Is Albo’s big new idea too late?

Apr 30, 2024
Prime Minister Anthony Albanese and Treasurer Jim Chalmers during Question Time in the House of Representatives at Parliament House in Canberra, Wednesday, February 7, 2024. Image: AAP /Mick Tsikas

Anthony Albanese and Jim Chalmers have put their future in the Labor pantheon at high risk with their new protectionism. Sooner or later, a real Labor leader will emerge, and one of her first serious acts will be to turn the nation back towards its natural advantage in free trade. It will be harder for the backwards steps being planned by the Albanese government.

To return to taws, she, like Bob Hawke and Paul Keating, even John Howard before her, will have to remind Australians what second-rate and backward characters many of our 21st century leaders were. Including the present ones.

If Paul Keating ‘s old script is used as a model, the words will not be kind. Or understanding of the economic circumstances in which Albanese and Chalmers find themselves.

Albanese says comparable nations are re-investing in their industrial base, their manufacturing capability and their economic sovereignty.

“This is not old-fashioned protectionism or isolationism – it is the new competition. These nations are not withdrawing from global trade or walking away from world markets or the rules-based order, and let me be clear, nor should Australia. We will continue to champion global markets and free trade, to build bilateral and multilateral co-operation and forge agreements.”

“Equally, we must recognise that the partners we seek are moving to the beat of a new economic reality. In their different ways, they are re-aligning their economies to better drive and distribute growth across their own populations. Re-building the social licence for economic reform, through better job security and higher wages.”

“They are preparing their businesses and workforces to adapt to digital technology, to grasp the opportunities of artificial intelligence and also safeguard against its risks. They are investing in more clean energy, producing more clean energy and exporting more clean energy. And they are upgrading their ports, roads, rail, broadband and energy grids.”

That’s all very well, and Australia should be doing all the same things. We are well behind, despite our advantages. But the Australian economy is quite different from Britain’s, or Canada, or the US. Joe Biden may be playing economic politics appropriate to his situation, and his rival. But that is not our situation, and despite some appearances to the contrary, Peter Dutton is not Donald Trump.

The danger is not in adapting the Australian economy to new realities, including with some frank government interventionism. It is in seeking to become the grandfather, mother and father of what the rebuilt economy can do.

Picking winners is never done well by politicians or bureaucrats. Or consultants, mates and advisory boards.

Experience has shown that politicians and bureaucrats are not well-adapted for finding the opportunities, exploiting them, or bringing them home. Their lack of skill is not made up by business advisory boards, mates or lobbyists. What government can do is to create the circumstances in which business creativity can occur. There is no good reason to think that the Albanese ministry – so limited in imagination in so much of its practical government – is up to the genius of planning, coordination, or management of such a scheme. They’d be better employed in devising policies to train and shape a modern workforce, upgrading education, and in rebuilding a damaged social environment.

Economic purists pretend they are opposed to any form of government intervention in the economy, based on a supposed economic truism that it will be counterproductive. Yet in practice they have no problem at all with massive interventions in favour of established industries and are opposed to weaning businesses off the status quo.

The whole tax system involves massive transfers to corporate interests, including fossil fuels, the mining industry, generous allowances for depreciation, research and development, advertising and interest payments. Most of these would not exist were there a genuine level playing field. Rich personal taxpayers are allowed massive subsidies, not available to the renting class, for investment housing, and are the chief beneficiaries of the exemption of the personal home from any form of taxation.

It virtually goes without saying that tax expenditures and tax concessions to business and rich individuals are paid without any form of means test – the apparently essential element of anything described as welfare payments.

Meanwhile, these purists have a pronounced tendency to regard any expenditure on hospitals (other than by doctors for their personal profit) as a mere expenditure, rather than as an investment in a healthy population (perhaps workforce). Likewise with schools. Universities and vocational colleges obviously play an important role in preparing, training and re-training the workforce, but are usually marked merely as a cost, rather than an investment.

Now there are good justifications for many of these secret subsidies, special arrangements, or transfers of money to sectors of the economy. (Not all of them, of course; some are rorts greased by party political donations and special pleading. Which are which is what politics, the lobbying industry, and the tax avoidance industry are all about.) Whatever, they represent decisions by government to create the circumstances in which industries or activities are encouraged or discouraged, promote research and development, investment in new technology and in some cases seek social outcomes sought by government, such as non-discriminatory workplaces.

All these forms of subsidy and expenditure represent interventions by government into the marketplace. Interferences with the pure market, allegedly so beloved of Adam Smith. The same is true of government rules and charges intended to control or discourage some types of behaviour, and government rules and actions designed to protect consumers, set quality standards and, often, save businesses, or their employees, from the consequences of bad commercial decisions.

Conservative governments up to the Fraser government were as interventionist and protectionist as Labor, and helped create what some described as a national sheltered workshop in which plainly uneconomic industries were heavily subsidised in the name of pretending that the nation had a viable manufacturing base. Australia hid behind vast tariff walls, while complaining that it was denied access to foreign markets because of the protectionism of others.

