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P.P. McGuinness, “What the IAC did not say about computers,” The Australian Financial Review, October 24, 1983, p. 3.

The poor old Industries Assistance Commission cops a lot of flak, most of it from people who feel that their lurks and perks are under attack.

From the sugar industry — which makes the Soviet Union look like a model of free enterprise — to the shoe industry, there is not a good word for the IAC.

The apostles of protectionism stump the country, denouncing the ivory-tower IAC, lamenting the incapacity of Australians to earn a living in a big, cold world.

Mr Neil Walford, of Repco, has even been spreading the word lately in New Zealand where he can still find a sympathetic hearing.

But even New Zealand, through the Closer Economic Relations agreement, is beginning to discover that protectionism is a blind alley.

And, of course, the latest couple of batches of reports from the IAC have got it into extra hot water. On the one hand, rural protectionists are outraged by the draft reports on sugar and dairy products, and the final report on the wheat industry.

All these reports say little more than is already generally known, but not generally admitted — that the regulatory arrangements for these major industries are very shonky indeed.

The best analysis of just how bad is the organisation of our rural industries, and how the rural interests rip off the rest of the community through such organisations as marketing boards, remains Ted Sieper’s little pamphlet, Rationalising Rustic Regulation [PDF], published some time ago by the Centre for Independent Studies in Sydney.

Even more important than the rural reports — which have already been consigned to the dustbin of history by the rural populists in power — are the three reports relating to the computer industry, drafts of which were released by the IAC last week.

These are the reports on the references on computer hardware and software; typewriters, calculating other office machines; parts and accessories; recording media — this is the main one — and on robots, and metal working machines.

These are difficult issues. The very complexity of the title of the first report indicates one of the major problems in analysing the industries: they are inextricably mixed up in other industries.

Indeed, with the rapid development of micro-electronics and the use of microchips with just about everything, it is virtually impossible to say where the computer industry stops or starts.

You cannot blame the official statisticians for it, because they do their best to satisfy conflicting demands, but the truth is that the standard industry classifications simply do not reflect the structure of industry in a highly developing economy.

This is a fact which the Americans have discovered — the official statistics on industry do not make the analysis of what is really happening with rapid change and innovation.

Every study comes up against the same problem: hard, quantitative analysis is hindered by the inadequacy of the statistics. Thus the studies sponsored by the OECD, which are among the best of the discussions of the effects of computerisation, often have to leave gaps or use very crude measures, such as the number of computers in use from year to year — an almost meaningless figure, because computers are such variable beasts.

So when the IAC was given the job of reporting on the grab-bag of subjects vaguely related to computers, it had a really impossible task.

It was not helped by the obvious silliness of some of the aspects of the reference — to include office staplers in a reference on computer hardware and software was just ridiculous. One can only reflect on the competence of the department which drafted the reference.

The end result was a series of reports which are certainly disappointing. They are disappointing for a number of reasons, none of which is particularly relevant to the responses so far heard.

The Minister for Science and Technology, Mr Barry Jones, at least responded fairly sensibly. He indicated that he felt that the reports were “negativistic,” but he did not condemn them out of hand.

The Minister for Industry and Commerce, Senator Button, however, denounced the IAC reports in terms which can only be said to be appropriate for a minister responsible for a department which has made such a hash of secondary industry policy in Australia.

Various interested parties had their tuppenceworth. But no-one seems to have pointed to the very obvious fact that there is simply no point in supporting an industry which will only be of value to Australia if it can compete in world markets in equal terms.

Moreover, there are positive disadvantages in inflicting a local product which cannot compete unassisted on the world market on industries in Australia.

This is a sure way of crippling the whole range of industries in Australia, and especially growing industries which need to be able to buy the best available technology and equipment if they are to compete on world markets.

If there is one lesson to be learned from the newly industrialising countries of the world, it is the sheer lunacy of adopting policies which increase the cost of inputs to your export oriented industries.

Those countries which have adopted policies of all-round protection have been additional burdens on their dismal failures economically. Those countries which have carefully avoided placing export industries have grown phenomenally, South Korea being an excellent example.

It might also be noted that such countries have often been highly interventionist in their policies but they have not purported to tell industry where to invest.

The IAC reports on the computer industry were very unsatisfactory, but not for the reasons put forward by government and industry.

Clearly, the IAC which has been starved of funds and staff in recent years, did not do as good a job of analysing the industries as might have been hoped.

There is a clear tendency in the IAC to fall back on a series of fairly simple propositions which, even if true, do not add to the sum total of human knowledge by being repeated over and over.

But one cannot be too critical of the IAC on these reports. As has already been said, the available information is not suitable for any detailed analysis. Nor were they given an assistance by the industry submissions, which were the usual collection of requests for handouts unsupported by serious analysis.

It is a subject for continual amazement that there are so many intelligent people involved in the computer business who can talk such elementary nonsense when it comes to economic and industry policy.

That there ought to be a substantial computer manufacturing and software industry in Australia is supported by studies such as those of the OECD, which point to the employment benefits of local industry.

But it does not follow from this that the tired old cry of more protection and local purchasing preference is the appropriate route to follow.

The real deficiency of the IAC reports was not in what they said, but what they did not say. They did not point out that the claims for increased bounties addressed none of the fundamental problems of high technology in Australia.

Neither, incidentally, did the minority reports by Mr J. L. Sheaffer, who managed to totally miss the point of high technology development.

This is a point which can be demonstrated by reference to the history of Apple and IBM.

On the one hand, Apple could come into existence and prosper because of the talents of only one or two people, and the absence of obstacles to the growth of a new company in the United States.

Apple grew despite the Government, and largely because the Government left it alone.

On the other hand, IBM has demonstrated a very important fact about so-called monopolies. This is that there are none, unless they are government backed.

IBM’s market has been hotly contested ever since it got into the computer business — and it must be remembered that it was not the first company in the business — and it has survived and prospered despite, not because of, government interference. It has been companies like Apple which have kept IBM on its toes competitively.

The trouble with bounties, even though they are better than tariffs or quotas, is that they are paid by people who have not got the appropriate entrepreneurial skills to succeed in new industries to people who, if they have such skills, ought not to be devoting them to government paperwork.

It is not insignificant that the IAC noted, in its main report, that some witnesses at its inquiry into computer hardware “were unaware that the bounty scheme applied to their production”. No doubt they were too busy developing their technology.

The dangers of dependence on such government schemes as bounties or research and development grants are nicely illustrated by the Canberra mail dispute.

The legislation specifies that applications have to be received by September 30; something like a hundred companies who posted their applications in good time now find that the law does not allow an extension of time, and the government will have to change the legislation if they are to receive the grants on which they depend.

This sums up in a nutshell the real obstacles to government sponsored high tech development. There are bureaucratic and legal inflexibility, and pointless union activity.

Nothing can be done about either of these in the short term, and to pretend that Australia can create a government-sponsored industry which will not fall foul of bureaucrats and unions is fantasy.

The obstacles to the growth of industry which is competitive in world markets and in the Australian market at world prices are easily defined.

They are excessively high protection, regulation, marketing boards, and the arbitration system. Add to these the preference of the Treasury for excessively high exchange rates, and you have a pretty potent recipe for stunting the growth of the Australian economy.

The trouble with bounties is that given these problems they would have to be so high as to make our present Budget deficit look small.

(in order of appearance on Economics.org.au)
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  7. The Itch for Influence
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  14. Paddy McGuinness on class sizes (1991)
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  16. Paddy McGuinness on Catholics and wealth distribution
  17. Paddy McGuinness proposes inheritance tax equal to handouts received by deceased
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