(1991) Sunbeams, Cucumbers and Industry Policy

Based on a revised speech delivered to the Australian Financial Review seminar on Industry Policy held in March 1991 and published in Michael Costa and Michael Easson, editors, Australian Industry. What Policy?, Pluto Press and the Lloyd Ross Forum, Leichhardt, 1991, pp. 123–149.

He had been eight years upon a project for extracting sunbeams out of cucumbers, which were to be put into vials hermetically sealed, and let out to warm the air in raw inclement summers. He told me he did not doubt in eight years more, that he should be able to supply the Gover­nor’s gardens with sunshine at a reasonable rate; but he complained that his stock was low, and entreated me to give him something as an encouragement to ingenuity, especially since this had been a very dear season for cucumbers. I made him a small present, for my Lord had furnished me with money on purpose, because he knew their practice of begging from all who go to see them.

– From Jonathan Swift’s ‘A Voyage to Laputa’ in Gulliver’s Travels

Introduction

The notion of ‘industry policy’ conjures various ideas, prejudices and doctrines. The debate is charged with rhetoric, polarised and con­strained by key-words. We inhabit a world of picking winners and level playing fields. For the so-called dry, economic rationalist the notion of governments interfering in the market place and supporting particular industries must necessarily lead to economic misadventure. To such advocates, industry policy makes as much sense as the would-be genius discovered in Gulliver’s Travels who is seeking financial backing to invent a means of plucking sunbeams from cucumbers.^lxiv

In one sense any policy adopted by government which affects the opportunities and performance of manufacturing and service indus­tries may qualify as a part of an industry policy. Thus, an approach of ‘let it rip’ without any governmental interest in the outcomes of the ‘free operations’ of the market place is an industry policy. So too is an inter­ventionist approach an industry policy. What might be envisaged by an industry policy is something that should be examined by assessing actual details and consequences. (We are all responsible not only for our intentions but also the consequences that follow.)

Much of the industry policy ‘debate’ is heavily influenced by an idealised view of the market through which winners emerge unsullied by the black hand of government or the bureaucracy. And, in part, the contemporary debate is shaped by reactions to what are widely per­ceived to be the misguided policy actions of the McEwen years.^lxv

Most people in the labour movement are vaguely in support of an industry policy. Intervention in the market place and incentives by government to protect and foster Australian industry has long been a hallmark of labourist thinking. However, both the Whitlam (1972-1975) and Hawke (1983- ) governments have acted to reduce protection and have moved away from the approach of high tariffs and restrictive import quotas which, for much of Australia’s history, has dominated – regardless of party political persuasion – governmental actions relating to industry policy. More than 60 years ago, Edward Shann wrote his Economic History of Australia wherein he commented that:

The voice of the special pleader is never stilled. New Protection, developing through wages fixation, tariff schedules, Navigation Act restrictions and subsidies on export, has wrapped Australian industry in a net of legal rules. The Australian businessman is tempted to become a suave concessionaire, exploiting his small corner while yet the system admits it, but explaining that he would gladly treat his clients better if the newest board would but give him a little larger scope and check the unpatriotic greed of others.^lxvi

Even if Shann’s ideas and arguments largely fell on deaf ears (at the time he was writing, during the Great Depression, the policy-makers were generally influenced by the view that even more protection was required to secure Australian jobs), his views eventually came to in­fluence much contemporary thinking about industry policy. But this is not the place for a full assessment of developments in Australian economic history.^lxvii

This paper will sketch a view of what might be reasonably attempted in the development of industry policy by the Hawke Labor govern­ment. Hence the perspective of this paper is oriented to the broad directions that might be supported by the labour movement in the 1990s. In so doing, the argument will mainly focus on the initiatives and opportunities arising from the industry policy statements announced on 12 March 1991 and collected in the publication Building A Competitive Australia.^lxviii

Specifically, this chapter will:

• Briefly overview and assess some of the main ideas in Building A Competitive Australia;
• Outline further steps that might be pursued concerning:
  1.     sectoral policies;
  2.     developmental capital;
  3.     a competition watchdog;
  4.     resource and environmental processes;
  5.     ‘clever Federalism’;
• Comment on Labor’s arguments with respect to:
  1.     microeconomic reform
  2.     wages policy and industry change.

Finally, the argument will be stated that some of the difficulties facing Australia are so substantial as to justify a significant re­orientation in public policy with respect to encouraging significant growth in trade in manufactures and services. The wide range of issues touched on by this paper is both an illustration of the complexities of the industry policy debate and of the inter-relationship of so many factors in the performance of Australian firms and the various competi­tive advantages of Australian industries.

Overview of Building a Competitive Australia

If nothing else, the lukewarm reaction to the March 1991 industry policy announcements is an indication of the deep pessimism which pervades thinking about Australia’s immediate economic prospects. For the trade union movement, Building a Competitive Australia throws up a series of challenges. Unions needed to react to the various policy changes and formulate a critique of their utility; second, an assessment is required of ‘where do we go from here?’; third, and related to the above, a careful evaluation is required about attitudes, behaviour and policy in the areas of award restructuring and microeconomic reform.

After the failure at the end of 1990 of the GATT round of negotia­tions which were supposed to conclude a fairer and freer world trade regime, I was confidently told by one manufacturing union leader: “Thank God for that. Maybe this will now instil some realism and back­bone in the government’s industry statement”(!). Well, the realism and backbone in Building a Competitive Australia is somewhat different than what that particular individual had in mind.

In the context of a recession, with growing unemployment, the government decided to pursue significant changes to tariff protection and further expose the Australian economy to international com­petition. It is interesting that criticisms of the government’s approach almost wholly focus on the need for additional measures, rather than specific attacks on the details of what was announced. (For a summary of the main details of the government’s announcement, see the boxed section accompanying this chapter.)

