Accepting reality: the future will not be made in Australia

May 13, 2024
Barcode set the colour of Australia flag.

With a couple of minutes Googling, your favourite Martian could be well informed on the role of government in the Australian economy from the moment of the arrival of the British colonialists. It’s been big.

Colonial and other governments have not only provided legal and economic frameworks within which private organisations can work, they’ve done a lot of the lifting – they’ve been into transport and communication, railways, shipping, airlines and airports, banks, telecommunications, medicine making, large scale construction, radio and television broadcasting and even housing loans insurance. All the while, private enterprises have enjoyed considerable tariff and non-tariff protection.

These structures made notable contributions to the economic development of the country, as did, at times, the protection of domestic industry from external competition.

However, in the last 50 years much of this has been dismantled. Government ownership of critical economic enterprises has been replaced by regulation as a way of protecting the public interest. Where there once wasn’t one, a housing loans insurance market now exists. While it’s controversial, there’s a reasonable case that governments getting out of much of what they once owned and operated has been, on balance if not always, a good thing.

As explained by Ian McLean in his excellent short economic history titled “Why Australia Prospered”, what is less controversial “is the orthodox view that Australia’s growth would have been retarded by the retention of high tariff and non-tariff barriers in place during the post war (1945) decades and that the reduction in protection following the 1970s improved productivity and living standards.” That is to say, these protections in the 30 years after 1945 had Australians paying to be less well off than they otherwise would have been.

Into this experience has fallen the promise of the Albanese Government for a “Future Made in Australia Act” (FMiAA). It has thus far had a mixed reception, including sharp criticisms from a former Treasury Secretary and Governor of the Reserve Bank and the current and a former head of the Productivity Commission, among others with sound economic reputations. There are reasons to be sceptical.

Legislation with tendentious titles rarely bode well. Remember “WorkChoices”? And now the mere words “Future Made in Australia” have the disadvantage of making no sense. It is self-evident that much of the country’s future will not be made in Australia.

A senior adviser to Ben Chifley reckoned that Prime Minister’s decision to try to nationalise the banks was not a product of careful policy analysis but a “rush of blood to Ben’s head”. There are reasons for suspecting the FMiAA has been a like rush to the Albanese noggin leaving him and his Treasurer trying, thus far in vain, to fit a rationale around the policy.

Recent speeches in support from Albanese have been little more than unedifying flapdoodle. “Our government is investing in manufacturing to make more things here” the Prime Minister says. But his justification is vaporous. He says:

  • “We have unlimited potential. But we do not have unlimited time.” Self-evidently Australia’s (or any other country’s) potential is limited whereas the history of time to date suggests its limits are far away.
  • “If we don’t take this chance we won’t get another”. Really? Chances seem to pop up every day.
  • “Australia can’t afford to sit on the sidelines”. Who is suggesting it should?
  • “We need to break with the old orthodoxies and pull new levers.” Hang on. Using the public’s money to subsidise and protect private companies is an old orthodoxy whose levers have not been significantly shifted for 50 years.

Chalmers’s speechifying is a little better than his leader’s although not by much. He’s foreshadowed five tests for industry support but they don’t mention the critical one – whether any such will make the economy more productive and the citizenry better off. And then he slips into Albanese lingo:

  • The FMAiA will be “about powering the future, not manufacturing the past”. Yep, the past is not amendable to being manufactured.
  • He wants to “engage and invest, not retreat.” Why not even if engaging/investing and retreating are false opposites.
  • Australia should be “an island of reliability in a sea of uncertainty”. Block those metaphors, please.

Thus, rather like the nuclear submarines, no rational and substantial justification has been made for the FMiA. It’s a house for the moment without a foundation, relying on condescending rhetoric that sensitive electors might take as a back-hander. Can’t they be spoken to as sentient personages who need to be convinced by more than yackety-yack?

But in advance of a FMiA Act, the train is moving out of the station with the government announcing industry subsidies/investments running into several billions. With what rigor have these decisions been taken?

  • The Treasurer was asked what calculations he made about the internal rate of return (the standard measure for assessing investment prospects) on the money promised thus far. He’s a busy person and couldn’t find the time to reply.
  • So his department was asked the same question. It said it should be addressed to the Treasurer.
  • When told that the Treasurer wouldn’t answer the question, his department suggested that the request be put to the Industry Department.
  • The Industry Department said that on an investment/subsidy just shy of a billion dollars in PsiQuantum, it had got consultants in, their advice covering the question of internal rates of return but that that information was “commercial-in-confidence”. That is to say, the public can’t be told if money it’s forking out to PsiQuantum holds the prospect of a reasonable return.

The Assistant Treasurer, Andrew Leigh, was also asked if the Department of the Treasury had made any internal rate of return calculations in investment/subsidy decisions taken so far. While he didn’t address that question, he said that the promised FMiA Act “will establish and impose very strict policy and institutional arrangements to ensure our priorities are rigorously determined and robustly implemented..”. It’s to be hoped so even if there’s been little evidence of such rigor in decisions taken thus far.

A proverbial test is, of course, to follow the money. Albanese’s speech in April gives the impression that the FMiA will be of out-sized benefit to Queensland. “Our government’s plan” he said is all about a range of towns that are all in Queensland. Most of the money thus far promised seems to be headed in that direction. No doubt it’s just a coincidence that for Albanese to hold onto government, even minority government, at the next election, picking up seats in Queensland is his big hope.

Still the Albanese plan has garnered support from several who’ve become agitated by publicity given to a ranking of countries by measures of “economic complexity”, the derivation of which is not entirely clear. In this strange list Australia comes in about 90th, just a squeak ahead of Burkina Faso. This is more circus than sense.

According to the CIA, Burkina Faso has a GDP per head of $2200 v Australia’s $51000, a credit rating of B v Australia’s AAA, an electrification rate of 16% v Australia’s 100% and a proportion of the population as internet users of 22% v Australia’s 96%. That is, the complexity rankings are meaningless. It’s true that some of Australia’s exports are not complex. Yet its economy as a whole is.

Moreover, the complexity of an economy means nothing of itself while specialisation can be a distinct advantage.

The general apprehensions expressed by the likes of Bernie Fraser, Gary Banks, Mike Keating and the Productivity Commission’s Danielle Wood about what is, in effect, taxpayer funded, non-tariff protection of selected private companies are not eased by the lack of a substantial rationale for the FMiA proposal and the decisions taken thus far in its name. Albanese may be able to pull a rabbit or two out of his hat but he’s not good at such trickery.

Hope in the FMiA dangles by a thread.

 

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