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Australia may not be open for business

By Harold Levien - posted Thursday, 14 November 2013

The Australian economy is facing a critical stage. Many manufacturing businesses have closed, others are shortly to close and some very important closures are in the offing. These include food processing firms, the Electrolux refrigerator factory, and motor vehicle multi-nationals. Despite the impact of the high dollar and the attraction of low labour costs in developing Asia there has been no change in government policy to address the problem.

A substantial increase in unemployment seems inevitable when our new government has an ideological blockage to government intervention in industry, when there appears no connection between immigration policy and employment opportunities, and when an expansion of the public sector is not on the horizon.

There is an obvious response to this crisis. But the government would have to remove its ideological goggles, develop some vision and acquire courage. Australia has an adequate supply of savings (this year over $130 billion will be contributed to superannuation funds) and interest rates are at an all-time low. The government could readily borrow say $10 billion to establish a National Development Corporation (NDC) to achieve three functions.


Its first function would be to assist the establishment of new firms to produce high tech products stemming from research at our universities and the CSIRO particularly if the latter is better funded and freed from its restrictive ties to private firms. We only have to reflect on the opportunities lost when the Howard Government failed to fund the manufacture of photo voltaic cells developed by a scientist at the University of NSW. He promptly took his technology to China soon became a billionaire and enabled China to become the world's largest supplier of this product the demand for which is currently insatiable.

The second function would be to take over or assist firms which are currently planned for closure where it's considered they could be viable in the long term. Often they simply need long-term support which private firms with short-term objectives, of pushing down costs and maximising profits, fail to provide. Among these are food processers where, without government intervention, large sections of our food supply industry will soon be dependent on overseas food processing firms. The Electrolux refrigerator factory in Orange, NSW, is to be closed by 2016 but there there should be ample scope for keeping it open if the government is prepared to take a long-term view of ensuring Australia has at least one viable refrigerator manufacturer through capturing a much larger section of what is a more than adequate market for a supplier.

Most important of all potential closures are our motor vehicle multi-nationals and, with them, a multitude of parts suppliers With the closing of Ford and almost certainly Holden (and possibly later Toyota) there is an ideal opportunity to purchase their production facilities and take advantage of the cost benefits of large scale production through amalgamation. The clever policy would be to switch to producing the most advanced economical hybrid car and one which would, in normal circumstances, rarely need to run on petrol. With record oil prices this could be a huge marketing factor. Such an enterprise could well become a world supplier. At the same time it could make an enormous contribution to our carbon reduction targets


especially if there is a coordinated campaign to increasingly switch from coal-powered to green-powered electricity.

The factories have much of the equipment and labour forces. If management returns to the overseas parent company it should not be difficult to recruit appropriate replacements either within Australia or overseas. We should recall that during World War 2 the Australian Government established a multitude of factories making war equipment highly sophisticated for their time in an economy a fraction of the size of our current economy.


A third function of the NDC could be to stop the sale of Australian organisations and firms overseas where such sale would be against our national interest. This would need to occur with the cooperation of a reconstituted FIRB far more sensitive to our national interests. The principal case for allowing such a sale should be the import of otherwise unavailable and highly desirable technology and, in certain circumstances, greater access to markets. Funds should not be a consideration in an economy of Australia's size and economic sophistication. The proposed overseas sale of Australia's Graincorp for an estimated $3.2 billion could readily be handled by the NDC. This could avoid both the potential manipulation of the Australian market to serve the interests of the American buyer and the remittance of the Corporations' profits derived from local farmers. The most extraordinary case of overseas sale approved by the FIRB was the sale of Cubby Station under the previous government. This was Australia's largest farm and one of the largest cotton farms in the world with water storage capacity equal to several Sydney Harbours near the Murray-Darling area desperate for water to irrigate farm produce. Surely this would have been an ideal case for the proposed NDC to purchase if only to prevent precious water being squandered on a product Australia's dry continent should not be producing

The management of the NDC should consist of a high-powered board including representatives of Treasury, Trade, Environment, the Prime Minister's Department, the CSIRO and possibly the Business Council.

Failure to pursue a course along these lines could leave the nation helpless to avoid growing unemployment, a growing and huge balance of payments deficit and government budgetary problems arising from the decline in enterprises and individuals contributing to government tax revenue. And there would be the human tragedy of scores of thousands of workers who have acquired saleable skills throughout their lives but have become long-term unemployed with now unsaleable skills.

What is the chance of pursuing such a course? The greatest problem is the inflexibility in thinking of people in the current ministry. They have acquired the habit of talking and thinking in clichés refined throughout a three year election campaign. This problem is acutely demonstrated through the absence of the slightest example of wisdom or vision from the Prime Minister or Treasurer since the elections.

Within three days of writing this the Abbott Government, as if trying to demonstrate how dumb it can be and validating the last two statements announced that it would sack almost a quarter of the scientists, researchers and workers at the CSIRO. Inevitably this will bring to an end or greatly slow many research programs. At the same time the Government announced the dismantling of a number of expert advisory bodies. Rather than reducing the budget deficit these measures are certain to increase it in the long-term as they reduce Australia's capacity to become the clever country. Additionally, the Treasurer advised tax changes which will reduce revenue by $3 billion as it returns the $1.8 billion fringe benefits tax break, scraps $313 million taxes on large super accounts and dilutes measures to close company tax loopholes. And this after declaiming ad nauseam the size of the budget deficit throughout the three year election campaign.

Perhaps the best hope now would be for a prominent think-tank to set up a committee of distinguished thinkers with an economics background not hidebound by ideology to make public its recommendations to the Government after an examination of the problems set out above.

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About the Author

Harold Levien, in the 1950s immediately after graduating in economics, founded and edited VOICE, The Australian Independent Monthly. It lasted for five years. As a journal of comment its contributors included many of the most respected authorities on economic and political issues of the time. He wrote Vietnam, Myth and Reality in 1967. It went into several printings. Harold has written many articles which have appeared in the Herald, Bulletin, Quadrant, National Times, Australian Options, the Journal of Australian Political Economy and others. Before retiring he taught economics for 27 years.

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