The reaction within the trade union movement was mixed. ACTU President, Martin Ferguson, described the policy as “like a Chinese meal — sweet and sour”.^lxix (Though, presumably, despite this analogy, Mr Ferguson has also tasted Chinese cuisine which is of other tastes, including hot and spicy). The ACTU Executive, meeting in the week the March Statement was released, issued a statement which noted that the changes to wholesale tax and the depreciation allowances would provide a substantial cost reduction for business and commented that those reforms were welcomed by the ACTU. In addition, the ACTU warmly endorsed the extension of the 125 % tax concession for research and development and commented that this will provide an important stimulus to the development of higher value added goods and services. Taken together, those taxation initiatives will assist Australia to develop a more internationally competitive tradeable goods sector. Interest­ingly, the ACTU coyly stated: “The announced reductions in tariffs go significantly beyond what was proposed by the ACTU Executive last year. When combined with the current tariff phase-down and Aus­tralia’s recession, these measures will place considerable additional pressure on industry”.^lxx

Improvements to export facilitation in the car plan, initiatives to build Forestry industries, changes to the Export Finance Insurance Corporation, the Australian Best Practice Demonstration Program, and labour market structural adjustment assistance were also commended by the ACTU. However, the ACTU identified three critical issues worthy of attention:

1. Equity capital and loan capital for companies through the pro­posed Development Fund.
2. Sectoral development initiatives.
3. The business community reaction; the ACTU asserted “…it is incumbent on the business community to respond positively to these initiatives and to take advantage of the enormous develop­ment opportunities this country has to offer…”

Where To Go From Here

Within the Hawke government there was a significant debate as to what the industry policy announcements should embrace. The prevail­ing view was that changes should be made in the overall regulatory framework, such as with tariffs and with taxation changes, as would allow, to employ the popular jargon, the winners to pick themselves. The then Treasurer, Paul Keating, pronounced:

The package of measures announced today ends forever Aus­tralia’s sorry association with the tariff as a device for industrial development… Within this decade, Australia will have renounced once and for all the fallacious doctrine that prosperity can be found behind the insular wall of protection. The wool industry’s problems are only the most recent example of how we deceive ourselves if we think we can ignore the imperatives of the international marketplace even in a commodity where we are dominant.^lxxi

i.     Sectoral Policies

Perhaps the dreariest debate in town is the attempt to portray contest­ing sides in the industry policy debate as amounting to the economic rationalists versus the new protectionists. This is a game played within the government as well as by the economic commentators. Thus, the Industry Commission, Professor Garnaut’s Australia and the North-East Asian Ascendancy and Treasury reports are grouped as one side of the debate.  On the other ‘side’ are herded, for example, the Pappas Carter Evans and Koop Global Challenge and the ACTU’s Australian Manufactur­ing and Industry Development: Policies and Prospects for the 1990s reports.

There is nothing so false as the argument that there are two sides to every question, as if there is only the sum of two. There are many sides in the industry policy debate and, interestingly, considerable overlap between the Garnaut and Pappas Carter reports. Unfortunately, the kind of thinking referred to here has had a debilitating effect on the development of ideas relevant to the different sectors of the Australian economy.

Also relevant in the development of ideas were the concerns within the government:

• Not to be seen to be significantly changing economic direction. (The no U-turn tendency.);
• Not to be portrayed as opportunistic in the currently difficult econ­omic climate. (The courageous-in-the-circumstances tendency.)

Perhaps it is potentially a good thing that the government is pre­occupied with such thoughts. As the Prime Minister revealed in his presentation to the Parliament, he believes that Building A Competitive Australia lays the foundation for policy over a decade, rather than a few years.

Nonetheless, a potential weakness of the government’s policy was the lack of insight concerning what might happen in particular sectors of the economy.  In the reaction to the industry policy announcements, government spokesmen seemed a little uncomfortable with the ques­tion – “Yes, but where will Australia’s strengths lie in the year 2000?”  In answer to that question, it might be argued that the most important thing is that resources be allocated within the economy by profit-seeking entrepreneurs, that the market should be free to allow winners to pick themselves and that government’s role is to free up the market place, eliminate distortions and allow the allocation of resources to the most productive sectors of the economy.

That approach can be consistent with a view that there is a useful role for government through sectoral policies complementing overall macro-economic policy.^lxxii  For example:

Assessment of Opportunities: This requires a systematic process for examining sector by sector opportunities derived from Australia’s strengths in human and natural resources enabling better advantage to be taken from those opportunities. This is not picking winners.  Rather, the sectors will pick themselves through the application of objective criteria in defining strengths or potential strengths.

Implementing Sectoral Strategies: Such strategies should not start from the assumption of what government support is needed. Rather, oppor­tunities should be assessed including evaluation of what needs to be done to realise them – in particular, impediments which prevent development opportunities.

There have been many instances of government support throughout the life of the Hawke government.  Despite much of the rhetoric, aspects of industry policy, apart from tariffs, were interventionist and have been extremely successful in promoting both growth in net exports and increasing expenditure on research and development. For example, in the five years to 1989/90 total manufactured exports grew at an average annual rate of 4.4%, but exports of major manufactures (defined as machinery and transport equipment plus pharmaceuticals and iron and steel) grew at an annual rate of 15.1% over the same period.  While general economic policies and other factors have played a significant role, specific policy measures have been a major factor in those out­comes. These include the Offsets Program, the Steel and Car Plans, the Partnership Program, the Factor F Pharmaceuticals Program and telecommunications purchasing arrangements. Precise quantification of effects is not available, but the concentration of growth in program areas indicates that these programs have been very important in generating the 15.1% real growth rate. There are also indications that further export growth is in the pipeline from these programs. In spite of the rapid growth in exports and the rise in the export/import ratio, Australia’s net export deficit on major manufactures continued to increase, reaching nearly $20 billion in the year to the September quarter 1990. Continued and increased export growth in this area is therefore critical. Further policy initiatives building on and expanding the successful programs of recent years would seem to be appropriate.

