Our politicians are repeating mistakes they made with the car industry and GMH

A $50 million grant was given to Arrium by the former state Labor government, when Gupta's GFG Alliance purchased the Whyalla steelworks (after it had collapsed owing $2.8 billion and leaving 7000 jobs at risk). Previous support for the steelworks had included wavering of mining royalties, protection through anti-dumping duties, assisted local procurement practices, and a 10 per cent pay cut agreed to by its workforce.

Gupta has since approached the federal government about the possibility of a public debt guarantee to facilitate expansion of the business. Gupta (who announced a $600 million expansion plan) has said ongoing support would likely be required from the South Australian and federal governments. He apparently also intends to float parts of his business on the Australian Securities Exchange.

The Scottish government, Reuters recently reported, guaranteed up to $1 billion in debts owed by Mr Gupta's loss-making aluminium plant. Overall, there are concerns about the size and murkiness of Gupta's companies and their financing arrangements, that raise questions about the long term sustainability of the steel industry at Whyalla.

Overall, economic theory broadly labels industry subsides as a distortion. So why do Australian governments persist with these policies?

Part of the reason for subsidising the submarine and naval ship-building industry seems to have been to make up for the demise of the car industry. The only problem is that the former industry seems to be even less efficient. In this country, subsidised non-viable industries always seem to disproportionately end up in South Australia, reflecting the pork-barrelling policies of left wing politicians and the "moderates" of the Liberal Party.