Time to harden up and get competitive

The prime minister's manufacturing review will give impetus to businesses and unions wanting to wish away the chill winds of global competition. Instead of protection, we should just sharpen our act.

Crikey

The prime minister's manufacturing taskforce was never going to be the forum for an aggressively economic rationalist approach to industry policy, composed as it was of some of Australia's large manufacturers and manufacturing unions.

And so it proved: although not nearly as outright protectionist as some media reports speculated, there's a strongly interventionist tone to many of its 41 recommendations: a push to increase Australian content in government-funded projects both through coercion and promotion; supporting the automotive industry with (yet more) government procurement; more resources for anti-dumping; smoothing out the "peaks and troughs in defence procurement", erecting regulatory barriers to imports that don't conform to local standards.

There's also renewed demands for emissions-intensive industries to pay even less of a carbon price than they already do, under the government's current package in which the most intensive trade-exposed companies pay less than 10 per cent of the carbon price. Remember the current generous level of carbon price handouts to emissions-intensive industries was set by the Rudd government in response to the financial crisis back in 2009.

The government responded to the report by saying it was accepting most of the recommendations "in principle", a term that allows you plenty of wriggle room if you later decide you don't need to look quite so accepting of a report.

But this merry gathering of rentseekers aren't the only voices calling for government intervention. In a curious op-ed yesterday, senior business figure and Future Fund head David Gonski called for the ultimate market intervention:

"In my view, our competition overseas has to involve something other than just the assumption that we can compete in everything. Our mineral and pastoral resources provide a real advantage; their abundance, quality, and cost of extraction are good examples of distinctiveness. However, we cannot be all things to all people. We have to work harder to identify the difference that allows us to compete ... We need to pick winners."

That follows calls last week from the likes of Warwick McKibbin for intervention by the RBA to lower the dollar. The dollar-induced problems for manufacturing thus seem to be not merely pushing the usual rentseekers to ever greater demands for assistance, but inducing a full-scale ideological meltdown among some senior business and economic leaders.

The Australian Financial Review and The Australian also gave considerable space to a consultant report purporting to demonstrate that a return to "long-term" productivity growth (the subject about which Paul Keating's petshop galah now so frequently squawks) could generate $90 billion. The recommendations are the usual mix: more government spending on transport infrastructure (which of course is another form of handout to business), deregulation and workplace "flexibility". It came the day after a survey by the CEO Forum – a collection of heads of foreign subsidiaries in Australia – claiming that political uncertainty, low productivity and high labour costs are making them consider moving offshore.

What all these have in common is the desire for governments to come in and wish away the problem of competition. For years, Australian managers, and their workers, had it easy with a low dollar, shielding them from foreign competition and the need to remain innovative, responsive to consumers and efficient. Then the surge in the dollar, driven increasingly by our safe haven status, yanked the shield away and exposed manufacturing to the chill winds of global competition.

Aussie consumers didn't help. They were delighted to take advantage of the strong dollar. We're buying more cars than ever, but mainly foreign cars, made cheaper by the fall in tariffs and the dollar. We're travelling overseas more than ever. We're shopping online more and more to avoid the gouging that generations of wholesalers and retailers have been able to inflict on us.

So business and unions have turned to government. Both want more government local purchasing. Unions and some businesses want to compel other businesses to buy locally too. Business wants government to help them cut wages and conditions to reduce their costs. Others want the government to provide free infrastructure. Some want to cut costs via "deregulation", while rarely specifying what environmental, workplace or financial standards they want to water down. Some want more handouts via the panoply of industry programs available to them.

Even better, some businesses want the government to fix problems they themselves have caused – the persistent complaints about high wage costs in the mining industry are entirely because mining companies have heavily invested in a huge number of mining projects, bidding up the price of their inputs, including labour (something that key unions have ruthlessly exploited), and because local mining companies before the mining boom viewed their workforces as a burden and an expense to be ruthlessly curtailed rather than a skilled workforce to be developed and valued.

The chorus of demands that the government do something is far stronger than back in the early 1990s when the Hawke-Keating government was proceeding to dismantle our protectionist industry policy during the middle of a recession and saw unemployment soar over 11 per cent and a whole generation of male workers thrown on the scrapheap. Unemployment is now less than half that (and manufacturing jobs appear to have stabilised for now anyway), but the ceaseless calls for government intervention seem to be twice as loud.

Few people – Doug Cameron apart – now gainsay what that government did in opening up our industries to competition. It was a key reform in delivering us that high-performance economy we now have that is the envy of the world, albeit one with a huge cost at a time when Australia could barely afford it. It forced Australian businesses to compete, to innovate, to become more efficient, to give consumers what they wanted, and to become significantly more productive.

But the lesson has been forgotten. Everyone wants a shield from competition, and if the currency won't provide one, they want it through forced purchasing, or cutting wages, or government handouts. In the end, though, only competition delivers a permanent incentive to productivity gains.

This story first appeared on www.crikey.com.au on August 16. Republished with permission.