If you're willing to spend enough money you can buy almost anything.
This basic rule of thumb applies to both individuals and governments. But there's an essential difference between spending by individuals and spending by governments.
When individuals buy something they are using their own money. When governments buy something they are using other people's money. When individuals buy something they tend to look for value for money and consider the opportunity cost of their purchases. Governments usually don't.
The financial constraints on individuals that don't apply to governments produce the sort of ills that taxpayers are familiar with.
Governments believe they can buy all sorts of things -- success for the nation's sporting teams, a thriving arts and cultural sector, a program of events and festivals running from January to December. Once upon a time Australian governments even thought they could buy a viable manufacturing sector.
It is not just governments that refuse to consider the cost of what they are buying. The lobby groups urging ever greater amounts of government spending are often also reluctant to consider the cost of government purchases. The last week has provided two examples.
On Monday the ABC's 7.30 Report bemoaned the "lack of support" from government for the wind-power industry that was "driving Australian jobs and know-how offshore".
The next day the Australian Manufacturing Workers Union released a report that called for government to invest $1 billion a year in the manufacturing industry.
The complaint from the wind-power industry is that, if the federal government does not guarantee its market share, further investment is financially unviable and therefore it will move to countries such as China. (Presumably the wind-power industry has learnt a thing or two from car manufacturers about threats to go offshore if taxpayer assistance is not forthcoming).
The problem for wind-power advocates is that their product (electricity from wind power) is twice the cost of its competitor (electricity from coal). Wind power can't compete commercially with its alternatives, which is why the industry is using the supposed greenhouse-gas benefits of wind power as a lever for government regulations that guarantee the industry's profitability. The ethanol industry plays the same sort of game.
In response to the claims of the wind-power industry, Agriculture Minister Peter McGauran captured the point perfectly: "There are many industries we could keep in Australia with a taxpayer subsidy and, as a result, if those companies decide there are countries in the world that will pay dearly for their services, so be it".
Instead of government directly spending taxpayers' funds to ensure the viability of an industry, the cost of having a domestic industry is borne by consumers who end up paying more for their electricity. The number of jobs created by the development of a renewable-energy sector will be dwarfed by the resulting job losses in all the other sectors of the economy.
A key sector to suffer from higher power prices will be manufacturing, so there's a neat symmetry in that industry following the lobbyists for renewable energy to Canberra in search of the helping hand of government.
The AMWU has called for the government to change its hands-off approach to manufacturing. It wants tax concessions and export grants to ensure the survival of the industry. The stated justification of such spending is that Australia needs manufacturing. But do we need a manufacturing industry if the cost is the impoverishment of those industries in which the country has a comparative advantage?
At least the AMWU isn't calling (as yet) for the reintroduction of tariffs. This is not to say, though, that the union has embraced every aspect of reality. While it seeks high-skilled, well-paid jobs for its members, it also campaigns against free trade.
The best-paid employment for the highly skilled is mainly in those sectors of the economy that are not protected. In the short run protection and subsidies might slow the loss of jobs, but in the medium run it breeds management lethargy and kills enterprise. Further, in the long run protection and subsidies are unsustainable. The tragedy of Australian manufacturing is that, for the past two decades, it has been paying the price for the policy mistakes of a century ago.
Finally, it appears that politicians now appreciate that simply because government can buy something, it doesn't necessarily mean that it should. Sometimes the price is just too high.
Hopefully one day all of those sectors seeking taxpayer handouts will also realise this truth. But until then, it seems that tariffs might be dead, but demands for industry protection are alive and well.
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