A good article that deserves a lot of discussion. With the exception of your position on uranium and nuclear energy, this is what the Australian Manufacturing Workers Union has been saying since about 1977 in a range of nearly annual publications and speeches by our National Secretaries and other prominent officials. In fact, our first national publication - "Australia Uprooted" - dealt with the first post war decline in manufacturing, ie value adding to resources, in response to the 1970's resources boom. We have also laid out clear policy proposals that answer the question "how we can make this shift to value adding" as well as saying this is something "we must do". For more info go to www.amwu.asn.au or email donald.sutherland@amwu.asn.au .
Don

Pretty much agree with DonaldS's comments. Glad to see that that the sense in engaging in processing of our vast natural resources...

Speaking of which, Australia's not short of sun either. So whilst uranium and nuclear options may be questionable to many (and I am far from happy with the option), there is clearly a solar alternative.

I know I mentioned this in a post yesterday, but Australia's mining boom is actually making it harder to develop a value-adding manufacturing industry.

As the ore is dug up & sent overseas tax dollars flow into the government's coffers, creating big surpluses and strengthening our dollar. With the stronger dollar, imports of manufactured goods from overseas are cheaper. Not only do exporting industries here find it harder & harder to sell goods in foreign markets, but domestic manufacturers can't compete with the flood of cheap imports.

We all know it'd be great to have strong value-adding industries here, but its just not economically viable to do so & the boom is making that situation worse.

The term for it is Dutch Disease, where the exploitation of natural resources results in pain for other parts of an economy. There are various ways of dealing with this, especially the method Norway adopted. The solutions are there - all we need really is a government with the foresight and long-term fiscal responsibility needed to implement them.

Mostly agree with this article.

The only caveat I would add is that we should have the right sort of value adding industries: The car manufacturing industry is a prime example of something that only exists because of huge government subsidies.

If we have value adding industries then they must be internationally competitive and add value to the country

I worked in a factory that produced sugar, and exported that sugar.

Almost every piece of equipment in that factory was imported. This included alternators, turbines, switching gear, motors, instrumentation, computers and even valves.

We imported all that equipment, and exported sugar.

What's new? Ever since Australia was founded as a colony we have exported our raw materials. Blind Freddy can see we need our own manufacturing and value adding basis, but while Australia remains a country allowing cheap imports of food stuffs and paying high wages for labour it will never happen. But, when oil becomes really expensive and western people buy only essential goods, the manufacturing market for China will fail, because the economy which has been based on cheap labour in factories will fail as factories close and our resource boom will end as they stop buying our resources.
What then?

Who wouldn't like to see more manufacturing in Australia? Actually, that's too weak. Currently Australia's the output of manufacturing sector is dropping by roughly 1% per year. We are loosing around 40 manufacturing jobs in Australia every working day. [*] Sounds like a recipe for a long term mess to me.

But the suggestions offered by the author come across as feel good platitudes. He says "re-invest in education, science and technological innovation of high quality". Sounds wonderful; you would have trouble finding anybody that disagreed with it. But how does it fix the problem that it is cheaper to export our coal and iron ore and re-import the steel than it is to do the value add here? The author makes no attempt at connecting the two.

In fact he makes no attempt to quantify any of the problems or the solutions. I guess this is "Online Opinion" and so unsubstantiated political statements are the norm. But I was hoping for something more substantial from a Professor of Chemical Engineering. In fact, I am sure he would insist on it from his own students.

[*] These figures came from the AMWU's web site. http://www.amwu.asn.au/default.asp?action=LoadArticle&ID=2612 I find it odd yet comforting that it is a union's web site was the top hit in Google with up-to-date figures.

rstuart,you are on the money with the reference to costs. It is indeed cheaper to export our raw materials, have someone else process them,then buy back the finished good, than to produce the finished good here. As transport costs continue to rise, then expect to reach a point where that turns around. The bottom line is that we dont pay the "real" cost of the goods that we consume (or utilise). We set standards in Australia that we dont expect our competitors to match - standards that are morally on solid ground,but result in it being too costly to produce such goods ourselves. Take for example:
- OHS regulations
- environmental constraints (emmissions, rehabilitation etc)
- minimum wages and conditions,

Now I dont think for a moment that we should remove any of these - they are there for a good reason! But we need to acknowledge that having these restraints impacts on the cost of production. If we required that a factory in China adhere to the safety, wage and environmental standards that we insist on here, we would find that the goods we purchase are MUCH more expensive than they are now.

