23/04/2013 - 06:58

Do we need strategic industries?

23/04/2013 - 06:58

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Do we need strategic industries?

I saw an OKA truck on the road recently and, as I have previously lamented in this column, it was like an opportunity passing me by.

As the billions of dollars spent propping up car operations owned by multi-national companies is debated, I have often wondered how much better off we might have been in encouraging a niche player like OKA to continue manufacturing its unique off-road vehicle in Western Australia.

The economic rationalist in me questions all subsidies and wonders aloud whether OKA, which was bought by Malaysians more than a decade ago, would have been any more deserving than global players like GM, which owns Holden.

But, perhaps a subsidy was unnecessary. Maybe OKA’s plight just needed more publicity or the community, not necessarily government, should have found a private way of rescuing the business and keeping it in Australia.

Would we be better off? Who knows? Perhaps a specialist like OKA could have found a world market for its hardy off-road working vehicles.

Or maybe, a small company with an obscure product could never have competed with global players in a niche vehicle market where buyers need to trust the product and know that warranties, parts and service will be there for the long term.

Nevertheless, arguably OKA was a more strategic investment than Holden or any mass car manufacturer. Apart from producing a commercial vehicle ready-made for unique conditions in Australia, especially the regional mining sector which has boomed, it also had defensive qualities.

It maintained skills in vehicle manufacturing, like the big players, and was, arguably, more focused on design. In the event of war or Australia’s isolation, being able to make OKAs en masse seems far more useful than being able to make Camrys.

Arguably, retooling a Holden factory to produce vehicles to service the army is even more difficult than seeking to scale up a manufacturer already making such things.

Is that what strategic industries are?

I often wonder. Is it really such a big deal to be able to build submarines here – usually at great cost and delay – rather than simply having the wherewithal to keep them running?

If submarines are so important, why not jet bombers, rocket launchers and artillery?

Outside of defence, discussion about strategic industries often includes energy. Right now WA Premier Colin Barnett believes it is strategically important to land Browse gas in the Kimberley in order to make domestic energy available and build an economic base in the region.

Others argue that where and how the gas is processed ought to be left up the companies involved. But Mr Barnett says part of the gas, the bit near the shore, is owned by the state and it ought to generate the best return it can – in the form of jobs and energy supplies.

Many believe that cheap energy creates local jobs, ensuring employment, which has a big dividend in the form of social cohesion.

The US government has refused to allow its newly found wealth of unconventional gas to be exported, preferring to force producers to sell it domestically, creating a glut resulting in low prices.

This makes US manufacturers more competitive and reduces the nation’s reliance on energy imports from difficult places like the Middle East and Venezuela.

But those producers, who have spent billions developing the technology to drill for this gas and then exploring for it, are unable to attain world prices for their production. That is a very strategic decision.

But others argue that the US decision to withhold gas from export enhances Australia’s value as a safe and reliable energy exporter, enabling us to command a price premium and be acknowledged as an important cog in the global wheel.

Some in the federal government and various industry figures also argue that in WA an alternative choice to processing on land, floating LNG, is also a strategic move.

Shell’s FLNG project is being run out of Perth and, if other gas fields are developed in this way, including Browse, WA would have momentum as a leader in a new industry.

That could mean, for the first time, that local intellectual property and skills in FLNG perpetuate some of the long-term demand for engineering development talent that has been lacking in the relatively volatile local energy sector.

We could export our abilities, like we have in mining. In terms of a strategic industry, few could be as valuable as mining.

Oddly, mining has boomed since it stopped being treated as a strategic industry by governments. Up until the 1960s, iron ore was not allowed to be exported because it was too important as a strategic mineral. As a result it earned us almost nothing.

Today, it is a major revenue producer for the nation and, because mineral commodities are immensely valuable to global manufacturers, like our LNG, they give Australia global political leverage far beyond what our population size might typically warrant.

You can’t get more strategic than that.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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