Yet all of them are first-class economies. All are among the top 10 richest countries, as is Australia, measured by income per person. So it's plain that a car manufacturing industry is not necessary for a prosperous modern economy. On the other hand, look at some of the 50 or so countries that do make cars. Among them are Uzbekistan, Pakistan, the Philippines and Ecuador. None of them is in the top 10 richest countries; none of them even makes it into the top 100. They are all economic sad cases. So making cars is neither sufficient nor necessary for a prosperous, modern economy. Our national leaders are peddling nonsense on this subject. Sweden is a prosperous, modern country famous for its Volvo and Saab cars. It's also in the process of getting rid of them.

"Volvo cars are now owned by the Chinese," says Sweden's former prime minister and now Foreign Minister Carl Bildt. "And that's fine," he says. "Saab as a maker of cars no longer exists" after its bankruptcy. Its assets were bought by a Sino-Japanese consortium and are now used to make electric cars only. "There were enormous calls for the government to step in" to keep it afloat, says Bildt. But they were resisted: "Subsidies give industry a false sense of security, and then they don't change sufficiently. They just demand more subsidies and eventually collapse." This, of course, is exactly the story of Ford in Australia. The federal government has paid Ford an estimated total subsidy of $1 billion since 2000. It's been discreetly failing the whole time. It sells fewer cars than it sold 20 years ago.

The Gillard government knew it was failing. Trade Minister Craig Emerson said on ABC Insiders on Sunday: "In Ford's case, they didn't have an export strategy. Holden and Toyota do. [The strong Australian] dollar has been retarding the success of the export strategy of Holden and Toyota. "But Ford, I suppose, were working on a business model that didn't really offer long-term prospects, and that's a pity." Yet his government kept paying. In January last year, Gillard announced a fresh payment of $34 million and trumpeted it as "keeping Ford jobs here". Six months later, Ford sacked 330 workers. Now it has announced it will be closing manufacturing operations altogether in 2016 with the loss of 1200 jobs. Gillard defends the $34 million. It is "payment for the work that is continuing until October 2016", when Ford shuts up shop. This sounds more like government-paid piecework than free enterprise. The whole thing was a hoax on the workers who were given false assurance. Says Bildt: "I think it's detrimental to industry to hand out subsidies - that's our experience. It's amazing to me that you still do it."

There is still a thriving, profitable Swedish automotive manufacturing industry that is Swedish-owned, but it's not the one that makes cars. Sweden specialises in trucks: "Scania and Volvo trucks are doing extremely well in the world. There's never been any subsidy, not a single crown." Volvo trucks is separate and unrelated to Volvo cars. Indeed, truck maker AB Volvo has invested $25 million in a plant in Brisbane that assembles trucks, employs 500 workers, makes money and does not seek subsidies. As the Financial Review reported on Monday, its chief executive was in Australia last week and didn't have any appointments with Australian politicians. "We focus on going about our business as well as we can," Olof Persson told the paper. This is an alien concept to the car makers in Australia. The federal industry minister acts as a wet nurse to the car companies. The previous minister, Kim Carr, had a policy of speaking to the chief executives every week. The level of government subsidisation and involvement means that the car making sector in Australia is not really private sector business. It's an extension of the welfare state.

So why do both our political parties persist? The policy is a demonstrated failure. They refuse realism. They peddle nostalgia and national myth. Nostalgia like Abbott's account to a Geelong radio station of how the first new car his father bought was a Ford Falcon station wagon, how he remembers going on family holidays sitting in the back with all the luggage and his three sisters. Ford was part of Australia's national culture, he said. And myths like Gillard's argument that the car sector is vital to driving innovation and providing workers with skills. An uncompetitive industrial relic is hardly a driver of innovation. And if she were serious about innovation and skills, she would redirect the car subsidies towards restoring the $2.5 billion in research grants and university funding that her government has cut. The good news in Ford's announcement last week was that it will keep its R&D operation and its design shop in Melbourne, employing more than 1000. This is where national competitive advantage should be pursued, in the high-skilled work of the future, not the low-skilled jobs of the past. Paul Keating, who ended the worst of Australian protectionism to rejuvenate the economy, was asked in 2000 what he'd say to blue-collar workers who lost their jobs as a result of his reforms.

His answer: "What do I say: What is your new job like? One of the 2.5 million created since the early 1980s. People have found better jobs. I mean, did we ever hurt anybody liberating them from the car assembly line?" Loading Since he said that, a further 2 million jobs have been created in Australia, none of them in the iron lung of subsidised car making. There is no Keating visible in either party today to tell the people the truth and take Australia into the realm of competitive reality. Peter Hartcher is the international editor.