There may not be strict causality, but it would be foolish to ignore the message that the sensible use of leverage by government in purchases, offsets and limited direct intervention can be of significance to export growth.

There are various examples of this modest, sectoral intervention approach such as:

a. Partnership for developmental programs in the Information Technology industry.
b. Factor (f) in pharmaceuticals.
c. Accelerated depreciation in shipbuilding.
d. Offsets in the aerospace industry.
e. Assistance packages in the following industries:
     i. steel
     ii. automotive
     iii. TCF
     iv. shipping
     v. stevedoring
f. Bounty (and its capitalisation) in synthetic fibres.

In all cases this assistance has been part of a clear industry develop­ment strategy involving commitments to:

i.   productivity and efficiency improvements
ii.  growth in exports
iii. growth in R & D
iv.  growth in training and skill formation

Government strategy, therefore, could build on this to give a co­herent vision for industry development at the same time as muting the criticism that this is new ‘new protectionism’. Encouragement and government support which achieves these directions is not a pro­tectionist policy, it can be promoted as part of a growth strategy, of realising the vision of a more competitive Australia. The nature of government assistance (if any) should relate to an identification of the barriers to achieving the development in question and seeing what can be done to address them. In addition, one of the most important things that governments can usefully perform is trade development in terms of identifying potential markets and liaising with overseas governments. The dissemination of such information can let the market sort out which Australian firms will take advantage of such opportunities. There is a major role for Austrade in this task.

Is this a picking winners strategy? No, it is a strategy not built around government assistance measures – but one which recognises govern­ment assistance may be necessary to overcome certain barriers to development. It is not picking winners but more fully realising our potential to become clever. To some extent the strategy must involve changing the language and the rhetoric of debate.

Against that view is the outlook of the Industry Commission which has been highly critical of all attempts by government to provide assist­ance to Australian industry.^lxiii In the 1988-1989 Annual Report of the Industries Assistance Commission,^lxxiv it was stated:

By and large, the industry plans …place the selected industries in a favoured position over most other Australian industries and have delayed their need to become more internationally competi­tive. The plans typically incorporate a wide range of assistance measures including border protection and budgetary measures. Their full assistance implications are not easily quantified (p. 35).

Other plans …have provided increased assistance for a speci­fied period in return for commitments from firms and unions to increase investment and raise productivity. Some include safety net provisions which, if enacted, reduce competitive pressures on the industry concerned (pp. 35-36).

Gains from tariff reform will be undermined if tariffs are replaced by alternative assistance measures. In its last two annual reports, the Commission has examined a wide range of alterna­tive assistance measures which selectively assist industry and try to ‘pick winners’ – among them, government purchasing prefer­ences, offsets, export incentives, and tax concessions for venture capital investments.

The Commission questions the efficacy of such assistance as:

• • it can serve to maintain a ‘preferment mentality’ whereby industry looks first to government for assistance;
  • it is rarely transparent;
  • it can divert attention from identifying and removing factors restraining the performance of the Australian economy; and,
  • the assisted activities may not be able to compete in the longer term without continued taxpayer support, that is ‘losers’ rather than ‘winners’ could be picked (p. 65).

Those arguments and the general approach of the Industry Commission are coherent and require proponents of the kind of sectoral industry assistance outlined in this chapter to, at least, justify their position and respond to such potential criticism.

There are four points which can be advanced in response to the IAC arguments: first, it is the case that many industries have benefited from the government’s intervention, such as information technology and pharmaceuticals, which over the decade of the 1990s have considerably increased exports.  Performance in those industries, as earlier outlined, is much more impressive than most of the rest of Australian industry. Whether that performance would have been significantly different but for government assistance needs to be assessed case by case; second, obviously there are varying performances by different industries which reflect not only what support might have been forthcoming by government but also, and more importantly, the complex of actions including the skills of particular managers, investment, skills of workers, training of employees, organisation of resources, industrial and personnel management, market trends, marketing, business strategies, cost of capital, flexible innovation.

Third, the direction of government policy over the Hawke government has been to reduce protection. This has been partly influenced by a view that past efforts to assist industry have squandered resources, partly shaped by the idea that any assistance should be narrowly or otherwise targeted, and partly affected by Australia’s support for freer trade and reductions in barriers to free trade (which has been determined by Australia’s position as a large scale commodity exporter, damaged by restrictive trade policies). Thus, it would be a gross caricature of the approach championed by the Hawke government to assert that this is maintaining a ‘preferment mentality’.  Four, an interesting feature of most assistance measures has been the limited time horizon of such assistance. Thus, the steel plan was an initiative which began in 1983 and expired in 1988.  Offset agreements and bounty arrangements are for specific periods. Such arrangements are consistent with an approach which accepts that government’s role should be that of short-term assistance aimed at encouraging an industry or particular enterprises to move to an independent and stand-alone position.

Nonetheless, there is an ambivalence in the rhetoric and actions of the government in the development of industry policy. Increasingly in the late 1980s, the prevailing view within the government was that of cautiously acting to support particular industries and at the same time confidently projecting the government as de-regulationist and pro-free trade. The author is aware that in the internal debates within the government concerning industry policy, the junior Minister for Indus­try and Minister for Science and Technology, Simon Crean, was privately criticised by the senior economic Ministers for insisting that the 12 March, 1991 industry statement needed to build on particular sectoral policies. Even though Mr Crean’s approach was an extension of existing policy the whispers were about that he hadn’t learnt any­thing from the Victorian economic debacle — as if that had something to do with the industry policies pursued at the Federal level. Such critics had shut their eyes to the inconvenient facts as to what was the Hawke government’s record in this field. (It might also be observed that the VEDC [the Victorian Economic Development Corporation], as a financier of last resort, was a mechanism for picking losers.)

