February 14, 2012
In his Labor's Policy Confusion in the Australian Financial Review Luke Malpass argues that the current situation of Alcoa (reviewing the viability of its Point Henry smelter) highlights the divisions within the Labor Government.
Last week the plight of Alcoa highlighted the mutual incompatibility of new Labor and old Labor. One Labor Party is trying to save jobs and manufacturing in Australia, and the other is enacting a carbon tax that is designed, over time, to destroy many of these jobs ... Prime Minister Julia Gillard’s “new economy” of green jobs will supersede the “old economy” of presumably dirty jobs.
His argument is that over the medium term, the two policy objectives – loosely defined as jobs and carbon reduction – are fundamentally in conflict. Whilst the government claims it is in the Hawke/Keating tradition of reform, trade policy aside, its policy settings look like a mixture of 1970s fortress Australia remedies at one end, and postmodern green fixes at the other, with Hawke and Keating nowhere to be seen.
Malpass, who is a Policy Analyst with the New Zealand policy unit at The Centre for Independent Studies, interprets this to be a confusion about ends and means. The government has conflicting objectives, and employs means that work against each other. The so-called new economy cannot work without an artificial price to see out the old, and the old economy is being propped up and encouraged through subsidies and “transitional assistance”.
Malpass is not a free market economist who denies the existence of market failure. He is opposed to Australia's emissions trading scheme--Australia should reconsider its ill-fated scheme--- because he judges it to be poor policy. He is in favour of an emissions tax that could be linked to corporate tax cuts.
What he overlooks with Alcoa's current situation is that the Point Henry operations is caused by a high dollar and falling prices for aluminum. He also ignores the corporate welfare--the huge subsidies--- given to this multinational firm by state and federal government have been there from the beginning. It is estimated that Alcoa Australia has received a total of $4.5 billion in subsidies for its plants at Point Henry and Portland.
The old economy has been propped up from the very beginning--and not just by Labor Governments. The industrial policy of the newly federated nation state was to use the protectionist recipes of the mercantilists to industrialize and to defend its defend the nascent manufacturing industries against British and American predominance.
Manufacturing is now in long term decline as Australia goes through long term structural change driven by the global economy. It is an economy in transition. The current electricity subsidy arrangements are coming to an end in 2014. There are no reasons why aluminium smelting should continue in Victoria. It is not part of the new economy and it is definitely not clean and green. The workers in the old smelter plant---the 30 year old Point Henry smelter is out of date and inefficient---should be assisted in the processes of retraining and job search.