So what to so? For a start we could seek to boycott foreign products whose manufacturing standards (re pollution, employees etc) do not live up to our own. Its awfully presumptuous of us to be happy that some poor chinese teenager risked his long-term health to make a product for us at a cheaper price (its a bit like those city-folk that turn vegetarian after seeking a steer or sheep slaughtered - its perfectly ok if it just comes in a pack off the sueprmarket shelf though). Actually, this reasonably simple step would go a long way to balancing the playing field as far as production costs go, AND forcing some IR and environmental responsibility on manufacturing nations. Of course there is a cost, and that will be felt at the cash register and probably in interest rates (higher costs, higher inflation etc). But the longer we put this off, the more painful it will be.

Lots of "should" words and vague idealism. Our wages are high, construction costs are high, there is little brownfield potential (ie. synergies like co-generation) and a government that shows limited or no vision.

Bluntly there is no money in value adding. For example, Australia imports one million tonnes of caustic soda per year and exports the salt used to make it. We process less than one-tenth of our titanium mineral sands and Bass Strait gas and oil barely supported a chemical industry.

When there were opportunities, such as chemicals based on Bass Strait oil and gas, the government (the dumb Fraser government in 1980), promoted a split of the industry to support Botany. The industry today is potboiler scale, and owned by the Chinese (who should thank Malcolm for that deal with what was ICI).

Then our motorcar industry. $50million paid by government to support a V8 engine development by General Motors. We have FOUR vehicle plants producing for 20 per cent of the population (imports are 80%) ie. one plant per just one million of population, producing ordinary cars. We pay tariffs on imported cars to support dying plants.

Then there is disguised assistance for the rural sector via biodiesel and bioethanol. Old technologies that are producing what are really fossil fuels. Eg It takes 300 litres of water to produce one litre of ethanol.
Lack of vision and expediency marks federal and state governments.
We will continue to be the mine for China until people go to their windows and shout “I am as mad as hell and I am not going to take it anymore” (Peter Finch, movie Network)

Describing minerals processing operations as “value-adding” industries is misleading. All viable economic activity adds value – if a business doesn’t add value and isn’t subsidised, it will collapse. The economic well-being of a community is greatest when it focusses on those activities at which it is best at adding value, which in Australia’s case includes resource extraction.

Conversely, investments which do not at least cover their risk-adjusted opportunity cost (that is, the return available from alternative uses of the funds involved) are wealth-destroying, not wealth-creating. Too many so-called value-adding initiatives in Australia have been wealth-destroying, often being non-viable even with massive government subsidies. The call for such industries usually comes from those outside the commercial field. It is often on the basis that “We have the minerals, we have the energy, therefore we can compete in processing.” Not so – in the AMC example below, we found that these were only two of 12-14 critical factors in completing globally. Queensland scored well on minerals availabilty, moderately on emergy costs, and badly on eveything else.

Commercial businesses and investors thrive or fail on their capacity to correctly identify and pursue profitable opportunities. The skills required for this are highly valued and are in great demand, particularly by firms and investors who operate globally. If there is a profitable opportunity available in Australia, it is unlikely to be overlooked.

Nevertheless, governments and public servants with little relevant expertise frequently think that their capacity to identify and pursue viable commercial opportunities exceeds that of the businessmen whose livelihood depends on that capacity. In practice this almost invariably leads to poor investment choices at great cost to the state concerned. A classic example is Queensland’s light metals project, the Australian Magnesium Corporation (AMC).

The possibility of a light metals industry in Queensland had been considered for more than 20 years without attracting serious commercial interest. Despite this strong indication that it would not be viable, the Department of State Development vigorously pursued the project. (more)

A major user of magnesium metal is the motor vehicle parts industry, and DSD’s preferred client for the metal was Teksid, the world leader in metal automotive parts. Teksid analysed the opportunity and said that a light metals industry would never be viable in Queensland At the same time, Queensland Treasury undertook detailed economic and financial analyses (under my direction) which came to the same conclusion. This analysis was never challenged or faulted.

