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.