Clear government vision key to unlocking long-term economic resilience and supporting future industry

The Australian Government needs to take a more hands-on approach to industry policy to meet productivity targets and tackle major challenges like climate change, supply chain resilience and successful adoption of new technologies, says a new report from the Centre for Policy Development (CPD).

The CPD report Setting direction: a purposeful approach to modern industry policy outlines a practical framework for how Australia can successfully build future industries that will be essential to our shared prosperity over the coming decades.

CPD sustainable economy program director Toby Phillips said Australia won’t solve key challenges like the green transition and supply chain instability by continuing the prevailing “hands-off” approach to industry policy.

“The indisputable fact is that the industries of 2050 and beyond will need to look very different to the industries of today, and we can’t rely on capital markets to chart the best course over the long-term,” he said.

The CPD report lays out the essential elements required for successful modern industry policy.

First, a clear direction set by government, backed with a high-level political and fiscal commitment that sends strong signals to industry and the economy.

Second, governments must go beyond just providing loans and finance, and deploy a diverse set of policy levers across government, like education, infrastructure investment, and regulation.

And thirdly, this must span multiple departments and levels of government, and engage industry for truly coordinated, successful public-private partnership. A modern approach to industry policy cannot be run out of a single line agency; there must be central leadership and vision to pull together the different threads across government.

Australia’s National Reconstruction Fund, set up by the Albanese Government, is the closest current example of this type of government strategy to bolster industry. However, the report claims, it lacks coordination across other agencies, essential for things like directing R&D spending to the right areas to achieve the government’s goals, and training the workforce for future industries. As it stands, the fund is only a loans and equity facility providing finance to a broad range of sectors. While the government may have a broader vision, this has not yet been clearly articulated.

In a November speech to the Economic and Social Outlook Conference, Treasurer Jim Chalmers foreshadowed that the Government’s approach to the net zero transition will involve an industry policy shift in this direction.

In his speech Chalmers said, “Like all shifts that involve big change and uncertainty, the private sector will do most of the heavy lifting – but existing market structures won’t always cut it – especially when we’re trying to create new markets and transform old ones.”

Industry policy – a country’s strategic effort to encourage the development and growth of specific industries – often conjures images of Australia’s interventionist approach prior to the 1980s and 1990s, characterised by higher taxes, tariffs, and protectionism for domestic industries.

“We’re not advocating for a resurrection of protectionist policies, but rather an acknowledgement that complex challenges demand complex responses. Our proposals aren’t about trying to pick winners between specific firms, but about setting a clear direction at an industrial level,” said Phillips.

“We cannot only rely on capital markets to allocate resources across the economy. They have shorter timeframes and different goals to society as a whole. We need a practical vision for what our major industries could look like in the coming decades and focus our energy on building a resilient, sustainable economy,” said Phillips.

The report analyses global and domestic case studies of modern industry policy and assesses their effectiveness, providing lessons and opportunities that can inform Australia’s efforts to shape future industries.

“The long-term prosperity of the country relies not just on exploiting our comparative advantage today, but in setting up Australia to have strong industries in the future. The government must play a major role in this.”