The Albanese government is returning to classic Labor territory with its plans for greater input into the economy — but hopefully not to the “bad old days” of trying to prop up hopeless industries, one economist has told Crikey. So what exactly is Albanese’s vision for the “Future Made in Australia Act”, what has it been inspired by, and how will it work?
What’s the Future Made in Australia Act?
Anthony Albanese will today present his vision for a government that is “more strategic, more sophisticated and a more constructive contributor” to the economy. According to a speech preview seen by Crikey, Albanese will tell the Queensland Media Club the government’s planned Future Made in Australia Act would give the nation “sharper elbows when it comes to marking out our national interest”.
“We need to be willing to break with old orthodoxies and pull new levers to advance the national interest … by [working] alongside the private sector to grow the economy, boost productivity, improve competition and secure our future prosperity” one quote from Albanese read.
The new policy is likened in the speech to the US’ Inflation Reduction Act alongside other recent examples of greater government intervention into economies in the UK, European Union, Canada, Japan and South Korea.
Albanese has said it would consolidate existing efforts under one overarching scheme, including Hydrogen Headstart, Solar Sunshot and the government’s $15 billion National Reconstruction Fund.
Is this back to the 1980s?
UNSW Business School professor Richard Holden told Crikey the challenge for Albanese would be to “find a modern version of industrial policy that isn’t a return to the bad old days”.
“It remains to be seen whether the government could pull this off,” he said.
Focusing on areas where Australia will have a comparative advantage with other countries would be in the government’s interest, Holden said.
“There are things where we obviously don’t have a comparative advantage — making trains, making cars, fabricating semiconductors. If we see big subsidies for things where we know we have no hope of being competitive, then there’ll be a return to the bad old days.
“The world has changed since the 1980s, and I think it is a legitimate question to ask if the prime minister has changed since then. For sure, in the 1980s, he would have wanted domestic manufacturing of trains and trucks and cars, and all sorts of things. And clearly that’s not viable.
“But if this is a sort of smarter industrial policy, then I think there’s clear value to that.”
In a 2012 discussion paper prepared by a pair of economists for the prime minister’s manufacturing taskforce, the Australian system of protection up until the 1980s was described as a “profound paradox”: “The state intervened in the market in a quite intrusive manner to foster the development of manufacturing industry but did not, with equal force, ensure firms operated close to world benchmark levels of productivity.”
The 1983 Button Plan, which removed barriers to trade with an aim of improving industrial efficiency, “marked an important turning point in Australia’s approach to industry policy”, those economists wrote. As a result of the Button Plan, in 1990, the predecessor to the Productivity Commission reported that “for the first time in at least 20 years, there have been ongoing reductions in assistance to the [motor] industry”.
Australia’s car industry closed by 2017.
What does a smart industrial policy look like?
In Holden’s view, there would be merits to “friendshoring” certain goods — meaning sourcing them from geopolitical allies — and focusing on boosting domestic industries where Australia can be competitive.
“If we can gain by specialisation, by buying something from New Zealand, the US or the UK, and on the flip side sell them stuff that we’re comparatively better at, then we should be doing that,” he said.
Albanese’s speech mentions several ways to achieve his vision:
- Supporting small businesses and local manufacturing by targeting government procurement.
- “Securing greater sovereignty” over critical minerals and resources.
- Driving competition reform.
- Fast-tracking renewable energy and infrastructure programs.
Is this old-school protectionism?
Albanese says the policy wouldn’t be “old protectionism” but represent an attempt at “new competition” in the global economy.
“We will bring together, in a comprehensive and coordinated way, a whole package of new and existing initiatives to boost investment, create jobs and seize the opportunities of a future made in Australia,” he will say. “We want to look at everything that will make a positive difference. Investing in new industries — and ensuring that workers and communities will share in the dividend.”
In his speech, the prime minister will say “strategic competition is a fact of life” but that the economies he’s inspired by aren’t “withdrawing from global trade or walking away from world markets”.
“We must recognise there is a new and widespread willingness to make economic interventions on the basis of national interest and national sovereignty.”
As Holden puts it: “The prime minister is saying a bunch of countries are engaging in industrial policy, and if we want to be competitive, we need to have an industrial policy here too.”
Has the Inflation Reduction Act been a success?
The US’ 2022 Inflation Reduction Act injected subsidies into the clean energy industry with an aim to curb inflation, drive down prescription drug prices and improve the budget bottom line.
The Economist magazine described the act’s three broad components: “It offers tax credits and funding to incentivise green-energy projects; it expands government-subsidised health care and lowers the costs of prescription drugs; and it tinkers with tax codes to raise more money from corporations.”
The magazine wrote in 2023 that the initiative had “turbocharged” electric vehicle investment and capped the prices of certain drugs. The act is also projected to contribute to the US’ ability to cut emissions: “By 2035, the [act] will be responsible for reducing greenhouse-gas emissions by 43-48% from 2005 levels.”
The US legislation was described by Albanese as a “small yard, high fence” approach to critical industries, and that while Australia “cannot go dollar for dollar” with the US, it can compete for international investment.
“[The Labor plan] is a mini version of the US Inflation Reduction Act, the government has been quite clear about that,” Holden said.