Industry Wheels Grind Their Own

The Age

Saturday December 13, 1997

Tim Colebatch

WHEN THE Prime Minister announced the Government's new industry policy on Monday, with its commitment to "hands on" strategic intervention, his official adviser on industry policy was conspicuously absent. The Industry Commission once again had been ignored.

Sure, as its chairman, Mr Bill Scales, told AM the next morning, it is not the commission's job to draft policy of that kind. But its views were well-known, and Mr Scales' subdued mood reflected the reality that it had suffered another defeat.

This year the Government has rejected its reports on the car industry then textiles, clothing and footwear (TCF), the last without even reading the report. Monday's statement, supporting industry intervention even if allocating little cash to pursue it, confirmed how little influence the commission now wields.

Its report last year urging faster micro-economic reforms has been ignored. The Council of Australian Governments, which it services, appears moribund. And one of its reports - on state government support to industry - is unreleased a year after delivery to the Government.

And the commission has lost the Labor Party, historically its main supporter. With Paul Keating gone, there is no serious support in the ALP for the commission's line of demanding a level playing field, a "hands off" industry policy, a fully deregulated labor market, and market-based reforms in all areas of Government services.

As the commission takes an increasingly hard line in pushing market reforms - as in Mr Scales' speech to the Sydney Institute this week, in effect arguing for the abolition of industrial awards and the Industrial Relations Commission - the gap between it and the Labor mainstream has become a gulf.

Thus Labor's industry spokesman, Mr Simon Crean, expects little or no opposition when he proposes to next month's ALP national conference that a Labor government abolish the commission. In the Crean model, it would be replaced by an industry development commission, with a charter to develop policies to increase net manufacturing exports.

His approach would see part of the commission's existing work contracted out to the private sector by competitive tendering - the same approach the commission advocates for other areas of the public sector.

For the first time in its 76 years of life under various names - the Tariff Board, the Industries Assistance Commission, the Industry Commission and from next year the Productivity Commission - it enjoys no support from one side of politics, and lukewarm support from the other.

Of course, that may change in 1998. The Government's stand on the Wik debate has shown it is more willing now to take a tough line on issues, hoping voters will respect its strength. The job recovery, if it continues, may make it readier to ignore short-term costs to achieve long-term reforms.

In recent days the Democrats have negotiated a deal with the Government to allow the commission to be reconstituted as the Productivity Commission, with an increased role in monitoring the labor market. This should give it new life, although few expect it to change its style.

The commission's response to adversity has been to fight back. In its annual report, it defiantly criticised the Government's decisions on the car and TCF industries, claiming they would "add an average $2100 to the cost of every passenger motor vehicle . . . (and) cost purchasers of (TCF) products between $800 million and $1.4 billion a year."

Similarly, Mr Scales' speech to the Sydney Institute managed to slip in an quick hit at "a selective and discriminatory industry policy", and told his listeners that tax reform was not "some single magic bullet which will enable Australia to improve its living standards in the long term". Rather, he argued, the government needs to withdraw from market interventions across the board.

In particular, labor market awards that "inhibit firms from managing our nation's resources effectively" should go. Rather, there should be one safety net on wages and conditions set by legislation. "Further industrial arrangements must almost exclusively be determined by the extent to which they determine productivity at the level of the individual enterprise," he said.

The commission's essential problem is that a decade of economic reform has failed to improve Australia's mediocre economic performance. Most Australians were prepared to cop some short-term pain to achieve long-term gain. But the mood of the nation is that there has been too much pain for too little gain, and this has increased policies resistance to "reforms" that promise jam tomorrow but hunger today.

Mr Ian Webber, the former chairman of Mitsubishi and Mayne Nickless who delivered a dissenting report as the third commissioner on the car inquiry, said the commission has many good people working on it, but needs a change of direction at the top, and a cleanout of those who have spent 20 or 30 years there without broadening their experience.

"An organisation of that type is highly desirable, so long as it is genuinely seeking after truth," he says. "But my overall sense is one of disappointment at their lack of intellectual rigor, and a lack of genuine desire to be open to new analysis and new information."

Despite giving the commission a new lease of life, the Democrats's industry spokesman, Senator Andrew Murray, agrees with Mr Webber. He, too, argues that Australia needs an impartial evaluation of industry policies, but says the commission has been "discredited" in the role by excessive ideological conformity among its staff.

"It would be more productive if there were creative dissonance in the organisation," he said. "You need competing views, competing policy options." That is why the Democrats negotiated reforms that will require the commission to consider social and environmental issues and make Mr Scales subject to an 11-member board including people with backgrounds in industry, job creation, the environment and social policy.

Labor is sceptical, however, that any such reforms will change the way the commission operates. That is why it is looking to create a smaller body that lives closer to Government and shares its industry development goals, at the same time as contracting out some of the commission's work, such as monitoring the performance of Government enterprises. As the shadow Treasurer, Mr Gareth Evans, told Parliament this year: "There does need to be something of a competitive model so far as the provision of economic and industry policy advice is concerned . . . Advice should be contestable for the same reason that other spheres of activity should be contestable - because the quality of the product will generally improve in a competitive situation."

They are words the Industry Commission itself might have written about others.

THE INDUSTRY COMMISSION: SCENES FROM A LIFE

1921: Hughes Government sets up Tariff Board to advise on protection levels for industries competing with imports.

1929-32: Tariffs are virtually doubled to protect industries during the Depression.

1952-60: Menzies Government imposes import quotas to bring down current account deficit.

1967: The chairman of the Tariff Board, Mr Alf Rattigan, joins the growing campaign for tariff reductions. Tariffs peak at average rate of 24 per cent.

1973: Rattigan chairs committee appointed by Whitlam Government to consider tariff cuts. Recommends that tariffs be cut by 25 per cent across the board. Whitlam and his Trade Minister, Dr Jim Cairns, do so.

Tariff Board reconstituted as Industries Assistance Commission with a wider mandate. Average tariff level 15 per cent.

1975-83: Fraser Government continues tariff reductions on IAC's recommendation, except for cars and TCF (textiles, clothing and footwear) industries. Tariffs average 13 per cent.

1988: Hawke Government accelerates tariff reductions, cutting most tariffs to 10 or 15 per cent by 1992, and the average to 8 per cent. IAC's role broadens to general advice on economic policy, promoting free markets as the universal solution.

1991: Further cuts reduce all tariffs except cars, TCF and sugar to 5 per cent by 1996, and the average tariff to 3 per cent by 2000. Industries Assistance Commission becomes the Industry Commission, with wider brief and narrower ideology.

1996: Howard government further increases the commission's power, wiping out the Bureau of Industry Economics and the Economic Planning Advisory Commission, giving their roles to the commission, reconstituting it as the Productivity Commission with a new role to report on labor market issues.

1997: Things start going wrong:

June: Government rejects IC recommendation to cut car tariffs to 5 per cent by 2004.

September: Government rejects IC recommendation to cut TCF tariffs to 5 per cent by 2008.

Senate rejects Productivity Commission bill.

December: Government endorses industry intervention in its industry statement, ignoring Industry Commission's views.