Sectors to be Developed

Within government various ideas relating to particular sectors have

been put forward. The following sketches some of the sectoral issues relevant to the potential role of government^lxxv:

Information Technology
• Using government purchasing as a lever.
• Continuing to develop the partnerships between Australian based software, hardware and service companies and multinational firms.

Telecommunications
• Insisting new second telecommunications entrant has to meet targets in areas of investment, research and development, manufac¬ture and supply of services.

Aerospace
• Potential for developing aerospace industry based at Avalon in Victoria.
• Realise Qantas’ reputation in safety by expanding its core (ie passenger business) to aircraft service and maintenance and pilot training. This could be expanded regionally to Asia and Europe.
• Promote Qantas’ and CSIRO’s reputation with Boeing to secure long-term contracts.
• Encourage mainframe production capacity with one of the alu¬minium companies.
• Be prepared to waive offsets in return for long-term supply con¬tracts (recognising Aircraft Companies contract out most of their manufacturing).
• In this way build a cluster for the development of an innovative aerospace industry embracing manufacture and skill formation.
• Particularly suited to Avalon:

• • Airstrip
  • Labour Force
  • Good Infrastructure

Pharmaceuticals
• Extend Factor (f) arrangements.
• Review regulatory environment.

Biotechnology
• Building on our research base and commercialising to develop food processing and pharmaceutical industries.

Fibre Processing
• Forge linkages between technology advances in synthetic fibres (resulting from our bounty capitalisation) to natural fibres;
• Seek strategic joint venture partners to competitively value add to our fibres either naturally or through blends.

Processed Foods
• Related to regional development issues, including:

• • using our strength in biotechnology and natural produce

Pulp Mill(s)
• Government should be unabashed in promoting the development of new pulp and paper mills (in part, to obliterate Australia’s huge trade deficit in this sector).
• Obtaining commitments for companies to real investment, includ¬ing guidelines which are predictable, fair and are both economi¬cally and environmentally attuned.
• Resource security consideration core by core, through legislative safeguards.
• Develop a timetable.

Vehicle Industry
• Pressure BHP, for example, to produce quality steel for outer bodies.
• R&D expansions and development of design capability.
• Advanced manufacturing technology.

Steel Industry
• Future development of new higher quality product.
• Growth in exports.
• Encouragement of investment in new capacity.
• Growth in productivity.

Shipbuilding — based on:
• Competitive crewing levels (3-year timetable).
• Skills and efficiency and innovation through submarine and frigate program.

Resource Processing
• Linked to manufactured and engineering products. Potential growth in processing and export of magnesium and aluminium.
• There is the need to go beyond improvements in the process of developing the raw material to linking it with manufacture.

Scientific and Medical Equipment
• Utilise advice from the Science Council to assess potential in this field.

Tourism
• A strategy to build on earlier success, including more aggressive marketing of Australia to North East Asia, including Korea and Taiwan, and North America.

Waste Management
• Bringing to fruition some of the processing research opportunities and creating a flag bearer for ‘green’ industry development.

ii.    Developmental Capital

Even though, after the Building A Competitive Australia Statement was released, the ACTU has focussed considerable attention on the issue of the cost and availability of capital and has tried to popularise the idea of an industry development fund, such views are likely to fall with a thud to the ground.

The problem is not lack of capital; after all it can be argued that one of the problems of the 1980s was partly an explosion of capital, and the loose lending policies of the financial institutions. The Federal govern­ment addressed in the industry statements the issues of accelerated depreciation and reform to sales tax exemptions; both measures are likely to be advantageous in the obtaining of investment for industry. However, there remains the question as to whether there is a cost of equity capital problem for Australian industry.

This is an issue of considerable importance if it is the case that a significant problem exists. A controversy exists as to whether the reduc­tion in inflation and the stabilisation of the macro-economy is all that needs to be done in this area.^lxxvi  Perhaps with the development of more sophistication, knowledge and experience in the financial markets through investments in venture capital firms and direct investments these problems will dissipate. At the time of writing, the government has referred these issues to the Industry Commission for consideration. Perhaps something useful will emerge from that reference and the eventual report of the Commission.  

To improve the rate of successful commercialisation of research there is the issue as to whether government should develop a brokerage func­tion whereby the necessary partnership to ensure successful com­mercialisation is brought together. There may be a requirement for the government to provide financial assistance to encourage those phases of innovation beyond R&D and so promote successful commercialisation, marketing and company growth. In some respects, the AIDC [Australian Industry Development Corporation] and DITAC [Department of Industry, Technology and Commerce] attempt to develop this role in conjunction with government agencies such as the CSIRO.

iii.     An Effective Prices and Competition Watchdog

One of the government’s major strategies for structural adjustment is its microeconomic reform agenda. In various key sectors of the economy reform is underway to introduce more competition and/or efficiency to enhance international competitiveness and contribute to net export growth and thus assist current account correction.

There is a lot of scepticism surrounding this approach. The govern­ment’s political opponents and sections of the media say the govern­ment is not sufficiently committed enough to microeconomic reform or that it is taking too long.

Some are questioning whether the supposed benefits of greater com­petition and efficiency will translate to real benefits both in terms of lower prices and more rewarding jobs. The latter is the essence of the workplace reform agenda and Accord Mark VI and beyond as it relates particularly to wages policy, skill formation and effective participation at the workplace.

