Picking winners takes a quantum leap of faith

The Albanese government has built its case for greater government involvement in picking the business winners of tomorrow in what Jim Chalmers has called an era of “churn and change”. In a speech to the Lowy Institute on Wednesday, the federal Treasurer recalls how Australia was a keen contributor to the Bretton Woods Conference in 1944 that created the framework for the post-war economy and the “Washington Consensus” of fiscal discipline, floating exchange rates, liberalised capital flows and the free movement of people and goods.

In Dr Chalmers’ sweep of history, a stable trading world was only “up-ended by the 2008 financial crisis, several recessions in the US and Europe, an uncertain recovery that ended with Covid and a subsequent spike in inflation, which crested not long ago”. Dr Chalmers says the past 16 years of the global economy have been much more difficult, “punctuated by the unmistakeable signs of climate change, a pandemic and a European war, which both exposed fragilities in our supply chains and which spurred a damaging spike in inflation”.

For the Albanese government the response is to reimagine the nation’s foreign investment landscape to “make ourselves indispensable to the net-zero transformation” and align our economic and security interests more tightly. A remaking of Australia’s technological and industrial identity is the centrepiece of the government’s Future Made in Australia plan, which has been widely derided as a return to the protectionist policies that have served the nation so poorly in the past.

While the government says it is not about picking industry winners, the money tells a different story. Last month it was $1bn to manufacture solar panels that will be more expensive than what can be purchased overseas. On Tuesday it was another $1bn to encourage Australian researchers at the top of the game in quantum computers to relocate back to Brisbane. Industry and Science Minister Ed Husic acknowledged PsiQuantum, currently headquartered in California, would own the computer once it was successfully built.

Dr Chalmers has identified priority targets for investment as refining and processing critical minerals, producing renewable hydrogen, exploring production of green metals and low-carbon liquid fuels, and supporting targeted manufacturing of clean-energy technologies including value-adding in the battery supply chain. Australian Hydrogen Council chief executive Fiona Simon has said taxpayer-funded investment “far in excess of $2bn” was required to create a new hydrogen market and ecosystem.

The government’s track record to date in picking winners has been far from spectacular. Examples previously highlighted by Anthony Albanese include a plan to send solar electricity to Singapore via an undersea cable that has been in and out of receivership. Another was battery fast charger Tritium, which has collapsed into administration.

This does not mean there is no role for government in a more challenged world. But it is important to admit that financial turmoil did not start with the global financial crisis. A brief perusal of history would highlight two world wars, the traumatic economic dislocation for Australia from Britain’s decision to join the Common Market in 1973, the Black Monday stockmarket collapse of 1987 that sparked fears of a repeat of the Depression, the 1997 Asian financial crisis, the dotcom bubble that popped in 2000 – all events that would qualify as times of “churn and change”.

Australia must surely find its place in a world transforming around energy security and heightened geopolitical rivalry. But the lessons from the past are that free markets, not government intervention, are better at sorting things out.