Brave old world: taxpayers shell out for return to protectionism

We don’t technically know what the prime minister’s “10 year manufacturing plan” consists of until he announces it at a Press Club address at lunchtime today, but inevitably it has been dropped for extensive reporting this morning to a slew of press gallery journalists.

Or, as Anthony Albanese put it in a speech yesterday, a “carefully curated preview” as part of “the drip-feed of government drops to sympathetic journalists”. Albo’s speech, of course, had itself been dropped to journalists ahead of its delivery.

Unsurprisingly, the Labor leader said “we must get behind manufacturing”. Specifically, he wants a local rail carriage industry to meet the growing needs of state government public transport projects. And he wants it achieved through local content preferences by government. Train carriages are “just one example of how the government should use its purchasing power to create good, secure jobs while strengthening our sovereign industrial and research capabilities”.

Building rolling stock locally costs much more than buying it from overseas manufacturers who operate with economies of scale. That’s why overseas manufacturers win tenders for provision of rolling stock, unless local content rules deem otherwise. Taxpayers wear the cost, but that gets overlooked in the cheery media release about local manufacturers creating X number of jobs.

Industry Minister Karen Andrews has already flagged that local preference will be used by the federal government to support local manufacturing. Judging by the “carefully curated preview” of Morrison’s speech, he’ll go further and announce $130 million a year to fund projects by mining companies, medical suppliers, food manufacturers; “clean” (i.e. not renewable) energy investment and projects in space and defence. Packaging it up as a “10 year plan” enables Morrison to slap a billion-plus price tag on it.

This will be another business slush fund, yet again aimed at helping political donors — note that resources companies will be first in line — and select industries.

Theoretically, this kind of winner-picking and protectionism is anathema to the party of the free market, but the Liberals are now the party of radical interventionism, especially in energy policy. Bizarrely, Morrison will justify this winner-picking by saying that the selected industries are ones where Australia has a comparative advantage.

In more traditional economics, comparative advantage means you don’t have to offer handouts for industries to compete successfully against imports. Now, it seems, comparative advantage means you do get handouts.

Confused? Join the crowd. Australia has no comparative advantage in defence manufacturing, despite its status as an anointed Morrison industry. We’re far too small compared to the US and Europe. We can’t make naval vessels even remotely as cheaply as other countries. But we’re throwing $100 billion at least at making ships and subs locally for the sake of a few thousand jobs.

And Australia has no comparative advantage in space, other than that we point the other way to the northern hemisphere. But that’s getting funding as well. We have a comparative advantage in growing and exporting some foods, but our “comparative advantage” in food manufacturing is so great we have to use anti-dumping laws to keep foreign products out.

Media stenographers claimed the plan “could” create 80,000 jobs — which would be a mammoth 10% increase in the current manufacturing workforce. Taking the government’s numbers at face value, that means a $1.5 billion package will cost $19,000 a job. That’s around about what we used to pay for automotive manufacturing jobs in the old days when we handed huge sums of money to Japan and US-based multinationals to run some inefficient car plants here.

But at least that’s better than the hundreds of thousands per job we’re coughing up for our various naval construction follies. All thanks to the endless generosity of taxpayers.