In essence, what is suggested here is a new prices and competition watchdog, with teeth, as part of an industry reform agenda. The approach has been recognised in a number of forms, e.g.:

• Shipping and stevedoring industry reform, where the PSA [Prices Surveillance Authority] and TPC [Trade Practices Commission] have been asked by government to monitor and ensure that benefits of the savings associated with the package of reform (i.e., crewing reductions and redundancy payments to which the government contributes) were passed on in lower prices.
• Airlines, where both PSA and TPC are required to monitor consequences to ensure benefits of deregulation.
• Petrol prices, where both PSA and TPC are involved particularly in relation to Rack Pricing.

The goal of lower prices through increased competition is something that the government has never been seen to address well. Where market forces should produce the alleged benefit, this mechanism could plug or correct the deficiencies consequent upon any contrived (through, for example, duopoly and oligopoly) arrangements which frustrate those forces operating. The new mechanism could ensure market forces operate effectively.

The closer involvement of the PSA and TPC functions in certain areas has been a very recent development. It is not well understood, mainly because both bodies separately have been seen to be ineffective and playing a defensive or justification role.

A new body would be pro-active in having a mandate to ensure the benefits of competition flow through. The government’s word that com­petition will happen with increases in the standard of living is not enough.

iv.     Resources and Environmental Processes

There is strong support within the ACTU for resource security legisla­tion and for clearer guidelines relating to the assessment on environ­mental and economic grounds.^lxxvii The ACTU has been critical of the government changing the rules mid-way through the assessment of environmental issues.^lxxviii There is one thing worse than moving the goal posts during a match, however, and that is the appearance of goal posts which are merely mirages. Thus, no matter how much effort is put on the field, no matter what distance is run, the goal posts seem as far away as ever. To some extent this has been the experience with the Sydney Airport Third Runway process. Despite the Federal Cabinet decision in 1988 to support the building of the Third Runway, delays in the assessment of environmental aspects of the decision have dragged on for over three years. BHP also experienced in 1990 and 1991 protracted delays, including court appeals and complicated delaying tactics, in the assessment of its proposal for the construction of a mini-mill in Mount Druitt in Sydney’s Western suburbs.

So, it is desirable that environmental approval processes be faster than what is typically the case. Indeed, sometimes the beautifully writ­ten and complicated ‘environmental guidelines’ can be the Procrustean Bed to torment and frustrate development proposals. It is appropriate that there be a balance between environmental and economic consider­ations – something never achieved by a crude application of a scien­tific formula. As with most complicated issues, this is a matter for due process and judgment.

v.     Clever Federalism

There is a major challenge for Australia to overcome the serious barriers to realisation of opportunities that can occur because of state and sectoral boundaries. For example, environmental issues that need to be resolved for sustainable economic development often cross such boundaries.

Environmental aspects of economic development are of great sig­nificance in mining and in all aspects of agricultural production. Related regulatory issues can be a source of delays and uncertainty for economic development in these areas, as well as, for example, in the food and pharmaceutical industries. High priority needs to be placed on establishing procedures for decision-making and common regula­tory frameworks that are applied in a timely manner. (The Working Party on Regulatory Reform established following the October 1990 special Premiers’ Conference, and which is due to report in 1991-92 provides an ideal opportunity to rectify some of these problems — but a sound technical input is essential.)

The states are the major performers of research and extension in agriculture, where there have been arguments that a national research strategy is needed to deal with issues such as sustainable production. Institutional arrangements cannot be changed easily, and ways need to be considered to achieve greater institutional cooperation in this sector. The R&D priorities and strategic plans of the Rural Industry Research Corporations will have an important influence and there would be advantage in encouraging further representation of national interests in this process.

Further Federal/state improvements are required in the areas of:

• National rail initiative;
• Shipping and waterfront reform;
• Electricity generation, transmission and distribution;
• National educational standards.

MICRO-ECONOMIC REFORM AND AWARD RESTRUCTURING

Part of the reaction to the March 1991 industry policy statements was critical of the trade union movement, particularly with respect to:

• microeconomic reform; and,
• the Accord as part of the problem of Australia’s poor economic performance.

At the risk of superficial glossing, the following summarises some of the major issues.

(i)   Microeconomic Reform

Significant microeconomic reform has and is being achieved as follows:

Waterfront — the Waterfront Industrial Relations Agreement en­visages a 1500 job reduction by the end of 1991; enterprise agree­ments to deliver 60-70% productivity improvements.

Shipping — delivery of smaller more efficient crews; new ships at manning levels equal to or better than OECD standard by mid 1992.

Aviation — deregulation commenced November 1990; privatisation Qantas/Australian Airlines to occur in 1991/1992.

Telecommunications — competition increased; Telecom has lost its monopoly over provision of many services and has had its regulatory functions transferred to another body, Austel.

Federal/State relations — review of new Federalism offers prospects: however, the focus — especially with electricity and transport — needs to shift to the states.

Despite such developments there is the issue as to whether the pace is fast enough and whether outcomes are likely to compare well with international best practice.

With respect to the most popular ‘bogey’, however, shipping and waterfront reform, it might be noted that:

1. Many companies conveniently seize upon shipping and waterfront ‘reform’ to obscure their own failures in innovation and reform.
2. Everyone believes that waterfront and shipping reform is ‘crucial’, but there seems to be not much understanding of what needs to be done.
3. A key task would seem to be that of forcing more competition between ports and within ports. This has not much to do with the unions and a lot to do with entrenched stevedoring arrangements and state port authorities.

Nonetheless, there is recognition within the union movement that slowness in microeconomic reform threatens the credibility and achievements of the unions. Hence, it will be increasingly in the labour movement’s interest to hasten reform. Moreover, the expansion of exports in manufactures, which has occurred in recent years, will add a significant stimulus to achieving a quickening of the pace of change.

(ii)   Wages Policy

Award restructuring is about linking wages outcomes with:
• more flexible awards;
• development of new workplace culture involving:
     – career paths;
     – training of employees;
     – improved human resource management;
     – matching current and future skills with company needs.
• enterprise agreements.

