Does Government ‘meddle’ with business?

The talk over dinner was about government interfering in business. An astute and experienced businessman said that whatever Treasurer Hockey finally did about the Grain Corp decision he would have been judged wrong. That was always the prospect. So I offered the motor vehicle industry as another domain where governments seemed always to be making decisions, and then we agreed on the current Qantas push for a government guarantee over its debt. It does seem that Government can’t help meddling, because it is constantly being asked to do so.

The Grain Corp saga is a classic. Think about it. Grain Corp is a monopoly business receiving and selling grain in eastern Australia. Archer Daniels Midland is a big US firm that is in competition, and has had a takeover offer in prospect for the past year or more. Our competition watchdog, the ACCC, expressed no view. It doesn’t like monopolies, but had the ADM offer gone ahead nothing in that respect would have changed. But Australian growers, who are among the biggest investors in Grain Corp, were highly suspicious about whether the ADM takeover would be a benefit to them in the long run.

It is argued that ADM went about it all the wrong way, and I’m not expert in takeover tactics. The point is that the farmers worked on the National Party, and Barnaby Joyce came out against it (he was joined also by Liberal Bill Heffernan). What the Foreign Investment Review Board actually told the Treasurer, whether Mr Hockey made his mind up and told Cabinet about it afterwards, or Cabinet argued about it all and the Treasurer won is not clear. Apparently 150 foreign takeovers have been waved through. This one wasn’t.

Why not? You can say the farmers were leery; you can say that even governments might be leery about a foreign company having a monopoly over a large section of wheat exports; or you could say that the Nationals have the final say on matters like this — inside a Coalition Government anyway. The point is, the Government intervened, and the takeover is a thing of the past.

Drive your harvester over to the car industry: I can’t think of a time when Australian governments have not been deeply involved in its details, and it was the Chifley Government that enable General Motors to build an Australian-designed car for the first time. You wouldn’t think so from the ordinary advertising, but all the Australian-made cars have a hefty taxpayer subsidy in their price — and they always have had. Governments have decided that it is good for us, in the long-term, to have in Australia the kinds of skills that vehicle-building requires. They once said the same about building aeroplanes (remember  the Nomad?), but that got to be too expensive.

The current problem with the car industry (there are always problems) is that we Australians aren’t buying the cars that our car-makers are devotedly producing — the family sedan and station wagon. We are wealthy enough, in general, and cars are cheap enough, for each member of the family to acquire one soon after getting a job. In fact, if you look at who is parking cars in the streets around  our senior high schools, acquiring a car must be a rite of passage for many high school students, even if it is Dad who has bought the car. I bought my first car in 1959, and in the following year Australia produced 204,000 cars. In 2012, 52 years later, we produced not quite 210,000 cars. The total number has been declining since 1970.

Yet the industry is a key employer in many electorates, and it requires lots of suppliers all over the place. If one of the big three closes its doors, the repercussions will be great. Does that make Australia special? No. We once had the 10th biggest car industry in the world, and we are now at 28th position. Every country that produces cars does its best to ensure that its car-maker has both local and export sales, and each is protected in some way. Ours is in some respects one of the lesser protected. The problem is that it’s not producing cars that we want (and they’re expensive, too).

Mr Macfarlane, the Industry Minister, said a month ago that the industry might not survive, and has asked the Productivity Commission for an urgent report. When he gets the report he will have to decide whether or not the industry needs a new ‘plan’. There is a current one, which runs until 2015. What exactly is the plan? It’s the current way of transferring taxpayers’ money to the car industry, so that assembly-line workers have jobs. Let us be clear about this: the industry wants Government meddling (=$), and threatens to close. Like all his predecessors, Mr Macfarlane will be preoccupied with the car industry while he holds the portfolio.

Qantas? I must be one of the few who automatically thinks of Qantas when I have to fly somewhere (and I still have a lot of frequent-flyer points). But there is an argument for reducing Qantas to being just a domestic carrier. It hardly goes anywhere any more, compared to its heyday when it was one of the world’s real long-distance carriers. Does anyone care? Yes, they do. Qantas is an identified national symbol. But it just can’t survive internationally, and it finds borrowing money to be very expensive. Hence its appeal to be given access to the Federal Government’s excellent credit standing. Here again it is the business that is asking for the meddling.

On the face of it, there’s not much difference in all this, whoever is in power.

Join the discussion 4 Comments

  • Alister McFarquhar says:

    Don. You sound conflicted

    Some pride in Quantas and Holden but not sure if if the subsidy can be justified for taxpayer

    In NZ i was asked By NZ car makers to justify the import of KDU car kits from Japan to create employment in NZ motor industry

    In about 10mins over coffee I discovered the car kit cost as much as the complete car

    What would you conclude??

    • Don Aitkin says:

      I am conflicted a little. Governments do have to make guesses about the future. So we guessed that motor cars were Good but (after a while) that Planes weren’t. I suppose the underlying assumption in the whole piece is that you interfere with markets as little as possible, having decided what they can and can’t handle. What we see now is companies wanting to be kept alive — that is, not allowing normal market processes to operate — and governments interfering to prop them up. It’s a hard call. My point is that you see the same factors operate, with the same outcomes, whichever party is in power.

      The NZ case. There is always someone, somewhere, who can show governments just how good it would be if public money flowed their way.

  • Walter Starck says:

    Why not just exempt car manufactures from corporate tax. There would be no loss of revenue as they aren’t making any profits now and government would still receive all the PAYE and sales tax that is generated. However, i would bet that with no tax on their profits here the car makers would quickly find ways to source vehicles and components from Australia for their operations elsewhere.

    • Don Aitkin says:

      Yes, exactly so. The ‘plan’ does pass over public money but it does include measures the government hopes will ensure that the money will not be diverted into the companies’ pockets, via means such as you propose.

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