The 2012 UK “austerity” budget has one bright side with big tax breaks of the games and television industries.
Meanwhile down under, the Australian government is about to announce more massive subsidies to the local motor industry.
While protecting jobs and trying to help struggling industries is admirable, we should ask if the cost to the taxpayer and economy is worthwhile.
Squeaky wheels
“The industry has lobbied for such changes for several years” says the BBC report on the UK budget and this is one of the problems with industry specific support; that it’s the ones who complain the loudest who get the assistance.
Often the companies and industries lobbying for subsidies spend too much management time and resources duchessing ministers, public servants and key media “opinion makers” than actually listening to their customers.
The fact they have staff dedicated to lobbying efforts in itself shows where their investment priorities lie. It isn’t in building better products or delivering what their customers want.
Missing voices
It’s often lamented that the high growth and small business communities don’t receive support, this is because they are running and building their businesses rather than shmoozing journalists, public servants and politicians.
Industry support programs often end up helping established insiders or those with a talent for filling in government grant applications rather than those who genuinely need help.
The Australian film industry is a good example of this where talented film makers struggle to attract funding from government agencies while a generation of well connected, experienced form fillers keep churning out subsidised movies that no-one wants to see.
Behind the times
One of the problems with government picking industry winners is they are often well behind the times with support going to mature or fading industries; both the Australian and UK announcements illustrate this.
The UK games announcement is at least ten years behind the times; strategic investment in the games and TV industry a decade or two ago may have been a wise move, today it’s just supporting another mature sector that is struggling to adjust.
At least though the UK’s policies are somewhere near the 21st Century, the massive Australian support for the failed motor industry shows Canberra’s politicians are mired in an era somewhere Henry and Edsel Ford.
It’s worth noting one of the first moves of the incoming Australian Labor government in 2007 was to axe the Commercial Ready program that was designed to help commercialise new technologies and innovations yet motor industry support dwarf any savings from abandoning this scheme.
The investment problem
In most countries the real problem to building jobs and industries is investment. Both the UK and Australia illustrate this with their domestic investment being largely directed at the housing industries.
The two countries have taxation and social security policies that favour over-investment in property. In Australia the problem is exacerbated by a retirement saving scheme that directs domestic savings to index hugging fund managers.
Australia’s sinking of money into an industry that have been struggling for nearly forty years and currently suffering massive worldwide oversupply is one of many damning indictments on the country’s political classes squandering of the current resources boom.
Making things worse, massive subsidies to uncompetitive industries already distorts a twisted economy.
Real economic reform that encourages investment in research, development, training, innovation and entrepreneurs is tough and means losses for many in those vocal, dying industries.
For the average politician a feel good announcement giving a bucket of money to a noisy group is a much better short term investment.
The challenge, and opportunity, in the democratic world is to make the politicians aware that the economy has moved on from the times of John Major in Britain or Bob Menzies in Australia.
It may well be that industries do need, and deserve, government support although we need far more scrutiny and justification from our political leader of why certain groups get help while others do without.