What worries many industrial relations practitioners is pop manage­ment and one-minute award restructuring; unless there is a clear understanding by management and unions in particular industries as to what might be achieved, award restructuring in many cases may achieve little that is worthwhile. This is widely recognised within the government. Hence, the workplace change initiatives in the Building a Competitive Australia industry statements.

‘What’s happening that’s worthwhile, outside of certain manufactur­ing industries?’ is a question engendering the feeblest responses in many industries. There is a need for changes to be:

1. market driven;
2. part of a process rather than the endgame; and,
3. relevant to a particular enterprise and industry.

This is not to underestimate the considerable changes in attitudes that have been achieved in the award restructuring agenda. This agenda has caused unions, management and industrial tribunals to freshly assess the opportunities and directions required of particular enterprises and, at the industry level, assess the educational, skills and training priorities required to achieve ‘the clever country’. Awards have been modified, with enterprise facilitation clauses inserted since 1989 in most of them.

Perhaps the most disturbing aspect of the award restructuring process is the lack of coherent strategies on the part of management in many companies. Despite the fact that most private sector companies (at least the larger ones), government business enterprises and govern­ment departments have beautifully written corporate plans – some read like poetry – it also appears that many managers are confused and directionless as to what policy to pursue. It appears that more than a few corporate plans are clever inventions bearing little resemblance to actual corporate strategies.

This is reminiscent of the Ern Malley hoax. In 1944 two poets, James McAuley and Harold Stewart, decided to invent a character, Ern Malley, who was a radical ‘free verse’ modernist poet. McAuley and Stewart believed that most modern poetry, particularly that published in Max Harris’ journal Angry Penguins, to be incoherent. McAuley and Stewart wrote a number of poems by pulling books out of their libraries and randomly seizing lines and composing poems accordingly. They sent a batch of such doggerel to Harris who wrote an introduction to a special issue of Angry Penguins which praised Ern Malley’s poetic quali­ties to the sky. Later McAuley and Stewart exposed the farce, claiming that the poems they had written had no rhyme or reason.^lxxix Harris was much embarrassed, but he defends to this day the majestic qualities of those poems. They were accidentally coherent, it seems. Much of what is found in company corporate plans appear to have been invented like the Ern Malley poems. Slabs of principles on organisation, sections on the strategic environment, human management plans and so on, seem lifted from other corporate plans with little critical assessment of how this fits with the individual company’s objectives. Obviously, there is a note of hyperbole in this description, but also there is a good deal of truth. Unfortunately, in many negotiations concerning award restruc­turing and consequent enterprise bargaining, hardball tactics, more often than not, are related to this lack of strategic vision.

Concluding Remarks: Is It Too Difficult?

Finally, a few points about the difficulties of Australia achieving a turn-around in its current account performance and the development of more value-added manufacturing and services: In the last five years there has been a marked increase in the exports of manufactured goods from Australia, including elaborately transformed manufac­tures.^lxxx This has been from a low base, but it has been impressive none­theless. As the world eventually moves out of the recession of the early 1990s, will Australia’s manufacturing and services exports grow sufficiently to simultaneously and positively contribute to Australia’s trade imbalances and add to the wealth and growing productivity of the country? Obviously, Australia’s performance will be influenced by various factors including the macroeconomic settings of the Australian economy.

What happens if the tariff phase-down and the deregulatory changes do not induce a more balanced and entrepreneurial behaviour of manufacturing and related firms?  If one accepts that a strong, domestic manufacturing industry is usually essential in the ability of a nation to significantly improve its standard of living,^lxxxi this is no idle question. It is vital to the future of Australia and at the heart of what industry policies should be pursued.

It would appear that firms succeed by:
• dominating their domestic or local market;
• closeness of firms’ links to ‘leading edge’ customers’ drives;
• innovation;
• flexibility of organisational structure.

Australia is characterised by strong multi-domestic companies in some areas, such as services (banking, transport) and resource-base sectors. Australian multinationals, however, do not export much. Why? What if after substantial changes in tariff, tax changes, microeconomic reform, Australia’s exports of elaborately transformed manufactures continues to be unimpressive?

Professor Jeremy Davis of the AGSM [Australian Graduate School of Management] in an article entitled ‘Australian Managers: Cultural Myths & Strategic Challenges’ concludes:

…we must reject the received wisdom about Australia’s pre­destined cultural fate. The fact that we have not yet achieved large-scale, internationally competitive marketing in Australia is not proof of mediocrity and management failure. It demonstrates rather how difficult that task actually is, when properly under­stood.

In order to address it, ‘levelling the playing field’ by deregu­lation and aggregate restructuring is necessary, but not sufficient. Better management education will be helpful, even imperative, but will not be sufficient. Australia lies at the periphery, we will have to accept the need to choose a number of potential winners and, having chosen them, to support them to the hilt in the difficult transformations ahead.^lxxxii

That is a concluded view with which the author of this paper has sympathy. It is interesting that Professor Davis is part of a team at the AGSM currently working on a project for the AMC [Australian Manufacturing Council] on the inter­national competitiveness of Australian firms and the relevance of that for the development of sound industry policies. In looking at a number of potential (sectoral) winners, this does not mean backing them to the hilt through gross expenditure of resources. Backing by government can involve removing obstacles to efficiency, including the various tax, finance, infrastructure, training and industrial relations issues relevant to that topic. Backing to the hilt can involve the acceleration of worth­while changes in all of those areas.

This paper has attempted to explore what might be reasonably attempted in various sectors after the March 1991 Industry Statements. The author is conscious of the imperfections of what is merely a sketch of what might be done. Hopefully the vision outlined in these pages is more substantial than the chimera pursued by the figure of fun in­vented by Jonathan Swift – namely, the character who feverishly and grimly pursued the design of a mechanism of extracting sunshine from garden vegetables.

