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It just smelts your heart

By Simon Cowan - posted Friday, 6 July 2012

Yet again the government chequebook comes out to prop up a failing business in a politically sensitive region. For $40 million (plus $4 million for their suppliers), Alcoa will operate its Port Henry aluminium smelter for another two years, saving most of the 600 jobs at the plant (less a 'voluntary' 10% workforce reduction). That's the equivalent of a jaw-dropping $74,000 per worker saved.

This rescue package seems to be primarily motivated by short-term political gains, securing votes in a key marginal seat, and deferring further damaging job losses until after the next general election. It provides little or no economic benefit and is inconsistent with other government policies.

Initial reports indicate the government assistance will be used to maintain and repair the Alcoa plant and 'sustain the operations of the Port Henry facility'. The government can't even sell this bailout on the basis Alcoa will commit to new investment because Alcoa isn't; this is simply about relieving Alcoa's cost pressures and mounting losses. No basis is given anywhere for believing these problems will be resolved in two years.


If this bailout doesn't provide any economic benefit or address the underlying long-term issues, is there any purpose other than '#cashforyou' to shore up vulnerable seats in Geelong? How can this rescue package be justified to the 344 workers who lost their jobs at the failed Norsk Hydro plant in Kurri Kurri? More importantly, what happens when this issue inevitably resurfaces in two years' time?

There is a trend here. Ford received a $34 million bailout in January, yet reports suggest further staff reductions and temporary shutdowns are likely. Hundreds of millions of dollars have been given to GM Holden, yet uncertainty remains on the local impact of plant closure and job losses across the broader GM group.

From the lack of success of these recent interventions and others, it is clear that a new approach is needed, focussing on assisting economic transition rather than a series of one-off stop-gap measures. This broader approach could have been taken with the mandatory transition to a 'clean energy future'. Instead, vast compensation packages are being handed out to some businesses and industries to delay its effects.

If the government wants to forcibly change our energy mix and move the economy away from reliance on abundant, carbon-based energy (the aim of the carbon tax), then businesses like the Alcoa smelter must either shut down or completely change. This means not only is compensation economically questionable, but counterproductive to achieving the policy aim as well.

Big business closures are messy and public – a toxic mix for image conscious politicians. Is the plan to avoid that messiness by hoping workers in carbon intensive industries will wake up one morning with jobs in renewables? Perhaps the truth is simpler; some 'dirty' jobs are just less equal than others.

Unfortunately, this means the unhappy trend of government shelling out money hand over fist to inoculate companies against market forces seems set to continue. From steel to airlines, cars to solar panels, hundreds of millions of taxpayer dollars are given away to retain jobs that would otherwise have been lost in the closure of large companies.


These efforts have been generally short-sighted, aimed at maintaining current employment levels rather than dealing with structural change, and so mostly unsuccessful. Businesses that have received handouts tend to come back seeking more and more money (see Australia's automotive sector).

In contrast, good transition planning in the Hunter region after the BHP steelworks closure in 1999 has helped generate a lower level of unemployment, strong business growth, and a broader industry base in the region. Government money directed towards retraining and reskilling was relatively effective in contributing to ongoing economic growth in the region.

A key theme of economic development for Australia in the digital age must be the creation of a flexible, skilled workforce. Rather than picking winners or losers, government should assist industry by making structural changes to the economy to improve flexibility, workforce participation, and productivity. For example, why not address crippling skills shortages across key industries by making secondary education, vocational training, and universities more adaptive and responsive to industry skills needs?

Unfortunately, no one seems to question why it's up to government to pick up the cheque to keep uncompetitive businesses running. How did we come to expect government to ensure no one is ever worse off through economic change and that change should be painless?

We are creating dangerous precedents – get rid of the market's stick and we will only have expensive carrots left.

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About the Author

Simon Cowan is a research fellow at the Centre for Independent Studies.

Other articles by this Author

All articles by Simon Cowan

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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