Way back in the 1980s and 90s when I was a Labor “apparatchik” and then for a short time a local politician in the Northern Territory, the Opposition of which I was a part was for a time led by Brian Ede. He married Anne Walsh a daughter of arch neoliberal Federal Labor Minister for Finance Senator Peter Walsh. Current federal Labor frontbencher Gary Gray, who was a NT Labor staffer in the 80s, ended up marrying another Walsh daughter Deborah.
In part as a result of those c0nnections, the NT Labor Parliamentary wing was a hotbed of purist (some would say extreme) neoliberal economic dogma. Low taxes, balanced budgets, no industry assistance, no “picking winners” and so forth. At least it was a useful antidote to the Country Liberal government’s approach at the time, which could most kindly be described as crooked crony mercantilism. It’s an approach to which some would say the current Giles government has returned.
However, although there were several dodgy government-subsidised developments that were rightly opposed by Labor, there were also a few that I privately thought were quite good ideas. The Yulara tourist resort, for instance, and even the Darwin and Alice Springs Sheratons. It is unlikely that they would have been built without government subsidy, at least until much later. But they provided crucial tourism infrastructure at a time when the Territory was potentially in an ideal position to capitalise on international “flavour of the month” status flowing from the Crocodile Dundee movies. they provided a platform for growth that has continued to benefit the NT economy ever since. The government subsidies didn’t distort the market in any meaningful sense, nor give an unfair advantage to one operator over competitors, because there just weren’t any up-market hotels/tourist resorts in the Territory at the time, except for the Beaufort in Darwin which had recently opened in the publicly funded Darwin Entertainment Centre complex.
It was government “picking winners” in the sense of targetting a particular industry or sector for public support. Neoliberal economics appears to regard such interventions as suspect at the very least. Moreover, some other CLP mercantilist adventures of that time (e.g. the Trade Development Zone) illustrate the potential folly of governments who meddle in the market and pick winners. At least as a default position, leaving investment decisions to the operations of the private marketplace, which will magically determine optimal investment opportunities over time by identifying and exploiting a region’s “comparative advantage”, is a good idea. Operators who get it wrong will of course go broke, but the economy overall will benefit. It’s the dynamic genius of Adam Smith’s “invisible hand” and Joseph Schumpeter’s “creative destruction”.
Nevertheless, it seems to me that it’s unwise to be excessively dogmatic or doctrinaire about all this. The Chinese seemed to do quite well with using Special Economic Zones as government-subsidised platforms for the explosive growth that has largely fuelled the global economy over the last couple of decades. And US economic development through the 20th century owes a great deal to massive government funding of its military-industrial complex. And, despite the Abbott government withdrawing government funding to Australia’s car industry a couple of years ago, it appears that just about every country in the world with a motor vehicle industry provides government subsidies that are in most cases significantly larger than the ones Tony Abbott removed from Holden, Ford and Toyota.
I’m sure there’s lots of sophisticated economic theory about whether, when and how governments can usefully nurture particular industry sectors. Hopefully some of Troppo’s legion of economic experts will give us the benefit of their wisdom on the subject.
As you might have suspected, the trigger for this rambling diatribe about industry policy is the release yesterday of a Defence White Paper by the Turnbull government, promising injection of an additional $195 billion over the next decade or so. What it actually represents is a new and massive form of industry policy, focused on military hardware instead of cars Is that a good idea? How can that sort of public investment be optimised?
Personally I would have preferred to see that sort of money spent on (say) the car industry, and a proper National Broadband Network, and on nurturing renewable energy technologies and enterprises. As both China and India rise to Great Power status, is it a good idea in principle for Australia’s economic and strategic future to be so decisively committed to publicly funded military-industrial development as a satellite of the United States? I tend to agree with international politics academic Mark Beeson:
The reality is that Australia can make absolutely no independent, decisive difference to the outcome of any confrontation or conflict between the US and China in the South China Sea, or anywhere else for that matter.
Australia plays a modest supportive role at best that is primarily about providing what Des Ball famously called “a convenient piece of real estate”, and secondarily by helping to legitimate US foreign policy actions – whatever they may be.
This latter consideration has – or rather, should have – assumed a greater prominence in the minds of strategic thinkers of late. The white paper’s authors can be forgiven for not addressing the rise of Donald Trump directly, but the possible implications of outsourcing primary decision-making authority to another country might have been worthy of more explicit consideration at any time.
The white paper makes the rather large assumption that the US remains committed to, and the backbone of, a rules-based international order. One sincerely hopes this idea remains valid, as it is clearly in the interest of a secondary state like Australia that such an order continues.
And yet we need to remember that the US has a long history of flouting international rules and agreements when it suits it. The US’s refusal to sign the United Nations Convention on the Law of the Sea, for example, rather undermines its authority when dealing with China in an arena of pivotal importance to Australia.
Now, however, we have the real possibility that the US could be led by someone who is entirely contemptuous of the prevailing international order and enthusiastic about utilising American power for exclusively national ends – no matter what impact this may have on friend and foe alike.