The flat-earth economics of a future made in Australia

With the government peddling economic nostrums from the 1940s, it is bit rich of Anthony Albanese to call Gary Banks a “flat-earther”. Thursday’s labour market figures could have been better, a 2.6 per cent annual growth rate needs lifting, but they could have been way worse – key indicators were stable or improving. So why does the government want to chance the economy on a new version of an old and failed idea – a state-led strategy based on picking winners with public money?

The Prime Minister spent the past week selling what is less a plan and more a platform for the next election, “a future made in Australia”. The idea is that because governments of other nations are investing in hi-tech industries we should do the same – whether or not Australia has a comparative advantage, whether or not it takes resources away from the industries that produced Thursday’s growth statistics. “This is about how Australia supports industries, which will be able to stand on their own two feet,” Mr Albanese said on Thursday in an interview in Adelaide. Professor Banks, the inaugural head of the Productivity Commission, is not convinced. Neither are his successors, up to and including the government’s hand-picked appointment, Danielle Wood, who was quick to warn there was a risk to “a whole class of businesses whose livelihoods depend on ongoing support” to survive.

Professor Banks’s response to Mr Albanese’s proposal is that it looks like more of the same old protectionism. “Import displacement is at the heart of both. Seeking to obtain benefits to society through ­subsidies for particular firms or industries, including in the form of tax concessions, has proven a fool’s errand, particularly where the competitive fundamentals are lacking,” he said in a Wednesday speech. To which Mr Albanese replied, when asked why Professor Banks was incorrect: “The world is round, not flat. That is why he is wrong.” It was not a response to inspire confidence among voters familiar with the decay of the old Australian economy, based on import taxes and public subsidies, for four decades from the end of World War II, which prime ministers Bob Hawke, Paul Keating and John Howard worked so hard to deconstruct. And it is not a response likely to inspire Jim Chalmers, who knows more than a bit about Mr Keating’s work. “We want to incentivise more private investment, not just replace it … a lot of the heavy lifting will be done by the private sector,” the Treasurer said on Wednesday.

The problem so far with “a future made in Australia” is that the incentivising will be done with public money. On Wednesday Mr Albanese announced $400m in loans for an aluminium processing plant in Gladstone. Also on Wednesday, Health Minister Mark Butler and Industry and Science Minister Ed Husic released the government’s medical science co-investment plan, which it wants the National Reconstruction Fund to support with $1.5bn. This is not so much a plan as a list of potential products and services Australian researchers are good at that may or may not make money. As such, it appears the outcome of political-economy enthusiasm, which assumes Australian research expertise merits reward for effort regardless of what the international competition is up to. Or, as the Prime Minister put it in Gladstone, “if we have confidence, if we have optimism and move forward, we can make things here”.

Mr Albanese said last week his plan to respond to “strategic competition” around the world “is not old-fashioned protectionism or isolationism – it is the new competition”. Maybe, but if it reads like protectionism, and appeals to protectionists, it’s more than probably misplaced protectionism. As Professor Banks warns: “Australia is in danger of repeating the wrong history.”