Nevertheless, with strong support from the federal and state governments, the project went ahead. Even with $300m in grants from the Queensland and Commonwealth governments, AMC could not attract commercial support. The State Government therefore developed a scheme to attract small investors to invest in the project. The smelter subsequently collapsed with losses of around $450 million – borne by the promoters, the two governments and the investors - but no minister lost their job.

Another relevant factor in the attempts to attract large metals processing projects is the state’s policy of subsidising metals processing plants through reduced royalty rates. Queensland’s guidelines for royalties on metals provide that “where mineral is processed within Queensland to 95% contained metal, royalty discounts will apply as follows: copper – 20%; lead – 25%; zinc – 35%.” There are two issues here. First, if the minerals were not processed here, they would be exported with full royalties – there is a loss of State revenue from the discounts. Second, overseas processors who buy Australian ore can compete while paying full royalties plus freight for the ore. If royalty discounts are required for firms to operate in Queensland, it implies that they are not internationally competitive. That is, the State is fostering the development of non-competitive industries rather than letting market forces direct resources to viable industries. If the industries can, in fact, operate here profitably without subsidies, then there is no need for them. Either way, there are long-term costs to such distortionary policies which tax viable companies to fund those favoured by the Government, and a query as to whether government infrastructure which supports them is worthwhile.

I'm curious Faustino - what do you think was the driving force behind state & federal governments backing the AMC project?
There can't have been many votes in it, after all.

I'll admit it's stories like this that have me sympthasising with those calling for "small government" and for government to stay out of throwing money at projects of questionable value. But are cases like this really that common? And is there a way to ensure that governments are more accountable for and careful with the taxpayer dollars they hand out to industries?

A clear objective statement on AMC and value adding, Faustino. It is time someone brought the governments to account with some audits of what they have supported. A few….
1. I mentioned the 1980 Fraser government support for ICI at Botany without feedstocks emasculating the petrochemical industry in Australia leaving Altona with Bass Strait gas with half the market (and 106 per cent returns on shareholders’ funds).
2. There’s the $400 million fiasco of the WA Labor government in the late 1980s with the PICL petrochemical project that was fundamentally non competitive by any reasonable measure despite the now defunct Chem Systems consultants.
3. Allowing Woodside to export the world’s most “wet” LNG (containing short supply ethane that undermines the prospects for a PPP – see next.
4. Support by WA government for the PPP petrochemical project in the Pilbara and the leverage it provided Shell/Dow for a better offer overseas.
5. Support for SCM (now MIC) pigment plant at Kemmerton in WA dividing the chlorine market for the sake of regional development.
6. Support for V8 engine manufacturing by GMH – what about a hybrid engine instead?
7. Support for biodiesel and ethanol production which is disguised assistance for the rural sector. The plants are dead on the ground and excise exemptions now being granted to promote use of ethanol in fuel.
8. On going import tariffs for four car plants producing for 20 per cent of the small Australian market when one plant could produce a truly competitive car.
9. Money paid to rationalise sugar cane production. What an oxymoron that is.
10. And today $9billion to pay out the heavy water users on the Murray Darling. Hey, what about a ten year phase out? What could Australia do with that $9 billion?
11. And a raft more follies of what inept public servants and their masters.
Where’s a national perspective of opportunities? Where a Jurong Island type common user infrastructure providing a smart manufacturing base for Australia?
Federalism with 13 levels of government has its price to value adding.

Sound. Beautiful. A Sensible call Dong-ke Zhang.

Why is it made so hard?

May the Light reignite a Nation for all to grasp. May those left out be re-engaged with thoughtfulness and respect.

May the nation turn up the desire - this time -' to do the right thing'.

http://www.miacat,com
.

Hmmmm there is so MUCH in this issue, hard to know where to begin.

