Rudd's fork in the road looks to be heading backwards

The ALP is sending a clear signal that the economy and values will be a battleground leading up to the 2007 election.

Kevin Rudd keeps indicating we have reached a "fork in the road".  He has also been arguing against what he calls "uncompromising free-market fundamentalism".

This is really a discussion about how "working families" and the economy interact.  Politicians who campaign on "family values" always get into trouble, so the ALP will talk about the evils of "market fundamentalism".

The appointment of Senator Kim Carr of the Victorian Socialist Left to the shadow industry portfolio needs to be seen in this light.  Nobody has ever accused "Kim il Carr" of market fundamentalism.  Indeed, he has been an implacable foe of all things "market".

Rudd has made the point that Australia should have a strong manufacturing sector, that he wants Australia to "make things".  This sounds all very well and good, but what does it mean?

When challenged last week on the ABC to produce "one concrete idea", Rudd was stumped, and promised detailed policies in the months ahead.

He did, however, talk about education, innovation policy, and research and development.  This is where Carr comes into the picture.  He held the industry and the science and innovation portfolios before the last election -- clearly Rudd thinks he did a good job.  Yet Carr was effectively dumped from those portfolios.

Carr has argued that our prosperity reflects the reforms of the Hawke and Keating governments, and the ALP has not done enough to emphasise that point.  The Hawke government, at least, did not pursue protectionist policies.  Yet Carr went to the last election promising to slow tariff reductions, and opposed further tariff cuts after 2010.

However, Rudd is promising a new direction in industry policy -- not the discredited industry policy that leads to high tariffs, protectionism, and hidden taxes on consumers.  So while Rudd is telling us that tariffs are discredited, he is reappointing the man who campaigned for that very policy at the last election.  Where does the ALP stand on free trade?  Rudd is reportedly a free trader -- yet one of his early comments as leader was about the trade deficit.  He has a desire to "make things" -- the ALP is beginning to sound very mercantilist.

We are being told that the new-direction industry policy involves knowledge-based industry.  This is code for spending even more money on education.

The ALP has been arguing for some time that Australia has a shortage of skilled labour.  When unemployment is less than 5 per cent, a skills shortage is a good problem to have.  It is not clear that spending more money on education will relieve that skills shortage in the short term.

In any event, the ALP has opposed the Federal Government's efforts to establish technical colleges, and Carr has opposed all private-sector involvement in education and the application of market principles to education.  So it is difficult to understand how he would work with education providers to meet industry needs.

The new industrial policy is also code for spending taxpayer dollars on innovation policy and R&D tax breaks.

Before the last election, the ALP had indicated it would reintroduce the 150 per cent R&D tax concession, but at the last minute backed away after not costing the policy.  This was Carr's responsibility and he failed to perform.

Unfortunately, all governments are wedded to the notion that throwing money at R&D promotes productivity growth, and hence economic growth.  But in a 2003 report, the Organisation for Economic Co-operation and Development indicated that public spending on R&D had a negative impact on growth.  Anyhow, the ALP at the last election wanted to reintroduce its 1985 policy.

Where will Rudd's fork in the road take us?  So far, it looks to be heading backwards.  Reintroducing industry policy in any guise is poor economics.  Putting a socialist in charge of a poor economic program must be poor politics.

Rudd opposes "market fundamentalism" and is worried about family relationships.  Will his solution involve reregulating the economy, reregulating working conditions and imposing draconian shopping hours?  It appears a return to anti-market and anti-consumer choice policies may be on the cards.

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