Rudd lets industry policy out of the closet

In Kevin Rudd’s first press conference as leader of the Labor Opposition he mentioned the words ‘industry policy’. The reaction was as if Rudd had dropped his pants in the House of Reps. Doesn’t Rudd know that industry policy is the original sin of economic orthodoxy? Worse, Rudd then appointed the Victorian ‘Socialist’ Kim Carr as Shadow Industry Minister.


The backlash from the pulpits was immediate. The Financial Review‘s Alan Mitchell and The Australian‘s Alan Wood lectured Rudd on his perfidy. Academia, recently fairly mousy, has been reinforced by RMIT’s hardline Sinclair Davidson, who railed in The Age against Rudd’s threat to the free-market consensus. Thus do the arms of the Inquisition keep tabs on potential heretics.

Australia is the most ideologically purist country in the capitalist world. No other country would tolerate an official think tank with a universal brief staffed by pinheads (the Productivity Commission), or an unaccountable body (the National Competition Council) that dictates policy by financially blackmailing elected governments.

Rudd and Carr, say the High Priests, threaten to return to the bad old days of tariff protection and bounties for the manufacturing sector. They are said to be disciples of the plodding Crean rather than the visionary Hawke/Keating team that pulled the plug on the old ways. (Curious that the High Priests are saying nice things about Hawke and Keating given that they flayed them mercilessly when in office.)

There is some thought behind the Rudd/Carr pronouncements. Rudd wants to see Australia as something other than a Chinese quarry and a Japanese beach; manufacturing sector viability is clearly in his sights. Carr’s Shadow Portfolio is ‘Industry, Innovation, Science and Research’; forward-looking in principle. A distinct responsibility for the ‘services economy’ has been carved out for Craig Emerson.

Manufacturing does not necessarily equate with low-tech assembly line production. Australia already has innovation frontier companies, like Priority Engineering in Adelaide’s Playford and Bishop Technology in Sydney’s Villawood, that house full spectrum engineering skills from design to machine and component production. The need is to understand the basis of their success and to replicate it in other domains.

The truth is that there will be an industry policy. All capitalist countries have industry policies of necessity. ‘Picking winners’ is a fact of life. Countries vary in the degrees of self-consciousness and strategy applied to the process, involving deliberation, implementation and evaluation. Non-English speaking countries tend to be more laid-back about the practice (albeit European Union member countries now operate with constraints). English speaking countries tend to employ industry policies while denying they exist, a tension that perennially produces opportunistically focused, poorly designed, poorly implemented and poorly managed programs.

Productive industry policies are occasionally implemented in Anglo countries in spite of this tension. Australia would have no automobile industry without the bipartisan auto plan. Australia would have no telecommunications industry without the procurement policies of the once-monopoly provider. And so on.

The Americans have their military-industrial-construction complex, a massive misallocation of resources defended on grounds of ‘national security’. However, there are some positive spinoffs — Silicon Valley is an example. Contemplate also the phenomenon of Sematech, a joint venture between the Department of Defense and all microchip related companies. Sematech defied all the rules, and yet kept American companies in the running against Asian competitors.

Britain has the City of London, underwritten by the state. Around two centuries ago, Britain set about constructing a global division of labour by which it became ‘the industrial workshop’, and the colonies and foster children (Argentina, etc) were delegated the responsibility of supplying food and resources to the metropolis.

Britain’s master industrial policy also generated a supporting ideological rationale, of which ‘comparative advantage’ and ‘free trade’ were significant constituents. Yet generations of dunderheads have cemented these context-specific propositions as universal truths.

Thus did White Australia develop with an economic structure and an ideology relevant to another place and time. The Chinese quarry and the Japanese beach are merely latter-day manifestations of a long-term colonial integration into the global economy on others’ terms. Much wealth has been generated in the exchange, but also much optimism that good times along the same lines are eternal (see Ross Garnaut’s 1989 Australia and the Northeast Asian Ascendancy). Agriculture is now failing to live up to the myths, but the cargo-cult mentality has never been stronger in the resources sector.

The support for a viable manufacturing sector by Rudd and Carr generated a ready reaction from the pundits not merely because of the imperfect means by which the sector was supported in the past, but because manufacturing per se has always been suspect as not a genuine component of Australia’s ‘comparative advantage’. Doubters of this claim might look no further than the terms on which a free trade agreement with the Chinese is currently being discussed.

Australia already has a raft of industry policies under the Howard Government. The centerpiece, to which environmental policy is attached as subsidiary, is enhancement of the profits of resources companies BHP Billiton, Rio Tinto and Woodside. Infrastructure policy is devoted to enhancing the profits of a handful of financiers and providers (Macquarie Bank, AGL, etc). Domestically, the Howard agenda centres on a right-to-rule workplace, which is dictated by the Australian Chamber of Commerce and Industry and the Business Council of Australia, and underpinned by WorkChoices. We have a services sector policy oriented to producing a nation of shop assistants, building and agricultural labourers on low pay and flexible hours. Thus is the national interest defined.

The Government’s self-congratulation sits curiously with the yawning current account deficit, a trifling $54 billion in June 2006. The contribution of merchandise trade to this deficit was over $15 billion. Merchandise trade figures are clouded by a $16 billion surplus shunted into an anonymous category. Given this weakness, the financial year 2005-06 saw a surplus of $64.8 billion on primary exports and a $92 billion deficit on manufactured exports! Manufactured exports have remained stationary in the last five years, while manufactured imports have grown by 6 per cent per annum. We are digging up coal and iron ore (and soon uranium) in the mega tonnes, but the trade deficit expands further with our insatiable demand for manufactured goods.

Rudd and Carr have grasped the essence, if not the substance, of an ongoing dilemma. They need to hold their nerve against the ideologues. The chances are, however, that they will find it difficult to transcend the way in which things are done by those who hold the levers of power in this country.

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