Subsidies for squeaky wheels

Government support programs like the one offered to Holden distort an already twisted economy at the expense of businesses that genuinely need help.

The Australian government has just announced more massive subsidies to the local motor industry, with plans to spend a rumoured $200 million in return for the Holden's promise to keep its local operations open until 2020 or longer.

Meanwhile, on the other side of the world, the 2012 UK "austerity” budget has one bright side with big tax breaks for the games and television industries.

While protecting jobs and trying to help struggling industries is admirable, we should ask if the cost to the taxpayer and economy is worthwhile.

Squeaky wheels

"The industry has lobbied for such changes for several years”, the BBC's report on the UK budget says, and this is one of the problems with industry-specific support; that it’s the ones who complain the loudest who get the assistance.

Often the companies and industries lobbying for subsidies spend too much management time and resources duchessing ministers, public servants and key media 'opinion makers' than actually listening to their customers.

The fact they have staff dedicated to lobbying efforts in itself shows where their investment priorities lie. It isn’t in building better products or delivering what their customers want.

Missing voices

It’s often lamented that the high growth and small business communities don’t receive support, but this is because they are running and building their businesses rather than shmoozing journalists, public servants and politicians.

Industry support programs often end up helping established insiders or those with a talent for filling in government grant applications rather than those who genuinely need help.

The Australian film industry is a good example of this, with talented film makers struggling to attract funding from government agencies while a generation of well connected, experienced form fillers keep churning out subsidised movies that no one wants to see.

Behind the times

One of the problems with government picking industry winners is they are often well behind the times with support going to mature or fading industries; both the Australian and UK announcements illustrate this.

The UK games announcement is at least ten years behind the times; strategic investment in the games and TV industry a decade or two ago may have been a wise move, today it’s just supporting another mature sector that is struggling to adjust.

At least, though, the UK’s policies are somewhere near the 21st century. In contrast the massive Australian support for the failed motor industry shows Canberra’s politicians are mired in an era somewhere near Henry and Edsel Ford.

It’s worth noting one of the first moves of the incoming Australian Labor government in 2007 was to axe the 'Commercial Ready' program that was designed to help commercialise new technologies and innovations yet motor industry support dwarf any savings from abandoning this scheme.

The investment problem

In most countries the real problem to building jobs and industries is investment. Both the UK and Australia illustrate this with their domestic investment being largely directed at the housing industries.

The two countries have taxation and social security policies that favour over-investment in property. In Australia the problem is exacerbated by a retirement saving scheme that directs domestic savings to index hugging fund managers.

Australia’s sinking of money into an industry that has been struggling for nearly forty years and currently suffering massive worldwide oversupply is one of many damning indictments on the country’s political classes squandering of the current resources boom.

Making things worse, massive subsidies to uncompetitive industries already distorts a twisted economy.

Real economic reform that encourages investment in research, development, training, innovation and entrepreneurs is tough and means losses for many in those vocal, dying industries.

For the average politician a feel good announcement giving a bucket of money to a noisy group is a much better short-term investment.

The challenge, and opportunity, in the democratic world is to make the politicians aware that the economy has moved on from the times of John Major in Britain or Bob Menzies in Australia.

It may well be that industries do need, and deserve, government support although we need far more scrutiny and justification from our political leader of why certain groups get help while others do without.

Paul Wallbank is a business technology writer, broadcaster and blogger and author of eBusiness: Seven Steps to Online Success.

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