Endnotes

¹ See Swift, Jonathan (1726, 1987) Gulliver’s Travels, (with an introduction by Michael Foot) Penguin, Harmondsworth, pp. 223-224.

² Jack McEwen was the Leader of the Country Party of Australia and Minister for Trade and Industry in the 1960s. For a discussion of the McEwen approach to industry policy see Walsh, Max, Poor Little Rich Country, Penguin, Ringwood 1979.

³ Shann, Edward (1930)An Economic History of Australia, Cambridge University Press, Cambridge, p. 410.

⁴ For an iconoclastic and recently published discussion of this and related themes see Costa, Michael and Duffy, Mark (1991) Labor Prosperity and the Nine­ties — Beyond the Bonsai Economy, Federation Press, Sydney, passim.

⁵ Building a Competitive Australia (1991) Statements by Prime Minister, Bob Hawke, Treasurer, Paul Keating, Industry Minister, John Button, on March 12, AGPS Canberra.

⁶ Quoted in The Australian Financial Review, March 1991.

⁷ACTU Media Release, March 1991.

⁸ Keating in Building A Competitive Australia, Loc. Cit., pp. 2.1.-2.2.

⁹ The former junior Minister for Industry and the Minister for Science and Technology (1990-1991) Simon Crean, now Minister for Primary Industries, was developing particular proposals to build on the foundations of the 12 March 1991 Statement. It remains to be seen whether Mr Crean’s departure to a new portfolio will see a stalling of moves towards targeted sectoral approaches.

¹⁰ For an assessment of the development of the Industry Commission’s ante­cedents, the Industry Assistance Commission and the Tariff Boards see Warhurst, John (1982) Jobs or Dogma, University of Queensland Press, St. Lucia.  See also Whitwell, Greg (1986) The Treasury Line, Allen and Unwin, Sydney, 1986.

¹¹ Industries Assistance Commission (1989) Annual Report 1988-1989, AGPS, Canberra. This report is particularly well argued in the presentation of the IAC ‘line^’ on industry protection and on microeconomic reform – perhaps reflecting the views of the then Chairman of the IAC, and later Secretary of Treasury, Mr A.S. Cole.

¹² In large part this section relies on information channelled to me through the Department of Industry, Trade and Commerce.

¹³ See the Canada Consulting Cresap (1990) paper to the Australian Manufacturing Council on Understanding Australia’s Cost of Capital, December, pp. 20f. and the AMC paper on The Cost of Capital (1991), July.

¹⁴ See the ACTU policy adopted at the 1989 ACTU Congress on the ‘Environment and Industry Policy’.

¹⁵ See the chapter in this book on the Wesley Vale pulp mill.  [Northover, Chris, ‘Lessons from Wesleyvale Pulp Mill Company’, in Costa, Michael & Easson, Michael, Australian Industry. What Policy?, Pluto Press for the Lloyd Ross Forum, Leichhardt, 1991, pp. 401-408.]

¹⁶ See Coleman, Peter (1980) The Heart of James McAuley, Wildcat Press, Sydney, pp. 25-28.

¹⁷ See the charts appended to Ross Garnaut’s chapter in this book.  Garnaut, Ross, ‘Trade and Industry Policy After the Uruguay Round’, in Costa, Michael & Easson, Michael, Australian Industry. What Policy?, Pluto Press for the Lloyd Ross Forum, Leichhardt, 1991, pp. 47-68.]

¹⁸ See, for example, Cohen, Stephen S. and Zysman, John (1987) Manufacturing Matters, The Myth of the Post-Industrial Economy, Basic Books, New York.

¹⁹ Davis, Jeremy (1988) ‘Australian Managers:Cultural Myths and StrategicChallenges’ in Marsh, Ian (editor) Australia Can Compete Towards A Flexible Adaptable Society, Longman Cheshire, Sydney, pp. 103-119.

SUMMARY OF HIGHLIGHTS OF THE BUILDING A COMPETITIVE AUSTRALIA STATEMENT

(derived from section 5 of the Building a Competitive Australia Statement, AGPS, Canberra, 1991).

General Tariffs

Except for the motor vehicle and TCF industries (too detailed to be summarised here), phased reductions in tariffs are accelerated as follows:

Date	Percentage
	From	To
1 July 1992	15	10
1 July 1993	12	09
1 July 1994	10	08
1 July 1995	08	07
1 July 1996	5	5

Developing Country Preferences

From 1 July 1992 preferential tariff arrangements for Singapore, Taiwan, Hong Kong and the Republic of Korea are modified so that tariffs for these countries will remain fixed at the 1 July 1992 rate (5% below the general tariff rate at that date) until the general rate is reduced to that level during the program of phased reductions noted above.

Bounty Arrangements

Generally, most bounties are due to be phased out or reviewed by 1995. Where renewed bounty rates will be set to reduce in line with the fall in tariffs.

Anti-Dumping Reform

Thorough review of anti-dumping procedures and the operations of the Anti-Dumping Authority.

Sales Tax Exemption

The government has decided to simplify and extend the exemp­tions from wholesale sales tax (WST) for goods used by manufac­turers, miners and primary producers. The exemptions will be broadened to conform to a broader definition of production covering a wider range of inputs and activities associated with the production of goods. Certain freight handling facilities at ports will also be exempted. Some existing restrictions on the goods eligible for exemption will be removed.

The measures will reduce the cost burden of WST on inputs for goods producers (and sub-contractors performing eligible activities) and thereby reduce the cascading of the cost through the production chain. Production costs will therefore be reduced by significantly more than the revenue cost of the measures. In particular, the competitiveness of Australia’s export- and import- competing industries will be enhanced by the new WST exemptions.

Revised Depreciation Arrangements

The effective life of an item of plant is to be defined by an amend­ment to the Income Tax Assessment Act 1936.

