The RWDBs seem to automatically dismiss The Age’s Ken Davidson as a communard dolt. So posting an item agreeing with him isn’t likely to endear me to the anti-luvvies. But we centrists call it as we see it without fear or favour.
Davidson raises a critical issue in his column today, that neither major party seems prepared to face: industry, infrastructure and skills training policies and the consequences of the current lack of them:
Australia’s balance of payments deficit is now close to unsustainable because the Howard Government slashed infrastructure spending and investment in human capital formation programs established by the Keating government in training and retraining, higher education, and industry assistance policies such as the 140 per cent research and development allowance. Australia’s external deficit blew out because Australia’s hitherto fast-growing exports of elaborately transformed manufactures collapsed.
Davidson made this point even more clearly in a column in early August:
Australia is losing the elaborately transformed manufactures race. According to the National Institute of Economic and Industry Research, Australia’s elaborately transformed manufactures trading deficit between 1996 and 2003 rose from $18 billion to $74 billion. This growing gap is not being covered by Australia’s traditional commodity exports.
If Australia had untapped capacity in elaborately transformed manufactures due to exclusion from the US market, that would be a reason to sign the FTA. But Australia’s share of the global elaborately transformed manufactures market is contracting because the Howard Government removed support for the development of a sophisticated Australian manufacturing industry in its first budget in 1996, by abolishing the Development Import Finance Facility and cutting back the Export Manufacturers Development Grant and the 140 per cent research and development subsidy. As a consequence the growth in R&D, which underpins development of elaborately transformed manufactures, has stagnated since 1996 after a decade of 10 per cent a year real growth. Over the same period, the annual growth of elaborately transformed manufactures exports decelerated from 18 per cent to just under 2 per cent. So for the want of a few hundred million dollars in judicious industry support, Australia’s elaborately transformed manufactures deficit has blown out by about $50 billion.
In today’s column, Davidson also makes a crucial linkage that Mark Latham should also be highlighting to diminish Howard’s undeserved reputation as a sound economic manager:
Worse, the Government’s deflationary budgetary policies could have led to rising unemployment except for the Reserve Bank offsetting easy monetary policies that allowed the money supply to grow at twice the rate of the economy. This growth enabled the banks to borrow heavily overseas, and this money was poured into the housing market. This in turn led to inflation in house prices and the huge level of household debt that Howard is now trying to exploit to retain office.
Labor’s failure to confront this issue suggests either that it is ignorant of the connections and the Government’s responsibility for this outcome, or it doesn’t believe voters are capable of absorbing the message.
Far from future surpluses being the saviour of the “aspirational” voters in the mortgage belt, their only salvation lies in an incoming government being prepared to fund a massive infrastructure program in transport, communications and education, together with an industry policy, and all designed to boost exports of elaborately transformed manufactures so as to curb the growth in foreign debt.
The Government could borrow up to $12 billion a year for infrastructure investment without adding to the burden of government debt as a proportion GDP, and without putting upward pressure on interest rates.
I agree, and I’m buggered if I know why these crucial issues have barely been mentioned in this election campaign. I fear that the answer may be that Latham is just as much an unimaginative captive of neoliberal orthodoxy as Peter Costello. One of the few things Howard has going for him is that he’s such a cynical opportunist that he doesn’t give a rat’s about neoliberal orthodoxy or any other principle if it conflicts with the imperatives of short-term power. Howard’s remarks yesterday about infrastructure spending illustrate this propensity perfectly.
At least there are some tentative indications in Labor’s industry policy document (such as it is) that someone in Latham’s Shadow Cabinet understands the issues:
Only one in four manufacturers in Australia invest in R&D, few collaborate with the public sector, and most spend more on their electricity bills than they do on R&D. This investment void is not sustainable ¢â¬â it is not a sign of a modern, advanced economy.
But all the policy document manages to promise is to “develop a National Manufacturing Strategy in partnership with industry and the union movement“. Wow! Visionary stuff indeed!
At least Barry Jones’ much-maligned Knowledge Nation document proposed a range of concrete initiatives for stimulating R & D, capital investment, skills training, fostering “sunrise industries” and so on. Costello’s politically devastating but intellectually bankrupt dismissal of it as “Noodle Nation” may well be the single greatest political tragedy of the last decade, because it seems to have frightened Labor away from this entire policy area.
With a bit of luck, however, they’ll take it more seriously in government than they have in opposition under Latham. The reality is that capitalism just isn’t very good at investing in things like R & D or training, and private or public-private models for creation of public infrastructure are notoriously problematic. The main reason the private sector isn’t good at these things is that the risks are too great and the rewards too uncertain and long-term for the “invisible hand” of the market to operate.
No advanced economy that I can think of has achieved that status without substantial government initiative and encouragement in these areas. Even in that great bastion of “free” enterprise the United States, R & D and capital investment have always been underpinned by massive defence and general government procurement spending. The American aerospace and computer industries simply wouldn’t exist without it. Even the Internet that brings you this post is an artefact of scientists working on the public purse on defence-related projects.
I’m not talking about socialism or even “picking winners”, just inserting some rather large rungs for corporate Australia in that ladder of opportunity. As Davidson argues, borrowing to finance productive investment is a positive not negative thing for governments to do, and the sooner someone effectively challenges the simplistic orthodox neoliberal line on government debt the better. But I doubt it’s going to happen during the election campaign. Not even Latham is that “crazy-brave”.