Author says:

>>It is time for Australia to rethink and reform its economic and industrial structure that has placed too much emphasis on its "front-end". Australia must build a robust economy and to do so, it needs to increase the number of "downstream" processing industries that add value to our natural resources.<<

Then:

>>Australia should be exporting iron and steel, instead of just iron ore<<

UNIONS
>>this is what the Australian Manufacturing Workers Union has been saying since about 1977<<

PROBLEM. *Politics*. Ok...how?

1/ Unions want the value added innovation. But don't want to work at labor rates which our competitors use, (China) So, how the heck can we compete in steel manufacturing?
Yeah yeah..I know.. "become more efficient" which of course means LESS labor and MORE automation.

2/ Short Term profit motive. If you can dig it up, ship it to the coast, load it on a ship and make a 'ship'load of money......why would anyone invest billions in an efficient, minimal labor driven steel production facility and then not be sure u can compete with those making steel in Asia?

3/ Political parties love to talk about 'booming economies' specially as elections draw near. Imagine if 6 months before an election, they said "The Government has adjusted policy to favor value adding, and a project has begun in Northern WA to make steel, and will be complete in 3 yrs time"
errr.... the economy won't be 'booming' until a year or 3 after that....besides, BIG extraction companies looking for fast bucks will probably give donations which are intended to discourage such things.

Professor Dong-Ke Zhang and Faustino. The paradigm for investment remains tied up in a cost-based financial return analysis (ROI, NPV, IRR) without regard to ‘competitive advantage’ – that ‘edge’.

Analyses tend to be done with crystal balling about future costs and values; rarely if there’s an international “edge”.

The classic folly is being expressed by the biodiesel industry, (in receipt of direct and indirect assistance) some relying on imported palm oil, or the costly late 1980’s $400m government backed PICL petrochemical plant – never mind the pipeline tariff on the gas – it had no edge with only a small contribution toward caustic soda transport cost savings to the close by alumina users.

Professor ME Porter in his tome “Competitive Advantage of Nations” shows a need for some INHERENT advantage - rarely factor costs which dominate thinking in government circles.

So hence I can point to millions of dollars of public money wasted in supporting the tired and moribund.

Australia still has a farming attitude that extends to manufacturing. The money is not always in producing your own (as Chemeq found ignoring my report not to manufacture).

So yes, we need to think beyond being a removalist country shipping “dirt” into ships and add value. But how? Why is it that on one side of the Burrup Peninsula salt is exported, and on the other, energy yet Australia is the world’s largest deep-sea importer of caustic soda? And Bass Strait oil and gas only ever provided energy (ignoring the aging now pot boiler-scale Altona petchem).

What about clustering of activities as Prof Porter demonstrably shows and Singapore plays so well with Jurong Island? Clustering provides for mutual support in workers, infrastructure and materials.

As shown in high-cost Europe it far outweighs factor cost penalties oft touted in Australia as holding back investment. Clustering requires vision and commitment (to wit support for Kemerton in WA).

We need a national forum to create vision to stop the rot (as my previously quoted “wet LNG” that could once have supported a PPP-type petrochemical industry.

It should Competitive Advantage, being smart and integrated.

Wizo/faus/tino – are we half-brothers? &#61514; You asked about the driving force behind government industry support, whether cases like AMC are common and can we ensure more accountability in government. AMC-style failures are common, particularly at the State level - most serious public-spirited economists in state governments spend much of their time fighting against stupid proposals, mostly unsuccessfully.

So the context for the AMC decision was a system in which Ministers and most bureaucrats were (and remain) ignorant of, and uninterested in, how economic development actually works, what are the relevant theory, principles and empirical evidence, locally and globally. The Ministers are attracted to “big project”, headline-catching, initiatives, the bureaucrats seek preferment by toadying to the Ministers rather than giving evidence-based advice on the options available. In general, the best economic development policy for a state government is to create an entrepreneur-friendly environment with light-handed regulation, and leave commercial investment decisions to the private sector. But Ministers want “to do something.”

