Should the Australian Government be subsidising jobs ?
February 20th, 2012 by Warwick HughesIn recent weeks there has been much publicity about job losses in the banking sector and also the threatened aluminium smelter at Point Henry in Victoria which was only ever built there by ALCOA to take advantage of cheap power generated from the Gippsland brown coal deposits. There has also been much comment on Govt subsidies to the car industry – which I was surprised to learn cost $7,000 per vehicle – not to mention the union featherbedding which these Govt handouts seem to encourage. I would have thought that in the case of South Australia – where I think much of the car industry is – their expanding mining sector could easily replace the job losses.
My own view is that our taxes should not be propping up uncompetitive industries – let them shut down. I wondered what readers think.
Posted in Resources | 5 Comments »
February 20th, 2012 at 10:08 am
The government taxes successful businesses to subsidize unsuccessful ones. This makes everyone on average poorer. By reducing the size of successful industries and hence the numbers they employ, the salaries they pay, and the taxes those people pay. As well as wasting the money subsidizing products people wouldn’t otherwise want.
There is a case for governments to perform social engineering, but Green social engineering, eg solar power subsidies, just illustrates the muddleheaded wishful thinking and almost total ignorance of science, engineering, economics, etc that characterizes the Green movement.
February 20th, 2012 at 4:40 pm
Thanks for posting on this important, but I think difficult, topic.
I agree with the economic argument that it is better for the economy (ie for everyone) if inefficient industries which cannot compete go to the wall.
But I think there are some other issues:
1. The primary task of Big Government is Defence of the Realm. Can we take the risk of not having a particular manufacturing/repair/support industry in-country? Only the Department of Defence knows (alright, we know it doesn’t but it should know, that’s one of its jobs…) the answer. I guess if a particular industry is deemed to be strategic, the DOD should stump up, preferably with orders for product, rather than grants.
2. The second task of Big Government is to create the conditions for continuing full employment, and thereby econonic wealth. It may be that particular industries use inputs from many other indigenous industries, and that letting them go to the wall means massive unemployment beyond that which the rest of the economy can take up. In that case the Department of the Dole (or whatever it’s called these days, possibly the Department of Employment Inclusion) should stump up.
But in all cases there needs to be a very clear and compelling reason, not just re-election of a bunch of self-servers.
February 21st, 2012 at 10:37 am
The only government-subsidised jobs that should exist are the ones that are a public service. i.e. those which provide a service to the public which cannot be filled by private enterprise for reasons of economy, security or judicially.
Governments should definitely not subsidise production in industries that compete with private enterprise; on the domestic or global scene. It’s the subidies on production that most-heavily damage competitiveness.
Low-interest Government loans for capital expenditure and tax breaks on actual R&D expenditure should be the limit of government interference in the function of free enterprise.
In the case of government-funded R&D by private enterprise, the public has a right to see the results of the R&D, published no more than 3 years after each R&D project concludes. Such doesn’t compromise the researchers’ intellectual property rights (they would still be able to Patent inventions) and it gives a head start to implement and to exploit the developments. More than a head start, in effect because such encourages early adoption of worthwhile developments.
February 23rd, 2012 at 10:58 am
Its not just about jobs.!
Krugman has an article in the NYT on this: Jobs, jobs and cars.
Its economic geography: “the advantages of industrial clusters — in which producers, specialized suppliers, and workers huddle together to their mutual benefit”.
The Germans have it – Mittelstand, the Chinese have their development zones and we have it clustered around car making, ship building and our defense industries.
Krugman: “..entrepreneurs need a supportive environment, and that sometimes government has to help create or sustain that supportive environment.”
But more importantly, its so called “Free Trade” and the predatory behaviour of countries such as China which have had the greatest impact on the loss of jobs, about 2.5 million in the US since 2000.
“Fair Trade”, not so called “Free Trade”, which is just “Free Riding”!
February 25th, 2012 at 3:38 am
The Caterpillar plant here in Canada (London, ON) has closed, in spite of their having recently received major government concessions in the form of corporate tax breaks; the closure was announced 36 hours after Indiana, Governor Mitch Daniels announced “right-to-work legislation,” which limits a union’s right to require that all plant workers belong to the union. Once the government starts interfering in a business’s bottom line, it opens a bidding war. Indiana’s change in legislation outbid Canada’s tax breaks–and farewell Cat! They will always take the money and run in the end–best not to start.
Caterpillar Pulls Plug on London Plant