Egalitarian? Accept no subsidy

If you compare the experience of a small shop owner with industries that get government support, one thing becomes clear. All industry support is cronyism.

It's cronyism because players in similar situations are treated differently based on how connected they are to the government. Some connected firms and employees get support; shopkeepers, small business and independent contractors don't.

That's why government decisions about support for the car industry, drought-affected farms, SPC Ardmona and Qantas are so important for Australia's economic culture. We are in the middle of deciding if Australia is to continue to be a low-level crony culture.

This isn't an expression of free market dogmatism. It may be true that the economic benefits of competition are undeniable, the flow-on to ordinary consumers substantial.

It is an expression of the hard-wired human desire for fairness. All people and all businesses in similar circumstances should be treated equally before the law, and in all government decisions.

This is at heart an egalitarian view. It is one that the great liberal democratic reformers of the past 350 years have supported: that privileges due to blood relation, class, faction, influence, connections and donations (as well as bribes) should not affect how a government deals with people.

In short, government funds shouldn't be the plaything of connected insiders. And wage earners and shopkeepers are not responsible for making up for any business's lousy risk management.

Nothing can make this clearer than a comparison of farm drought relief, car manufacture support, and the similar circumstances but very different experiences of a retail or convenience store owner who lives above their shop.

Farm businesses are a business. Drought is a known risk for farming. More than 120 years of data makes that clear. The only uncertainty is when and for how long. All businesses facing the certainty of a large risk are responsible for managing those risks - taking on risk is a key reason they reap the benefits of their investments.

Bailing out farms that can't manage known risks is simply subsidising a badly-managed business because it is badly-managed.

No corner shop that goes broke because a supermarket opens nearby gets a bailout, or interest subsidy, or mental health support. And that is a risk that is far less likely than drought.

They get nothing other than Newstart. Not even sympathy. And certainly nothing from sentimental news programs talking about "doing it tough". That is the way it should be. They paid their money, and they took their chances.

The 2009 Productivity Commission Government Drought Support Review revealed that 70% of farm businesses in drought areas don't make use of drought relief because they don't need to. They set aside capital, they diversify income sources, they manage lines of credit. So it is do-able. If those 70% can manage the risks, so can the last 30%. And if they can't, they shouldn't be in business.

Further, the smallest 50% of farms generate a tiny percentage of farm output: 7% in 2005-2006. And the smallest 25% of broadacre farms didn't make any profit at all from 1989-2007 (Overview, page xxii). These are the farms most likely to rely on drought relief.

There is no moral or economic basis for treating that 30% of drought-affected farms differently from restaurants, dress shops, corner shops or printing firms. They are a business, and if things go well the owners keep the profits. All of these examples may have been in a family for generations. All of them may involve the family home. All of them may be productive, employee people or stimulate a local economy.

That makes the $280 million in reduced-interest loans in the Coalition's latest Drought Support package a crony subsidy. A catalogue of rural business support through tax and subsidy would run to pages.

So much for the principled beginning the Coalition has made with other forms of business welfare.

Equally there is no moral or economic basis for treating failing car firms differently from a software firm whose product is suddenly made obsolete, a print shop that can't compete with Singapore, or a budget furniture maker whose styles are no longer fashionable.

No-one else gets millions in adjustment money when they lose their jobs, but car sector employees do. No-one else gets two years to put their careers in order. Broader policy spending may be justified for affected regions, but personal assistance is simply cronyism for workers connected to big firms.

So much for the ALP's egalitarianism. Especially when you look at the detail of car workers' employment conditions, and the more than $12 billion already given to the industry.

And after Victorian Premier Denis Napthine stepped in for SPC Ardmona and undermined reform for the sake of vote-buying, so much for the Liberal Party's claims to being the party of good governance and liberal institutions.

Reducing industry support – and its associated cronyism – is a challenge to our political class. It removes opportunities for favours and influence peddling, quid pro quos for campaign donations, jobs in government relations for the politically connected, and in the worst cases, chances for graft and corruption.

The real problem is that 'insiders' – different special interests depending on the political party – subvert good economics and subvert basic concepts of equity to line their own pockets and avoid the need for innovation.

As usual, 'outsiders' who aren't connected will never get anything.

The answer is not to extend largesse to everyone – business welfare of all kinds is cronyism. The answer is to embrace the fair and egalitarian view, and stop funnelling ordinary people's money to insiders.