I directed economic analysis of many “value-adding” projects in Queensland. We typically found little or no net benefit for the state (i.e., the people of Queensland), in all cases the subsidies involved would have been better used in reducing taxes on and regulation of the private sector, making it more competitive. QNI was reluctant to go ahead even with $100m of subsidies. We found that the main benefits went to non-Queensland capital providers (around half overseas) and equipment-makers (Australia can’t sustain an equipment industry for the very occasional project) and to interstate workers attracted by the opportunity. Generally, not all of the relevant skills are readily available, they are attracted either by bidding them away from existing Queensland employment (imposing costs on unsubsidised employers in other industries) or from other states. Korea Zinc (with subsidies around 25% of the capital cost) was “justified” on the grounds of technology transfer. The technology has nor been used elsewhere in Queensland.

People attempted to conceal projects from me, to avoid serious scrutiny. I had a few hours to assess the Paradise Dam studies, which were seriously flawed. (more)

Even using their inappropriate assumptions and techniques, it was clear that the two larger-scale irrigation projects were not viable. It was possible that the smallest option, with lowest environmental costs, was viable, but you’ld have had to do a decent analysis to find out. The project went ahead, my analysis emerged under FOI (in spite of attempts to stop it), Beattie said, stuff that, we’re doing it.

An anecdote: the proponents of the AMC project accused my team and I of being “Ivory Tower economists.” I pointed out that I had worked for the UK CEGB, my economic amalyst had worked for BHP and my financial analyst was a project analyst for CRA. None of the proponents had any industry experience.

The problems with accountability are mainly that the politicians prefer to have unfettered discretion and the ability to support favoured interests, and are reluctant to subject themselves to independent scrutiny; and that the populace do not demand it, often hoping to benefit from sectional, vested interest, policies without understanding that ultimately we all lose from such an approach.

I think that the damage can be limited only by major reductions in the size of government, but pollies and bureaucrats tend to oppose this. Policies which embrace openness, competition, change and innovation best promote growth. Policies which have the effect of restricting or slowing change by protecting or favouring particular industries or firms are likely over time to slow growth to the disadvantage of the community. I have long argued (unsuccessfully) that change is inevitable, its nature unpredictable, and governments should adopt policies which enable the jurisdiction to cope with, and take advantage of, changing circumstances. Governments and bureaucracies are generally impediments to innovation, entrepreneurship and positive change, tending to favour existing interests Peter Beattie won a landslide election victory in 2001 on a “denial-of-change” platform. I think that Howard’s biggest failing is that he has had the opportunity to make changes which would strengthen Australia in future but has too often adopted populist, vested interest policies, even though he generally has a good grasp of what’s needed.

Faustino, most of what you say makes sense. I have no doubt that you gave good economical advice and were ignored. But I think you allow your political leanings (which seem to tend to the far right) to interfere with the view of reality.

You go to great lengths to highlight the mistakes made by our pollies, but make no mention that business makes mistakes as well. There are billions being lost in the US right now because mistakes made by those purest of economic rationalists: the banks. In fact this seems to happen with monotonous regularity in the US. 10 years ago it was saving and loans. Here in Oz Bond took them for an almighty ride in a speculation bubble that hurt a lot of ordinary Australians. And its not just the banks. Hardie absconding to escape billions in liability wasn't exactly a high point in "doing whats best for Australians" either.

You seem to suggest that giving companies free reign to do whatever is best for them will automatically translate into doing what is best for Australian's. It doesn't necessarily follow. The country that follows the model the closest, the US, isn't exactly the nicest place to live. In the OECD it has one of the highest imprisonment rates, one of the highest murder rates, one of the highest poverty rates and 1/3 of all personal bankruptcies are from people who can't pay for their health care. I am sure its a lovely place to be if you are in the top quartile, and perhaps its your idea of paradise, but it ain't mine.

And as for Howard "getting is generally right". Perhaps he did economically, we won't know for a while yet. But at least the governments of your day sought your opinion. Pity Howard didn't see fit to do that with the Defence Department went he went shopping for new weapons. He not only didn't he ask for expert opinion, he by-passed the bidding process for christsakes! It boggles the mind.

Ok, we have talked about problems. We have seen the ineptness and expediency of government agencies etc. and identified the past mistakes - now what?

Can we talk about creating genuine competitiveness?

