A few further thoughts on industry policy

Peter Rowland contributes to the discussion around “picking winners” in the wake of the federal government’s manufacturing policy release.

The concept of a government picking winners is easily, and correctly, discredited when applied to individual companies. Governments have not the skills to do so and probity will always be at risk.

However, picking winners in terms of singling out particular industry sectors as a priority is a proven and effective policy for industry development, particularly where resources are limited. If everything is a priority, nothing is a priority. And if all of the industry assistance tools available to government are focussed on a small number of sectors instead of being randomly distributed, the chances of getting a number of companies in those sectors to international competitiveness is greatly increased. 

Choosing sectors to prioritise is an important task; there needs to be some promising industry capability to build upon and the choices should align with government’s strategic objectives.

The priority areas which the Morrison Government announced on Thursday appear logical and reasonable in scope. They build on our nation’s historical capability in, for instance, defence or medical technology areas.  

For the ‘picking winners’ policy to be most effective however there must be both consistency and longevity. Consistency in how the government applies the prioritisation not just to grants and financial incentives (such as tax in related R&D and capital investment) but to universities in education, research in government institutions, export and trade assistance and even skilled migration. All of which create an environment where manufacturing industries in the chosen sectors find themselves swimming downstream.

Longevity is important because industrial changes do not happen overnight. The government is signalling to investors, entrepreneurs and chief executives that it will create an environment, using multiple measures, where companies operating in these chosen sectors are more likely to prosper.

Decision makers who will direct the flow of capital and resources to achieve growth in these sectors must have the confidence that this environment will persist over the many years it takes build industrial capability and export market success. 

Peter Rowland is Managing Director at Micro-X.

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