The idea of saving failing firms and sectors through protectionism is older than economics itself, and so are the inevitable outcomes.
Saving uncompetitive coal-fired power stations from closure will only result in making Australia and Australians worse off. We know this because that has always been the result of implementing protectionists policies. Protectionism hurts the many for the benefit of the few, it is bad economics, bad policy, but brilliant short term politics for the few who benefit.
As the saying goes, whomever steals from Peter to pay Paul can always count on Paul’s vote.
The problem is that protectionism never really protects the industry involved, ultimately it makes a recoverable position hopeless. It convinces failing firms that they do not need to innovate to new business models, or to adapt to changing circumstances. For the first few years the majority of people put up with the bad service and the extra cost, but as the situation gets worse their tolerance evaporates and the wasted years mean that these firms can never become competitively sustainable.
Then there is the argument that everyone is doing it so we need to in order to level the playing field. The problem with this statement is that it is never quite as true as some people would like to believe. And even if it were, Australia is no position to out protect or out subsidise those countries we believe we are trying to outdo. It is a fool’s solution to a problem that never quite exists.
Then there are the people who suffer during these periods of protectionism. The late Bert Kelly, who was a South Australian farmer and founded the Modest Members Society (which I now have the honour being Secretary) came to parliament in 1958 and powerfully made the point that protectionism creates costs borne by the very people who can least afford to bear them.
These costs are numerous: higher prices which hurt people on lower incomes the most, less innovative goods reducing both competition and consumer choice, hobbled start ups that cannot get the resources to bring new products and competition to the market, and most importantly productive firms that cannot grow, denying ordinary Australians the hope of gaining sustainable long term jobs at higher wages in growth markets.
Kelly’s argument was so powerful that eventually the Australian parliament cut tariffs and promoted pro-growth and pro-job policies, which ultimately resulted in 27 years of uninterrupted growth. Bert Kelly would be turning in his grave, and many of the people involved in those debates would see such suggestions as enormously regressive for the people who most need our help.
There are a whole bunch of new technologies being developed that are making alternative sources of energy very attractive for investors and consumers. These include pumped hydro, batteries, gas, nuclear and renewables which are now the cheapest form of energy in the Australian energy mix. Trying to hold back innovation in energy through protectionism is like trying to protect the candles industry by forcing people to board up their windows from the sun because it is not charging enough for light.
Whatever the problem, protectionism is not the answer.
Jason Falinski is the Liberal MP for Mackellar