About clusters of kindred industries? So to take examples, in Queensland seeing minerals were discussed from there by Faustino, Queensland Phosphates produces ammonia in a stand alone operation (for its fertiliser) but not ammonium nitrate explosive for its one time owner WMC - a major user. Or AMC with its chloralkali plant that could have been integrated into another project requiring chlorine. Or Orica's giant explosives plant at Yarwun using ammonia transported from Newcastle or or or. While strategically this disposition in Qld can be defended, it points to cost penalties and why that state's activities are fragmented.

These chemicals are the next step products to minerals and oil & gas. We could do a Cook's tour of the states and in particular, add the failed projects and explore them. A common picture emerges.

I suggest until we stop talking linearly and think strategically, we will see a 40 cent dollar which however nice that may be for the exporters, represents a massive reduction in living standards.

Strategically, means talking clusters and we need not talk only materially linked clusters, it can be service based. We desperately need to create industry parks perhaps funded by taxpayers as investors to mirror what for example Singapore has so successfully undertaken.

Remco, I think that most investment decisions are made on the basis of having a “competitive edge”, whether in domestic markets or overseas. Clustering of like and complementary industries has a long history, it’s particularly advantageous when rapid technological development is required by the industry. But there are scale considerations. For example, in the US, which is by the most innovative economy, about half of the innovations come from major conurbations, each with a similar population to Australia but in a concentrated region.

The bio-tech industry took off in the US from 1975-90 on the basis of 300 “star” scientists – those who dominated the research papers and citations – each in a major university in a major conurbation, with a range of facilities and support which no Australian city can offer. But in Queensland, it was assumed (by government) that having unique flora and fauna was sufficient basis for bio-tech. The extensive literature on what was required for success was ignored.

The fragmentation you speak of, as in Queensland, often occurs because governments, both federal and state, look at the political impact of a project in a particular region without considering wider issues. So money was given to boost IT industries all over the country rather than a decision being made that an industry concentrated in, say, Sydney was most likely to be competitive.

In addition, much innovation results from interaction with users: a major factor in internationally competitive innovation tends to be closeness to customers in the major markets of the US, EU and Japan.

rstuart, I think that private companies are best placed both to make commercial decisions and to innovate. Also it’s private money at risk, both increasing incentives to get it right and reducing the cost of failure to the community, compared to government failures.

I met Howard once, he seemed to have a degree of insight which he’s often abandoned in practice, hence my disappointment. I’m not a Howard supporter, but I’ve preferred him to what the ALP’s offered post-Hawke; and I don’t think I’m “extreme right.”

Oops, first para should read "Remco, I think that most investment decisions are made on the basis of having a “competitive edge”, whether in domestic markets or overseas. Clustering of like and complementary industries has a long history, it’s particularly advantageous when rapid technological development is required by the industry. But there are scale considerations. For example, in the US, which is by FAR the most innovative economy, about half of the innovations come from FOUR major conurbations, each with a similar population to Australia but in a concentrated region."

Rats, now I have to wait 24 hours to post on this thread!

Well, we can all point to the past and the follies. And yes ideally investments are made with an edge, but while you may say they are so, Australia has wasted hundreds of millions of tax payers’ money chasing or supporting uncompetitive investment. No one is holding the agencies to account so as evident with ethanol and biodiesel, no one is learning. So let’s move on from the past, move on from pointing fingers and create a pathway for a new paradigm – one based on edge and ‘competitive advantage’ through clustering.

I suggest, and you don’t appear to disagree fragmentation represents a cost and inhibits competitive investment. Frankly the state of Australia’s manufacturing sector is a disgrace, and so too the track record of the agencies with their pompous hollow statements. Queensland is probably the worst, but WA is close behind in waste.

So, what about facing the future and begin laying out a matrix of possibilities or RELATED industries.

To begin to acknowledge factor costs is not a basis for competitive industry (even if it might work for the individual investment).

But I suspect I am whistling in the wind to think Australia will begin to incorporate investment alternatives into a national strategy being white-anted by naïve state government agencies. Ah, but now I am falling into my own trap aren’t I?

