The Productivity Commission (PC)’s annual trade and assistance review, covering 2021-22, contains some familiar themes: the level of overall trade assistance via budget handouts as tariffs continues to decline (tariffs now impose more costs to navigate than they raise in revenue); the continuing importance of trade (“globalisation is not dead”) and Australia’s obsessive and deeply unhealthy use of anti-dumping provisions, which we continue to employ at more than double the global rate.
The commission is also chary of assistance for renewables transition, which it sees as a potential vehicle for protectionism — though before climate denialists seize on that, it’s because the PC continues to maintain, as it did during Australia’s lost decade of climate policy under the Coalition, that an economy-wide carbon price is the best mechanism for enabling the transition. Which it is. Our current approach such as it is (a safeguard mechanism, a substantially fraudulent market of carbon credits, letting fossil fuel companies grow their exports) is a grossly inefficient alternative.
The commission also grapples with the dominant issue in trade policy worldwide today: the resurgence of industry policy and onshoring of strategic industries by the biggest economies. The United States is targeting advanced microprocessors and renewables via the CHIPS and Science Act and the Inflation Reduction Act (IRA), while the European Union has responded by targeting the same areas. Both are driven — beyond domestic political considerations — by pandemic-influenced concerns about supply chain vulnerability and a geopolitical desire to restrict China’s influence.
Under Labor, Australia now has multiple policies that mimic these — a national reconstruction fund to target renewables and high-tech manufacturing, a critical minerals strategy, a national battery strategy, and a “Hydrogen Headstart” program.
The economic case for these is dubious — they are not areas of natural advantage for Australia, and devoting resources to them comes with a significant opportunity cost. We’re competing against dramatically larger economies that are subsidising and encouraging their own companies, which have far more money than us to deploy.
As for the argument that these are “strategic”, “sovereign” or “critical” industries, the PC has this snarky response:
The number of sectors regarded as critical risks growing over time … Australia’s Security of Critical Infrastructure Act 2018 is a potential case in point, with the number of sectors with assets regarded as critical under the act increasing from four to 11 over the space of two years … The same can be potentially said of ‘critical minerals’ for which there is no fixed chemical definition, there being no ‘critical minerals’ category on the periodic table of elements.
Instead, a growing practice is for countries to identify which minerals or resources they judge to be ‘critical’, either to their economy or their security, on national ‘critical mineral’ lists. This list has been growing in the United States and the European Union over recent years, and the Australian government recently announced its desire to update Australia’s ‘critical minerals list’.
But what about supply chain risks and the threat of China in crucial economic areas? That’s where the very actions of the US and the EU used to justify Australia mimicking them provides the case for not doing so.
Two years ago the PC found that concerns about supply chain fragility were overstated in Australia: “To the extent that policymakers continue to hold concerns about supply chain resilience, nevertheless, it is likely that US and EU industry policy itself will be diversifying away some of these risks for Australia. That is, increased microprocessor and clean energy technology production capacity in the United States and in Europe will create additional supply alternatives for all countries, including Australia.”
Australia can be a free rider on other economies when it comes to supply chain resilience and reducing the risk of exposure to China. And in this case, there’s no moral problem with being a free rider, as there is when it comes to climate action, where Australia has been not merely a free rider but a saboteur and parasite.
If other economies are taking actions in their own perceived interests that help address the problems that we perceive, we’re under no obligation to make bad policies to mimic them. We can simply benefit from their policies. That’s particularly the case with the US IRA, which specifically privileges countries with existing free trade agreements — like Australia, in the provision of “critical minerals”.
In the meantime, we should get on with what we’re actually good at — exporting resources, professional services like education and finance, and lifestyle services like travel.
But we’re not good at anything except digging up rocks, swapping houses with each other and making coffee. And that’s entirely because of the attitude expressed in the headline.
Education and finance services ? You seem to have mispronounced selling citizenship and money laundering.
Have you tried getting a coffee recently, quality is through the floor and it seems to be staffed by 15 year olds looking at their phones. Did all the baristas go out to the lithium mines or something? Or Maybe arrested chalking walls for XR.
I guess two outa three ain’t bad………………
I disagree. In terms of medical and technological research we hit above our weight, given our size . We have invented tech from photovoltaic cells, WiFi, black boxes, spray on skin for burns victims. We are never going to be a major manufacturing hub due to our size and location.
Polymer money is another one.
But these things are notable precisely because they are unusua.
The point is nearly any innovative idea has to be taken outside the country to be developed any further and commercialised, because there is generally very little understanding of or interest in its potential value within the country. It’s not even about being a “manufacturing hub”, either, it’s about retaining control of the IP and deriving long-term national benefit from it.
