (Anjaria et al, 1982, p. 17). This led to a situation in which internationally uncompetitive industries were created. But the presence of a protective market regime in Australia also attracted international players in the manufacturing industry – including Japanese multinational enterprises (such as Toyota and Nissan) which found it more profitable to manufacture and sell in the Australian market. However, with the rise of neo-liberal market policy, the profitability was no longer guaranteed and foreign ventures in the Australian market started to decline (Bayari, 2008, p. 88). Further changes that were made to the Australian industrial policy include trade liberalisation and rationalisation of government assistance, industrial and workplace reform, infrastructure reform, and competition policy reforms (Clark, Geer & Underhill, 1996, p. 7). The manufacturing industry also witnessed significant reduction in barrier protection for industries, whereby tariffs were reduced from 35 per cent to five percent between starting from 1999 (Emmery, 1999). Currently, the automotive industry in Australia has two major policies: the automotive tariff agreements and the Automotive Competitiveness and Investment Scheme (ACIS). The industry is also shored up through policies such as draw-back arrangements, Tradex, government purchasing practices, specific company-level assistance, the LPG Vehicle Scheme, and the specific tariff agreements for second-hand vehicles (Commonwealth of Australia, 2008, p. 31). Australia’s manufacturing policy for the automotive industry is developed through contributions from institutions and agencies such as such as the Federal Chamber of Automotive Industries, Parliament of Australia, local vehicle manufacturers, and vehicle importers. The recommendations and views expressed by various parties are then presented to the Minister for Innovation, Industry, Science and Research for consideration and deliberation (Federal Chamber of Automotive Industries, 2008; Commonwealth of Australia, 2008). In Japan, government assistance for emerging manufacturing industries helped to transform the economy from low-tech to heavy industry and finally to high-tech. protection from imports, research and development subsidies and other incentives fostered the development of the Japanese economy. It is evident that the Japanese government offered assistance to steel and shipbuilding during the 1950s, and to the automotive and machine tools industries during the 1960s. The Japanese industrial policy has had two distinctive phases: between the 1950s and early 1970s, the Japanese government had strong control over the country’s resources as well as the directions of the economy’s growth. Beginning mid 1970s, the government’s industrial policy became more modest and subtle. Industrial policies in manufacturing are implemented through the Ministry of Economy, Trade and Industry (METI) (Carbaugh, 2010, p. 220). In particular, the automotive industry was one of the targets of the Japanese industrial policy, whose objective was to restructure the economy from light industries like textiles to heavy industry (Ando, 2005, p. 52). The Japanese government has also aided the automobile industry in the country through the policy of keeping the yen undervalued vis-à-vis the dollar. The result of this policy is that Japanese-made products, including motor vehicles are cheaper than equivalent US-made products in both the US and world markets (Flink, 1990, p. 330). Policy is developed through METI. The ministry attempts to enable the shifting of resources into high-tech industries by targeting particular industries that need support. With the help of specialists from leading corporations, banks, trade unions and universities, the ministry forms a consensus on the best guidelines to pursue. The next stage of industrial policy is to increase domestic research and development, production and investment. Targeted industries have been given support in the form of trade protection, research and development subsidies, and allocations of foreign exchange, loans and below market interest rates, favourable tax treatment, as well as joint venture research projects with the government aimed to develop promising technologies (Carbaugh, 2010, p. 220). METI has also been instrumental in helping Japanese automakers by sponsoring annual meetings of automobile experts from Japan and Association of Southeast Asian Nations (ASEAN) states to discuss region wide promotional policies for the industry (Krauss & Pempel, 2003, p. 162). Australian interest groups in the automotive manufacturing industry include governments, unions and manufactures. There are three major manufacturers in the country: General Motors (GM) Holden, Ford (which are American companies) and Toyota (a Japanese company) (Nuguid, 2012, p. 4). Other companies which initially operated in Australia but which have since stopped their operations in the country include Nissan (in 1992) and Mitsubishi (in 2008). Others are Volkswagen AG, Leyland Motor Corporation and Chrysler LLC (Bayari, 2008, p. 87). Thus in general, the number of interest groups has shrunk over the years. Nonetheless, government action has largely been noted through the dismantling of tariffs to subject local automakers to greater import competition. In addition, the Australian government has specifically intervened to ensure that GM Holden does not pull out its operations. In January 2012, there was real risk that there would be no more GM Holden in Australia, until the government injected $215 million to the company. By March 2012, the company was also expected to receive $50 million from the South Australian government and $10 million from the Victorian government – all meant to sustain GM Holden’s $1 billion investment to make new cars at its plant in Adelaide (Griffiths, 2012). In spite of such interventions, the value of exports by Australian automakers is much less compared with imports (Bamber et al, n.d). Japan has many interest groups from both Japan and Europe. These interest groups are collectively categorised into the Japan Manufacturers Association (JAMA) and the Society of Motor Manufacturers and Traders (SMMT) of Europe. JAMA and SMMT have provided important lobbying points for automakers in both regions (Hook, 2005, p. 315). JAMA members are Japanese automobile manufacturers including Daihatsu Motor Company, Fuji Heavy Industries, Hino Motors, Honda Motor Company, Isuzu Motors, Kawasaki Heavy Industries, Mazda Motors Corporation, Mitsubishi Truck & Bus Corporation, Nissan Motor Company, Suzuki Motor Corporation, Toyota Motor Corporation, UD Trucks Corporation, Yamaha Motor Company, and General Motors Japan (JAMA, n.d.). JAMA also works closely with METI to ensure the success of the vehicle manufacturing industry in Japan. For instance, METI has prodded JAMA to organise a region wide trade association called ASEAN Automotive Federation (AAF) “with a view to enhancing the intra-regional cooperation of automotive industries” (Krauss & Pempel, 2003, p. 162). This has ensured that Japanese vehicle manufacturers have steady markets both regionally and internationally. The interest between JAMA and SMMT has also brought in METI and the European Commission. As such, host governments in both Japan and European countries as well as investors are involved in a closely linked relationship. In working closely with various European contacts, the Japanese government and manufacturers are able to exploit the norms of economism and developmentalism (Hook, 2005, p. 315). It is such ties that have made Japanese automakers such as Toyota, Honda and Nissan a household name in Europe. Comparing the state of the vehicle manufacturing industry in the two countries, Japan has more powerful interest groups than Australia. This is because Japan has more players in the industry, unlike Australia that has only three – all of which are franchises of foreign companies. Additionally, the Japanese government has adopted a wide-ranging strategy and designed long-term strategic plans including research and development. This has enabled the government to influence the orientation of technical development within the domestic automotive industry with considerable limited government financial assistance (Åhman, 2004, p. 2). Thus, the government determines the orientation of the industry but other players chart the way forward. In conclusion, Australia’s manufacturing industry policy has been based on the formation and consolidation of the manufacturing through developmental, protective and redistributive national policies. In Japan, government assistance for upcoming manufacturers aided in transforming the economy from low-tech to heavy industry and finally to high-tech, but the government has progressively let automakers to chart the way forward. As such, Japan has more interest groups in the industry as compared to Australia, whose industry is still struggling and is mainly dominated by foreign-owned automakers. References Åhman, M. 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