It was a depressing moment in a very depressing speech. Prime Minister Anthony Albanese, last week announcing his Future Made in Australia Act and the latest Labor plan to boost Australian manufacturing, invoked multiple global examples of advanced economies embracing industry interventionism.
“Nations are drawing an explicit link between economic security and national security. The so-called ‘Washington consensus’ has fractured — and Washington itself is pursuing a new direction” — this being via the Biden administration’s Inflation Reduction Act and CHIPS Act.
“Obviously, Australia cannot go dollar for dollar with the United States’ Inflation Reduction Act,” Albanese said. “But this is not an auction — it’s a competition.”
It’s hard to recall a dumber line from a prime minister in recent memory, even if it was more intended as a quip than any statement of substance. Auctions are competitions; that’s the point of them. And if we’re trying to “compete” with the Biden administration’s colossal industry subsidies, we’re competing to see who can push up costs, reduce efficiency and productivity and waste more taxpayer dollars.
That was the tactical dumbness. The strategic dumbness lies in believing that it’s in Australia’s interests to mimic the US, the EU and other economies. How dumb was spelt out by the Productivity Commission, which in mid-2023 — presciently reading the way Labor was going — explained in detail why it was not in our interests to copy the IRA, CHIPS and the EU’s Chips acts, and knocked down all the reasons advanced as to why we should. In summary:
- Did the pandemic worry you that we need to better control our supply chains? The PC: “Subsidising the development of a domestic industry in the production of that good is likely to be a markedly more expensive form of insurance than other available options, such as simply maintaining a stockpile of that good.” And good luck predicting which good or service will be disrupted by the next unknowable catastrophe.
- Think we can seriously compete? Not merely are giant economies spending much more than us, but they also have pre-existing advantages in manufacturing that we don’t have, including benefits from the existing clustering of production that we don’t.
- But x and y are “critical”: “the number of sectors regarded as critical risks growing over time, as industry policy is progressively normalised in the minds of policymakers. Australia’s Security of Critical Infrastructure Act 2018 is a potential case in point, with the number of sectors with assets regarded as critical under the act increasing from four to 11 over the space of two years.”
- “More broadly, an Australian industry policy response to US and EU industry policy could encourage other small open economies to respond in a similar manner. The greater the number of countries that do so, the greater the erosion of the rules-based global trading system, and the lower the collective gains from international trade…”
Some of us are old enough to remember a Labor Party that responded to protectionist impulses around the globe not by picking winners and increasing protection but by getting out onto the global stage and pushing real free trade reform, such as Paul Keating’s relentless drive to establish an APEC free trade agreement in the early 1990s. Such ambition has now been replaced with pissant bilateral trade agreements that have little to do with free trade, and non-compliance with World Trade Organization rules.
In early 2013, the Gillard-Swan government announced an industry policy, complete with an “Australian Jobs Act”, just like Albanese’s. But rather than pouring billions into picking winners and trying to build new manufacturing industries from the ground up — this was an era of tight budgets — that plan focused on capacity-building in local industry, establishing better networks to connect suppliers to projects, requiring large projects to look to local firms first, and establishing “innovation precincts” in areas of comparative advantage. There was some winner-picking at the start-up and small-to-medium-enterprise level, but the only hardline protectionism was the building up of Australia’s appalling anti-dumping system, which deprives Australian businesses and customers of cheap imports.
The context for that plan was the Australian dollar was above parity with the US dollar thanks to the mining investment boom, which was smashing Australian manufacturing. Between February 2009, when the dollar began its climb from US$0.65, to Gillard’s speech in February 2013, when the dollar stood at US$1.04, Australian manufacturing lost 100,000 jobs, falling permanently below the 1 million mark. Manufacturing employment stood at 910,000 early this year — about the same level as in 2013, but after reaching as low as 850,000 before the pandemic. There is no rationale to repeat something on the scale of 2013, let alone Albanese’s vast investment.
If unemployment was 5.4% and rising, as it was in February 2013, things might be different. But it’s below 4% and participation is much higher than back then.
We have also been here before on car manufacturing, long an idée fixe of the left, as well as an important generator of members for key Labor unions like the Australian Workers’ Union (AWU) and the Australian Manufacturing Workers’ Union (AMWU). Progressives love to complain that the Abbott government drove the car industry out of Australia, but they forget how rapacious and gouging that industry — run by multinationals — was.
Not long after Gillard’s manufacturing policy, the representative of General Motors in Australia complained that “clearly productivity has not been on the agenda strong enough in this country for a couple of decades” — labour productivity was growing strongly at the time — and demanded its workers take massive pay cuts of up to $200 a week.
So much for Albanese’s claim that making things here guarantees higher wages.
And apart from the AMWU and the AWU, who would be the beneficiaries of Labor’s investment of billions in developing manufacturing industries from the ground up? Men. Nearly 70% of the manufacturing workforce is male. The fabricated metal product manufacturing subcategory is 88% male.
The irony of Albanese’s policy is that, after years of economic policies driving strong growth in female employment under the Coalition, Labor would turn the tide back to the 20th century and push jobs for the blokes.
Another irony: on the day Albanese was announcing his Future Made in Australia Act, his NSW Labor counterpart Chris Minns was announcing $148 million in funding cuts for education in NSW. To the credit of the Albanese government, it has offered to lift the Commonwealth’s share of public school funding to the states. But as a reflection of contrasting priorities and misallocation of resources in Australian public policy, it was quite the day. And a very dumb one.
Is Future Made in Australia the right or wrong policy direction? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
