Tuesday, February 19, 2013

Bloated public service chews up industry funds

Selective industry subsidies and requirements for higher local content in major project developments form the centrepiece of the Gillard government's industry and innovation statement.  Ostensibly targeted at lifting manufacturing productivity, such support has been made necessary by union campaigns that have reduced local suppliers' competitiveness.

The government is unable to address the root causes of this, especially under Industry Minister Greg Combet, who led the union campaign against productivity improvements on the waterfront.  The relationship between industry policy departments and the industries with which they interface has changed over the past 30 years.

Previously, policy approaches came from two directions.  The first entailed protecting industries into which supposedly inflexible capital and labour resources were sunk.  The second sought to shift the economy's resources into activities that build on natural advantages and where growth prospects were good.  This meant manufacturing that capitalised on local mineral resources and the ''smart'' industries that would harness Australia's ''clever country'' credentials.

The Hawke government sought to reconstruct industry by establishing industry councils to enhance competitiveness.  Initially a system of sectoral encouragement, it evolved into tariff dismantling that reflected global trade liberalisation.

This reversed 20 years of industry policy that had downgraded sector-specific support measures.  Industry departments had adapted in downgrading efforts to push selective sector development, which anyway stemmed from a misplaced confidence in their abilities to pick winners and to focus on encouraging industries to adapt to policies that impeded their development.  Many of these are associated with environmental lobby pressures.

This change is apparent in annual reports of the departments responsible for agriculture, manufacturing and mining.  Agriculture, Forests and Fisheries, with staffing of 5000 people, spent $800 million in 2011-12.  Some of its activities stem from government maladministration, including compensation for forbidding timber getting and the suspension of live exports.  Others focused on ''clean energy'', ''climate change adjustment'', rural financial counselling, adjustment and drought assistance as well as chasing myths of human land despoliation with landcare support.

The manufacturing industry department (Industry, Innovation, Science and Research and Tertiary Education) spends about $4 billion a year and comprises research entities, with CSIRO the most heavily resourced at more than 5000 people;  climate change in its various guises claims a very high proportion of the research staffing and spending.

Mainline units comprise 17 divisions with 2500 officials who purport to offer advice on matters such as industry skills, innovation, venture capital, research funding, and international strategy.  These elements have few relevant skills and almost all should go.

Resources, Energy and Tourism has about 1500 staff, half of whom are in bloated policy advisory areas that mainly duplicate state government agencies.  Other positions are loaded with confected duties involving energy savings and greenhouse.  Even useful components such as Geoscience Australia are over-infected with environmental and greenhouse duties.

In aggregate terms, the number of public servants has increased by 11 per cent in the past five years.  The forward estimates show only a 1 per cent reduction planned for this year and the three industry departments actually have a 3 per cent staffing increase.  Excessive staffing is difficult for the ALP to address because its green orientation leaves obvious areas of waste untouched.  This adds to a predisposition among politicians to see a need for controls to combat what they perceive to be market failures, a need that the new policy reinvigorates.

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