If your ideas do not involve resource extraction, real estate, or generally unproductive “services”, then you will find little interest in them here. Even attempts to try and add value to the resources we are already extracting, generally fail.
Australia has the economy of a not-particularly-advanced third world country, and is in steady decline.
I am guessing you’ve never been to a third world country
Only a couple, but that’s not really relevant.
Australia is ranked 91 on Harvard’s Economic Complexity index – down from 55 in 1995 – between Namibia and Kenya.
The next lowest “western” country is New Zealand, at 53 (also down, from 33 in 1995).
The true meaning of ”the lucky country” has never been more accurate.
“We are never going to be a major manufacturing hub due to our size and location”……………..
We are never going to be a major manufacturing hub while the ONLY way of getting a product to market is to sell it to the Americans (for bugger-all).
Such industries do not spring up full-fledged overnight…………..
………..almost invariably they need government support in the early stages.
There is not even a decent Venture Capital market in Australia, yet as you point out, the sheer number of ground-breaking inventions made in Australia is extraordinary.
And the best the “Productivity” (Dawp) Commission can come up with is “Dig More Dirt”.
What utter bollocks.
They should apply their own logic to themselves and declare themselves redundant.
Who are the Productivity Commission? Are they another entity stacked with lnp dills?
Not so – the first demonstration of a working photovoltaic cell was in 1839 in France and the first practical version at Bell Labs in 1954 (see Wikipedia). The solar unit at UNSW was (perhaps still is) at the forefront in improving efficiency but that is all.
Hmmm………
A bit overly picky, in that the crucial development that made photovoltaic cells commercially viable earned it’s inventor (Professor Martin Green) the engineering equivalent of a Noble Prize……………….
……and the title of “Father of Modern Photovoltaics”.
Just to prove the point – the Abbott government were simply not interested in pursuing the opportunity (“Just another goat-throwing event”) – two of Professor Green’s PhD students however decided to take the technology back to China……….
YET ANOTHER thirty billion dollars a year that Abbott cost this country.
Yes and the reality is our wealth is built on exports and imports. A 26 million person economy is never going to be like a 300 million perso , 1 billion person economy.. Our strategy has to be different.
Ok, that was just one example
” they are not areas of natural advantage for Australia ” , Bernie…..mate….that attitude will never see us develop anything other than a mining pit. To move into some kind of economy that can deal with climate change we need industry policy and strategic economy wide investments and directive policy. Have a read of Mariana Mazzucato’s work. An economy wide carbon price would be great, but we arent going there, and arguably we would have always been better off with direct investment and action. Agreed about offsets, they are a pr exercise that is hurting us..but spare me the PC’s pronouncements on natural advantages….(though apparently not solar power in one of the sunniest places on earth??)….the economy as it is is not ‘natural’. It’s what we can make it, and we need to invest to change that, with policy drivers quick smart. I look forward to the PC examining the subsidies we give to fossil fuels and the tiny employment benefits we get from them compared to profits and shipped overseas. This is idealogical rubbish from a group that needs to get a few fossil fuel free riders out of it’s management/advisory structure.
So Australia should stick to digging up the country, doing university courses in useless degrees , Banking so we can have more Royal Commissions and expand the big 4 accounting firms as is being exposed and finally travel – more Australians travelling overseas than visitors – – wow what an analysis from the public service think tank the Productivity Commission – definitely a misnomer or someone with a sense of humour naming a department.
Is there such a thing as reverse nominative determinism?……………..
I would invite the snarky econ grads at the Productivity Commission to read Alan Finkel’s new book, which describes in forensic detail the scale of the upcoming energy transition, its logistical requirements and specifically which minerals are critical to it and why. Given that Australia has abundant resources for generating renewable energy, but exporting energy itself is difficult and expensive, it makes a lot of sense to develop a local manufacturing industry which can put that energy to good use and produce valuable exportable goods.
Spot on…………..
……..one of the MAJOR costs with any manufacturing operation is the cost of power.
Make it cheap enough and every manufacturer in the world will be fighting to set up operations here.
If we are “Too Far Away”, how come so much stuff is made in China?………………
….ten minutes up the road.
If we can successfully export cheap raw materials, exporting high value-add products should be a breeze.
So… no nation should ever try producing something when other nations might do so more efficiently?
If everybody followed that logic, we’d all be sitting around doing nothing. For comparison, we can use the examples of Japan, Taiwan and China – none of whom started out manufacturing products more efficiently than the markets they were to overtake.
Or in the case of Japan, doing it while recovering from being NUKED!…………..