Ideas@TheCentre
The protectionist field of dreams
The Gillard Government recently announced a $1 billion plan to create more jobs and foster innovation in Australian companies. To pay for the plan, however, the government pruned back an R&D tax concession for larger companies (also designed to create jobs and foster innovation).
It’s hard to say if this will result in more innovation overall but it’s telling that large companies are more than twice as likely as small companies to be undertaking what the ABS calls ‘innovative activity.’ To borrow from my CIS colleague, Professor Peter Saunders, sometimes: ‘the government giveth and the government taketh away.’
The government also recently announced funding for 10 ‘industry innovation precincts.’ It’s also hard to tell if these will be successful because no-one (least of all the government) knows why some hubs succeed and others fail.
In fact, politicians don’t seem to know a lot about what businesses need to succeed at all. Governments tend to locate hubs for political (not business) reasons, frequently on the outskirts of cities where land is cheap (but it’s harder to retain staff).
This failure to understand business brings us to a more concerning element of the Gillard Government’s plan – the additional red tape being put on businesses seeking to bid for public contracts in the form of compulsory Australian Industry Participation (AIP) agreements.
These arrangements might be familiar to those in the defence industry because AIPs seem based on Defence Australian Industry Capability (AIC) plans.
The good news is that AICs and AIPs still require work to be won on a ‘commercial basis,’ however sceptics might wonder; if Australian companies were cost competitive, why should businesses need extra incentives to use them?
The more protectionist aspect of AIPs will come (as they have in Defence) from the subtle inference that having a robust AIP plan will count in your favour when contracts are decided. It is covert, not overt, industry assistance.
Pressure will be applied as well to the government to: lower the threshold for requiring AIPs; make AIPs public; exclude companies from bidding for further work if they have AIP disputes in previous contracts; and to try and shame or force bidders to stick with companies listed in their AIPs regardless of changes in circumstances (all of which has already happened in the Defence AIC space).
Perhaps, similar to the new government automotive industry spruiker, these attempts to create artificial demand by forcing people to buy from Australian companies are just a natural outcome of Keynesian ‘demand-side’ government. If so, economic history has already given us the answer; focus more on the ‘supply-side’ and do things to make Australian companies more competitive.
Fewer regulations and less taxpayer money wasted on empty business parks would be a good start.
Simon Cowan is a Research Fellow at The Centre for Independent Studies.