Rstuart, the fact that there is room for reducing regulatory red tape and unhelpful governmental involvement in essentially private enterprises doesn't need to translate to "let's be like the US". Personally, I'm philosophically attracted to the idea of "small government" (if nothing else, it means less concentration of power, and less likelihood of the corruption of that power), however the evidence that small government is better, looking at a range of OECD economies from Norway to the US, isn't particularly compelling.
Instead, I think there is a good case to be made for significantly increasing government input into economy-building, but done at a more abstract level: more funding for education, training and infrastructure, and in particular for scientific research of the sort that is likely lead to long-term benefits for entire industries, or groups of industries. I can also see that R&D grants for increasing productivity in particular cases make a certain amount of sense, but there has to be accountability: if a department consistently "gets it wrong" and funds unsuccessful projects, some sort of penalty should apply to act as a deterrent against poor decision making.
I also suspect that given that it is all but impossible to convince governments not to remain involved in industry, there's an argument that you might as well accept the inevitable and therefore prefer a political party whose philosophy actually reflects that, and hence are likely to be motivated to do that job well. I suspect that the Liberal party largely get involved in these sorts of projects for very much the wrong reasons (pork-barrelling, favours for mates etc.), whereas the ALP have always considered it part of the role of the government to be actively supportive of industry, especially regarding providing infrastructure of the "natural monopoly" type. In other words, given both parties are going to throw money at such projects anyway, I would prefer the one that does so because it genuinely believes it to be in our country's best interests.

Wizofaus makes some good points.

1. "increasing government input into economy-building, but done at a more abstract level: more funding for education, training and infrastructure, and in particular for scientific research of the sort that is likely lead to long-term benefits for entire industries, or groups of industries."

BUT only if to generic industries, not picking winners.

2. "if a department consistently "gets it wrong" and funds unsuccessful projects, some sort of penalty should apply to act as a deterrent against poor decision making."

How about simply a national agency that does audits? This is difficult when even the Productivity Commission is clearly held back by its political masters from making politically sensitive inquiries.

3. "it is all but impossible to convince governments not to remain involved in industry, "

It might be possible with some national auditing as proposed in point 2. Exposing the ineptitude and linking it to the parties, certainly creates a disincentive to meddle. The recent biodiesel support under the guise of "renewable energy" goes to the top of the list in recent years.

Government has a role. But not in picking and supporting targeted industries but in general infrastructure and common user infrastructure, in academia and services. Its time. It is time their track record was exposed to the voting public.

I've said before that "picking winners" is a bit of a meaningless term: e.g. to call funding for renewable energy "picking winners" is a bit petty, seeing as pretty much every government in the world is pumping funding into it. Likewise for nanotechnology, biotech etc.
If Australia didn't, we'd have no chance of competing internationally.

Wiz, I think you will find that the share market is already prepared
to pump money into nanotechnology, biotechnology etc, along with
Govt grants etc. But at the end of the day, the science has to
be good and the companies need to achieve results, which is usually
the problem.

Take a look at Ambri, which is CSIRO nano technology. It was
written up as the latest and greatest, could detect if a cube
of sugar was thrown into Sydney harbour etc. So far its been
a duster.

Take a look at Metabolic, which has received lots of Govt grants
and lots of investor funds. Again so far no results, another
duster.

So there is actually plenty of money out there for companies with
good ideas, who can make things happen. But there is also a huge
amount of money thrown at projects which are simply not good enough
and don't stand up in the marketplace.

What we need is more smart Australians! Perhaps we are just not
as smart as we like to think that we are :)

Well value added to PM's super anyway.

NEWSFLASH

My informants have just extracted a HOWARD CONFESSION which is:

"I'VE GOT $4 MILLION IN (TAXPAYER OVERSUBSIDISED) SUPERANNUATION. SO LONG SUCKERS :)"

Definitely the last animation of Johnny H (we hope).

Here's the link:

http://media.theaustralian.news.com.au/nich/20071123_secret_video.htm

Do not watch this before the election (if YOU dare).

Cheers

Poida

So why not acknowledge what actually works?

What works is support for infrastructure; support for academic institutions and for conditions (ie, tax concessions and broad incentives [not specific grants] and taxation) and allow the market to operate freely.

The disadvantage is that government is thereby not as visible but far more effective especially with an agency reporting on government assistance performance.

Too many have their backs to the future. On this Forum as well.