Effective life will be defined as the estimated life, determined on an objective basis in the first year in which the item is used by the taxpayer for the production of income, over which the asset could be expected to be used for income producing purposes, assuming it is maintained in reasonable order and condition and having regard to factors known to apply at the first time of use (or installation ready for use) of the item including:

• the expected circumstances of use of the item by the taxpayer;
• whether the expected life of the item is restricted by the duration of a particular project in which it is to be used;
• predictable obsolescence; and
• any other relevant matter

The government has also decided that determination of the effective lives of plant will move to a system of self-assessment.

Tax Treatment of Environment Impact Studies

The government has decided to allow taxpayers a deduction for capital expenditures incurred primarily and principally in under­taking an environmental impact study.

Tax Concession for Industry Research and Development

The government has decided that a tax concession for research and development at the rate of 125% will be retained as a per­manent feature of the Income Tax Assessment Act beyond 1993.

Advanced Manufacturing Technologies

The government is to introduce an Advanced Manufacturing Technology (AMT) Strategy to encourage the development, production and use of advanced manufacturing technologies.

Assistance with trialling and demonstration will help support Australian firms during pre-production and market development phases, which can at times present them with major problems. It can also act as a powerful catalyst for product acceptance in domestic and export markets.

The government will commit $20 million to the program. Grants will be awarded over a four-year period, beginning in 1991-92, and the money will be provided over a period of seven years. Grants of up to 50% of eligible project costs will be avail­able for approved projects.

International Performance Benchmarks

In response to a proposal from the Business Council of Australia, the government has decided that the Bureau of Industry Econ­omics will undertake a major research project on international performance benchmarks of business input services.

Review of Overseas Export Enhancement Measures

The government has asked the Industry Commission to under­take a review of the methods by which Australia’s main trading partners promote export and import replacement activities;

• the direct costs and wider economic implications for these economies of these measures;
• the extent to which these measures are consistent with GATT obligations;
• the economic implications of these activities for Aus­tralia.

The Commission will be asked to add the review of its work program immediately, with a view to reporting by the end of 1991.

Changes to the Austrade

Austrade must provide targeted, efficient and effective services to Australian exporters. The government is committed to the reforms recommended by McKinsey and Co. in the review of Austrade. Consequently, greater emphasis will be placed on overseas activities, particularly in more difficult markets, as recommended by McKinsey and can be better realised by closer linkage with Australia’s diplomatic network. From 1 September 1991, Austrade will come within the Foreign Affairs and Trade portfolio under Dr Neal Blewett, Minister for Trade and Overseas Development. In addition, changes to senior personnel at Austrade.

Union Rationalisation

The government is providing financial assistance towards the substantial costs of running amalgamation campaigns and the considerable legal costs involved in this process.

In 1990-91 a total of $2 million is being made available for this purpose through the Financial Assistance to Promote Union-Rationalisation Scheme and $2 million will be provided again in 1991-92.

Workplace Reform Program

The Workplace Reform Program (WRP) was introduced in 1988 as part of the government’s strategy to increase the pace of award restructuring and workplace reform. It has five complementary elements:

• Work Change Assistance provides funding for innova­tive projects leading to demonstrable workplace reform.
• Examples include the employment of Work Change Advisers with peak industry and union associations, development of resource materials for implementing restructured awards, and missions to study best practice in other countries.
• Work Change Training provides funding to give managers and shopfloor personnel the skills to develop and implement restructured awards.
• The Workplace Resources Scheme has established a national network of Workplace Resource Centres in all State capitals and Newcastle. The Centres operate on a commercial basis and pro­vide specialist assistance to enterprises on human resource management, industrial relations, production planning and design, and work organisation.
• A management training initiative has been introduced recently in response to a range of studies indicating that management lacks the skills to fully participate in the implementation of change.
• The communications strategy aims to increase aware­ness within industry of the need for change and of current reform issues.
• The government has already invested more than $25 million in this Program. It has decided to allocate another $20 million to the Program.

Australian Best Practice Demonstration Program

• The Australian Best Practice Demonstration Program (ABPDP) is aimed at accelerating the spread of best practice reforms and an improved workplace culture throughout Australian industry.
• Enterprises will be selected through a competitive bid­ding process. Proposals will be examined by a com­mercially-orientated panel made up of key people from business and unions. Selection will be on the basis of agreed criteria development in consultation with peak industry and trade union organisations.
• Assistance will focus on four key areas:
  • the growth of an improved workplace culture;
  • the effective re-organisation of production;
  • commitment to integrated training arrangements;
  • fostering an improved industrial relations climate.
• The government has allocated $10 million for the ABPDP in 1991-92 and $15 million in 1992-93. This level of funding will allow firms of varying sizes in a wide range of industries and geographic locations to take part. This range of participating firms will add further impetus to the demonstration effect.

Other

The government also specified other changes including the estab­lishment of the Export Finance and Insurance Corporation as an independent statutory authority.

Various measures were announced in other areas including Forest products and other specific sectors. New initiatives were announced for the labour market and training programs.

Postscript (2020)

I am not sure in parts of this paper what I meant by certain points. Under the section Sectors to be Developed I must have lifted some detail from another document. Under fibre processing, comes the suggestion to value-add “our fibres either naturally or through blends.” Under pulp mills, “Resource security consideration core by core”, and with the vehicle industry: “Pressure BHP, for example, to produce quality steel for outer bodies.” I hope the points once made sense. But now I am unsure. 

The essay shows an ambivalence: industry policy could be sunbeams from cucumbers, the most negative of mocking descriptions, yet there argued that doing nothing or a lot are choices. Both are industry policies. I was equivocal This paper has attempted to explore what might be reasonably attempted in various sectors after the March 1991 Industry Statements

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