Unpeeling the banana republic

The “banana republic” in waiting was dismantled from the mid-1980s under Bob Hawke and Paul Keating. It was a difficult and painful but necessary transition made easier by their willingness to level with the electorate about what they were doing. Policies were designed to help victims of structural change, in part by increasing the social wage.

The changes were fiercely resisted by sections of the Labor movement, including Albanese himself. Labor was steeped in protectionism and insulation from market realities. Part of the genius of Hawke and Keating was their willingness to see outside the box. But Labor opponents feared that “economic rationalism,” neoliberalism, and accompanying changes such as privatisation and an obsession with budget deficit were depriving Labor governments of much of their real purpose and idealism and restricting their capacity to cause significant change. Albanese’s political base came from manufacturing unions, whole swathes of whom lost jobs as Australia moved away from being a banana republic.

Albanese’s activist impulses in government have been very muted. He retains his enthusiasm for big interventions, particularly in infrastructure (which provides a diminishing number of jobs these days). He understands that Labor supporters are focused on achievements in social policy areas, such as health, welfare and education, but has been as focused on debt reduction, budget surpluses and enormous expenditure on defence. He has disappointed many core supporters, particularly on national security issues, defence and refugee policy, but he has been unmoved. He has resisted articulating the “vision thing’’, afraid of being found wanting with his limited goals and aspirations.

Hence some surprise at the relative boldness of his future made in Australia policies. Suddenly we need a national project “making sure that workers and communities are not left behind.

“We need to aim high, be bold and build big to match the size of the opportunity in front of us. And we need to get cracking. We have unlimited potential, but we do not have unlimited time.

“If we don’t seize the moment, it will pass. If we don’t take this chance, we won’t get another. If we don’t shape the future, the future will shape us’’.

Such uncharacteristic enthusiasm was followed by the usual stuff one gets with such fits of activity, common in governments of all persuasions. A process of picking winners and future technology. Identifying key areas where Australia could create a niche – with new industries, getting new incentives, and focusing on investing in manufacturing so that we are making things here. The selected new industries – and government, and bureaucrats, have never been good at forecasting them – will get heavy subsidies and other incentives to encourage investment. No doubt it will be to help them get off the ground; in due course, the workers will be the hostages limiting government’s capacity to cut its losses when the potential is not realised.

The moment may have passed. It was when the economy virtually closed down during Covid, and it became clear that nothing – even the organisation of work – would ever be the same again.

Here was a time to set new national goals, and to set in place the mechanisms which might help achieve them. By no means necessarily by picking winners. But by refocusing expenditure in education and training, and by creating the financial environment and social infrastructure which would allow innovation to flourish, investment to occur and the best ideas to push through. Rebuilding our international citizenship and place in the world. With discreet assistance for projects already showing themselves goers, perhaps, but by trying to control the environment, here or abroad.

Where’s the skilled labour force coming from?

Two decades ago, the then Secretary of the Treasury, Ken Henry, got into big trouble for being cynical about big nation building projects in a talk to Treasury officers he thought was private. One of his questions was where are the workers going to come from? Peter Dutton, for example (but not Albanese) wants a nuclear industry. Where are the 10,000 specialist engineers this would require going to come from? From which existing industries would he take them, because there is not a reserve of skilled unemployed folk capable of doing the job? Big power projects in regional Queensland. Where are the workers, the scientists, the skilled technicians and the project managers for that? More renewable, hydrogen and solar initiatives and enhanced environmental protections. What are we doing to make this happen?

Henry said that unless proponents could say from which industry workers were going to be diverted (and which industry thus, would have to close or become much smaller) bright ideas should be treated sceptically.

Australia has full employment – and we are beginning to restrict immigration. Future tertiary students are by no means necessarily going into career or educational directions that might be suggested by Albanese’s ambitions, or Dutton’s. The present government does not even have education and labour market policies capable of making up existing shortages in nursing, childcare, aged care, policing, and defence. The housing industry is short thousands of workers, and more thousands of managers and entrepreneurs. Retail and hospitality are struggling to recruit and retain workers.

Perhaps Albanese is focused on something beyond the horizon, and that he is setting the compass for where our labour force should be moving, a fair time from now. But if, as he claims, there’s not a minute to waste he runs the risk that those he wants focused on this future will not even have the tools to get started.

The big problem for Albanese is not with the impulse to have an industry policy focused on remaking the economy towards new industries, new technology, and the 21st century. Nor in seeking to create the “right environment”: — particularly if the new largesse is paid for, or partly paid for, by largesse taken away from older industries.

The risk is in the impulse to decide to put public money up first, to nurture, and finally to protect. That’s the path to full blown protectionism – hidden costs of new industries pushing up prices because they are protecting jobs here. Holding back Australian productivity. Restricting competition. Dampening dynamism, resilience, flexibility and adaptation to international market conditions.

We’d be better focused on improving the quality of health, education and government and on becoming a better international citizen. If we did that, we might find ourselves in just the right groove to be up with, or ahead of the game.

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