Tuesday, August 26, 2008

Big business can't take care of itself? It's a joke, right?

WHEN the Hawke- Keating government opened up the economy and phased out protection, economic rationalists hoped this would bring an end to rent-seeking. Rather than running to the government for handouts, businesses would learn to rely on their own enterprise. Fat chance.

For a while, it looked as if our big-business people accepted the need for Australia to do something serious about climate change, wanted our government to show leadership, and were prepared to play their part and shoulder their share of the burden.

But no. Last week's plea for special treatment by the Business Council of Australia was just the latest in a long line of business lobby group responses to the green paper on a carbon pollution reduction scheme, all of them predicting death and destruction unless they were let off the hook.

The media have yet to twig that all modelling is only as good as the assumptions on which it rests. And you can get pretty much any result you want by choosing the right assumptions.

In the Business Council's case, it seems to have reached its dire conclusions by assuming its businesses have no scope to pass to customers the cost of the emission permits they'll need to buy, no scope to eliminate wastefulness in their use of fossil fuels and no scope to reduce the need for permits by improving their technology.

In short, the Business Council seems to assume its members are completely lacking in enterprise. Without a bigger handout from government, they'll just lie down and die — or move to Burkina Faso. What a vote of no confidence in the initiative of Australia's big-business executives.

As for the tired old threat to move emissions-intensive production to a country with no emissions-reduction scheme, it's surprising journalists still fall for it. You can be sure the econocrats and their masters don't.

We're not talking about finding the cheapest place in the world to make T-shirts and thongs. The truth is that our emissions-intensive, trade-exposed industries are in Australia for good reason and it would take a mighty lot to make them move.

We're talking about capital-intensive industries that need to be close to abundant supplies of cheap raw materials and to skilled labour. Our electricity is very cheap and even after the carbon scheme raises its price it may still be cheaper than in many countries.

Problems with undeveloped physical and financial infrastructure, corruption and dodgy legal systems make setting up in developing countries far from a picnic.

It would take perhaps a decade or more to shift production plants, and who's to say that by then the country you moved to wouldn't have introduced a carbon scheme of its own?

Or that the developed countries wouldn't have established a system of countervailing duties on imports of emissions-intensive goods from countries without their own carbon scheme?

Any executive who thinks he could escape carbon-scheme uncertainty by moving to another country isn't very bright.

None of this implies that emissions-intensive, trade-exposed industries shouldn't be given relief during the period in which competitor countries haven't yet established their own schemes.

They should and the green paper provides for such relief. But it stops short of giving complete relief to all export industries.

Were we stupid enough to agree to get ourselves in deeper than we already are, the ultimate cost to the economy would be that much higher.

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