Monday, 23 January 2012

Good money chasing bad

It's so disappointing to see money being tossed away at inefficient car makers, uncompetitive steel manufacturers, risk taking farmers and to other areas of the economy.  It imposes a large cost which is usually spread across the whole economy for a very concentrated benefit to a few.

To be sure, the role of economic policy making in a decent society is to provide a safety net of basic support, retraining, reskilling and education for all those workers who happen to be in industries in decline - and we generally do that well.  But policy making is also about driving an agenda that is built around internationally competitive tax structures and increasing the ease at which the private sector can invest, expand and employ.

Allocating money to an industry that will never be able to compete with a higher quality, lower cost product made outside Australia is unsustainable.  Giving money to businesses that inevitable fail due to a flawed model (farmers who only stay on marginal land due to subsidies, drought relief and the like) is also horribly inefficient and costly.  Money allocated to first home buyers, while nice in theory, is a costly and demonstrably useless policy in terms of getting people into the owner-occupied hosting market.  Using that money, for example, to build infrastructure for new housing land and building low cost affordable housing would win any cost benefit analysis by the length of the straight.

Despite the stunningly favourable structure of the Australian economy right now, there remains some sacred cows of industry and business that governments, of both colours, have seen fit to nurture.  Thankfully some governments in the last 30 years or so have been tremendously courageous at reducing industry assistance.  I suspect if Australia is to be structurally sound in a decade or so, or whenever the mining boom reverses, we need to ramp up the reform agenda ... and soon.

Did you know Australia used to manufacture televisions?  Preposterous!  Image if we still had those whacky tariffs in place that forced us to make and buy locally made TVs now?

Renaults, Mini Mokes and Austin Lancers (among many others) used to be made in Australia.  Huh?

Thankfully no more.

I hope that in 50 years, we look back and see how absurd it was that Australia had a car or steel industry at all.  I hope we have an economy based in high income, high skill jobs, not ones proped up by government distortions at a high cost to the economy.

The government needs to be err on the side of letting go, in the way it treats job losses in banking or small business or real estate or construction.  Let it happen.

Do nothing specific, but have in place a generous and well targeted retraining scheme, facilitate relocation to the strong parts of the country and leave in place an environment that allows for sustained solid economic growth that takes up the workers lost from the industries that will inevitably decline.

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