38 Asia The EconomistFebruary 22nd 2020
2 counting hundreds diagnosed on a cruise
ship docked in Yokohama, south of Tokyo).
Japan is tightly integrated into Asian
manufacturing supply chains that will be
disrupted by factory shutdowns in China.
It has also been counting on the Tokyo
Olympics, which start in July, to lift spirits
and spending. That happy prospect must
now be in doubt. The government has al-
ready said that only elite athletes can take
part in the Tokyo marathon on March 1st.
Faced with these fiscal, meteorological
and viral setbacks, how will policymakers
respond? The government has announced
a fiscal stimulus worth about $120bn (2.4%
of gdp), which will help repair typhoon
damage and shield the country from future
floods and other disasters. But the money
will be spread over more than a year and
may not add much to the prior trajectory of
spending. The boj, for its part, seems large-
ly out of ideas. Inflation has persistently
undershot its target, which would call for
easier monetary policy. But the boj’s tiered
system of interest on the reserves that
banks deposit with it, with some of them
earning a negative rate (-0.1%), is already
unpopular with savers, banks and insur-
ance companies. An even lower rate might
be counterproductive if it inflicts too much
damage on Japan’s financial institutions,
which struggle to pass the negative rates on
to their own depositors.
A possible solution, proposed by Stefan
Angrick of Oxford Economics, a British
consultancy, would be for the bojto pay
positive interest on more reserves, to shore
up the banks’ profitability, but even lower
rates on the remainder, to help stimulate
borrowing. A more sharply tiered system
like this helped Switzerland’s central bank
cut interest rates to -0.75%.
One twist is that all three of Japan’s re-
cent disasters—the tax increase, the ty-
phoon and the virus—ought to put upward
pressure on prices, even as they depress de-
mand. That should prevent any return to
outright deflation. But even policymakers
desperate to ensure Japan escapes from de-
flation are unlikely to prefer stagflation. 7Limping along
Japan, consumer prices and GDPSources: Government statistics; Haver Analytics *Annualised630-3-6-9
19181716152014GDP, % change on previous quarter*Consumer prices,
% change on a year earlier← Consumption tax rises →“S
he’s a beauty!” grinned the prime
minister of the day, Ben Chifley, as the
first car built entirely in Australia rolled off
the assembly line in 1948. The Holden fx,
as it was known, was greeted as a totem of a
young nation joining the ranks of industri-
alised economies. Better yet, it had an Aus-
tralian pedigree, even if General Motors
owned the factory. Holden had been a sad-
dle-making firm in Adelaide that began to
manufacture car bodies to go with import-
ed engines and chassis in 1919. gmbought it
in 1931, but retained the brand. For a long
time its advertising slogan was “People
Trust Holden”. So when gmannounced this
week that it was eliminating the brand, in-
dignation and nostalgia abounded.
Scott Morrison, the prime minister,
scolded gmfor allowing Holden to “wither
away” even though “Australian taxpayers
put millions into this multinational com-
pany.” Unions blamed his government for
slashing the subsidies which might have
kept Holden sputtering on. The govern-
ment is so devoutly free-market that it will
“not lift a finger” to protect Australian jobs,
grumbled Sally McManus of the Australian
Council of Trade Unions.
gmsays it cannot justify further invest-
ment in a long-unprofitable business. Al-
though Holden made almost half of all new
cars sold in Australia in the late 1950s, lo-
cals nowadays prefer nippier runarounds
or sleek suvs to the chunky sedans it is
known for, even if, as an ad jingle put it, the
essence of Australia is “football, meat pies,
kangaroos and Holden cars”. (The jingle
was an adaptation of an ad about Chevroletbeing an all-American brand.) Last year
Holden flogged just 43,000 vehicles, a third
of its sales a decade ago.
Holden had already closed its last fac-
tory in Australia in 2017; its vehicles are
now imported, from Thailand among other
places. Ford and Toyota closed Australian
assembly lines at the same time, leaving
Australia with no carmakers. To be compet-
itive, analysts reckoned, Australian fac-
tories needed to churn out 200,000-
300,000 cars a year. On the eve of its plant’s
closure, Holden was making just 80,000. It
didn’t help that “the nearest significant
market was 10,000km away,” notes John
Daley of the Grattan Institute, a think-tank.
What is more, kpmg, an accounting firm
and consultancy, calculated that in 2012
Australia was the second most expensive
place to make car components, after Japan.
High labour costs, inevitably, played a part.
The industry survived so long only be-
cause successive governments refuelled it
with subsidies. gmguzzled about A$2bn
($1.3bn) before the handouts were cut by Mr
Morrison’s party in 2013. Rightly so, accord-
ing to a report released the following year
by the Productivity Commission. It found
no evidence that they had helped the wider
economy, concluding that the “costs of
such assistance outweigh the benefits”.
Manufacturing’s share of Australia’s
economy peaked in the 1960s, in Holden’s
heyday. It now accounts for just under 6%
of gdp, well below the level of most other
rich countries. But that has not stopped the
Australian economy—and local wages—
from growing faster than their peers. 7SYDNEY
A (sort-of ) Aussie icon succumbs to globalisationManufacturing in AustraliaHolden folds