Innovation sorely lacking in Gillard's industry move

Bookmark and Share Economics & Deregulation | Alan Moran
Herald Sun 22nd February, 2013

Government "industry" policy in Australia has a dismal history. In the past, policy was dominated by tariffs that sought to provide a domestic market for local firms in the hope that these would eventually become internationally competitive.

Supporting that approach was "positive" assistance with research, including advising firms about how to conduct their businesses.

These Government measures simply frittered away wealth in subsidies to failing firms, high prices, and in staff costs to government agencies.

That policy approach was gradually downgraded over the past 25 years. Tariffs were reduced and industries forced to become competitive.

However, the Rudd/Gillard governments inadvertently over-cooked that process by replacing doomed, but well-meaning, attempts to enhance industry productivity with even worse policies that reduced firms' competitiveness. These included abandoning cheap energy, allowing unions to control workplaces and impeding new developments with endless environmental impact statements.

With its "Industry and Innovation" statement last week, the Gillard government announced a new policy approach it hopes will resurrect the battered private sector.

The new approach promises more and "better targeted" subsidies. Unfortunately, many of these require firms to hire government-approved specialists to assist them to source more inputs locally, inevitably at a higher cost.

The new approach's centrepiece is 10 new industry "precincts" to get special assistance. These comprise clusters of firms operating in particular sectors of great potential and not necessarily in the same geographic area.

The first new precinct identified is "manufacturing".

Other designated favoured sectors are yet to be identified, though they must surely include car manufacturing, since Minister Combet has already showered that industry with subsidies largely to lift its green credentials and has designated it as "the keystone of advanced high-value manufacturing".

Though the precincts are not necessarily geographic, the manufacturing precinct will be centred in Melbourne's south at Clayton. That means the area's existing businesses will be subjected to harassing offers of help from government agencies including Monash University, Austrade, AusIndustry, Commercialisation Australia, Co-operative Research Centres, CSIRO and a whole host of other taxpayer-funded outfits which can provide little real value.

Control over taxes and regulations gives governments immense powers over businesses. Even a firm the size of BHP has felt obliged to replace its CEO, Marius Kloppers, at least in part as a result of an impending federal government change. Although Mr Kloppers showed his worth to BHP in successfully negotiating away the impact from the mining tax, he has strongly supported the ALP's carbon tax, a position that could have prejudiced BHP's interests in working with a Coalition Government.

The government's ability to intimidate one of the world's most powerful companies underlines the vulnerability of all firms to government sticks and carrots.

While the government and its agencies have neither the skills nor the entrepreneurship to help industry become more productive, they are ambitious for control.

And they have the power to distract firms from their core tasks of meeting customer needs at least cost. Negative outcomes are inevitable from the new "Industry and Innovation" policy.