Industry policy has an entirely disreputable history. But undaunted, in April, the Labor Party released its new directions for innovation, competitiveness and productivity paper. This sets out its vision for industry policy under a future ALP government. Industry policy is, in essence, a supply-side conspiracy through which government and industry collude against the consumer.
A reading of the ALP's policy suggests it has something akin to the now discredited Japanese Ministry of International Trade and Industry in mind for its industrial policy. MITI was created in 1949 with the task of co-ordinating Japan's international trade. It also co-ordinated Japanese industrial policy by providing loans, grants, licences, permits and subsidies to favoured firms, and tax concessions to favoured industries. Just as Australian prime ministers are expected to have previously held the office of treasurer, Japanese prime ministers were expected to have been MITI minister. MITI played an extremely important co-ordinating role in the Japanese economy. Over time, however, the forces of economic liberalisation caused its power to wane and, in 2001, it was reorganised into the Ministry of Economy, Trade and Industry.
Aping MITI, a future ALP government will create an uber-department of industry, science and research with a network of industry innovation councils. These councils will comprise high-level decision-makers from the private sector, the science and innovation sector (presumably universities and the CSIRO) and government. In other words, ALP policy proposes a producers conspiracy. The policy is also littered with boondoggles such as the 10 enterprise connect centres which, as the policy notes, will help firms find and adapt the latest research and technology and have their business benchmarked against best practice and get help in solving identified problems.
One wonders how firms were able to innovate or compete at all without taxpayer funded bench-marking. But stripped of these expensive decorations, the new ALP industry policy is just like the old.
The ALP proposes a 10-point plan to ensure Australia's continued prosperity. These 10 points can be condensed into three points: pick winners, throw money at universities and streamline government.
Picking winners has such an appalling track record that it is surprising politicians still think they can get away with proposing it. The ALP proposes building a culture of innovation, focusing incentives, accelerating the take-up of new technology, developing innovation priorities and using government procurement to support and encourage innovation. Motherhood stuff. The old chestnut of improving maths, science and engineering skills comes up, too. The ALP commits to providing our children with world class education and training. Yet, the education unions and State governments claim this occurs already.
The ALP also wants to promote an Australian green car. They aim to purchase green cars for the Commonwealth fleet if Australian car manufacturers can create value-for-money, environmentally-friendly vehicles. Yet, the current government already offers environmentally-friendly vehicles in the Commonwealth fleet. Throwing money at universities is, of course, bipartisan policy. It is not clear, however, what return the taxpayer gains from this strategy. My backgrounder Back to Basics: Why government funding of science is a waste of our money demonstrated that taxpayers gain very little from publicly-funded research.
There have been few productivity gains in teaching. The founder of Christianity had 12 disciples, implying a staff:student ratio of 1:12. Using 2005 Department of Education Science and Technology data, I estimate the staff:student ratio in current Australian tertiary education to be approximately 1:25. Two thousand years of technological progress has led to a doubling of teaching productivity. Universities complain that this ratio is too high. While education outcomes are poorly defined, government education spending, especially on higher education, could easily become a bottomless pit.
Streamlining government functions is politically populist. Everyone sees apparent waste in government. Of course, there is much waste. Much duplication, however, can be justified on the grounds of diversity and the benefits of federalism. To the extent that government tries to cater for different needs, it is likely bureaucratic and apparently inefficient processes will arise. Governments that adopt a one-size-fit-all, take-it-or-leave it policy will have simplified processes.
In terms of the ALP's policy, however, it is nonsense to argue it could simultaneously reduce government waste and create an uber-department and industry innovation councils. Although the composition of the bureaucracy may change, the overall size will expand. It is simply not credible that any simplification would occur.
The ALP's new directions are very much like the old directions. The only phrase missing is commanding heights. The Japanese MITI experience ended badly. It is not obvious that this approach would end any better than it did in Japan. Government adds value by enforcing property rights and maintaining the rule of law. Government has failed to add value when making business decisions. The ALP wishes to impose political control over the economy via its industry policy. This is both poor economics and poor politics.
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