By Roger Raven
Job creation has been given nothing like the attention that it deserves. No green/democratic/socialist political force will seriously threaten the conservative parties until we can offer credible economic policies to the public.
I have suggested in previous articles that the WA government should use the Rural & Industrial Bank to undertake an extensive investment program to create employment, expand WA's very small manufacturing base and orient the state's economy to be more compatible with social needs. Precisely the same role could be, and once was, undertaken by the Commonwealth Bank and the state banks of NSW and SA.
The amount of investment required would depend on the number of deserving projects; a small manufacturing concern often costs about $30 million and creates extra jobs quite rapidly.
To overcome the conservatism and incompetence of senior private sector management, as well as their complete indifference to unemployment, it will be essential for public agencies to take a very active part in these projects.
Although the state government recently freed BHP from its 1970 commitment to build a steelworks in the Pilbara, Compact Steel is considering building a $1.5-2 billion plant at Bunbury or Kwinana.
The R&I could not prudently supply all the finance, but the involvement of a state authority may make a big difference to the timing, scale and aims of the project. Some 800 permanent jobs would result.
Despite the collapse of the wool price stabilisation scheme, the industry clearly recognises that a single well-financed sales and promotion organisation is essential. However, woolgrowers are in no position to fund the industry levies proposed for wool promotion, and to fund the further processing of agricultural products (such as lupins or straw).
The R&I could provide special-purpose loans for the former, and fund equity investment in the latter.
The pulp and paper mill, for which the state government is seeking private investors, is a contentious matter. A pulp mill using acceptable technologies could produce white pulp, and eventually printing and writing paper, using plantation and mill residue timber. Investment of $800-1000 million would create about 500 permanent jobs.
As with the steel mill, R&I involvement could make a very big difference as to whether, when and how it occurs.
Moora Pulp and Paper Co Pty Ltd is investigating the feasibility of producing 110,000 tonnes of pulp a year for export or for domestic box of $103 million would yield 65 jobs. As an identical venture was proposed by a different organisation in 1990, it may be assumed that private enterprise wasn't interested in providing finance. It would certainly be appropriate for the R&I to do so.
Westpaper Pty Ltd is investigating the feasibility of producing 80,000 tonnes of newsprint per year from 50,000 tonnes of de-inked pulp and 40,000 tonnes of fresh pulp. Investment would total up to $95 million, with 95 permanent jobs.
Lupin Processing Pty Ltd recently sought to raise funds to process sweet lupins into purified protein powder, and a dietary fibre powder, for use in the food additives industry. An investment of $28 million would create some 30 jobs.
However, the first float was undersubscribed, so all the money had to be returned. A second float is being undertaken, but so far is not promising. Again, funding by the R&I and the location of the plant in a small country town may bring dramatic benefits.
In 1988, some $6 billion (1992 probably $8.4 billion) worth of oil and chemical products were imported, even though many of the imports could be replaced by local production at little extra cost using low to intermediate technologies. Unlike most industries, chemical plants produce for the domestic market, and export only the surplus. The international chemicals market is highly volatile.
Most EEC countries have considerable public ownership in the oil and chemicals industries. In contrast, in 1988 Australia's oil industry was 90% foreign owned, while the chemicals-related industries were between 24% and 70% foreign owned.
Particularly in the long term, foreign ownership of core industries may lead to a much larger overseas debt, and a domestic manufacturing sector that is both smaller and distorted to serve the interests of foreign owners.
A great deal of finance will be needed to rebuild import-replacement industries and to convert foreign to domestic (preferably public) ownership in the case of those core industries.
Waste management is one of many domestic industries that have considerable import replacement and export potential. It suffers, however, from difficulty in integrating waste minimisation technologies into capital works, the non-existence of venture capital finance and little market research.
The industry also suffers from fragmentation, which (as with heavy engineering or renewable energy technologies) severely limits its competitiveness and capacity to expand. In such cases, it may be desirable to have the R&I buy out an existing firm, then reconstruct and expand it so as to exploit more of that potential.
The exploitation of renewable energy resources will grow rapidly over the next 40 years, particularly for hot water, transport fuels and power generation. As well as being more benign towards the ort-replacement and export potential.
Australia's capacity to create a strong heavy engineering sector is greatly inhibited by its fragmented nature and the lack of export finance. International practice is to have a large firm acting as the prime contractor; this firm then provides a lot of the export work of the smaller firms from the same country, by using them as subcontractors. The tendency is, therefore, for the relatively small Australian firms to get the least profitable bits and pieces.
Both the Democrats and the Reworking Australia Alliance have proposed the diversion of a set proportion of superannuation fund investments into the supply of capital for new manufacturing ventures. Practical alternatives for the R&I are to expand its superannuation fund, to seek low-interest-bearing deposits or loan funds from government, or to manage funds raised by other organisations.
Venture capital is finance supplied for projects that have good prospects but no assets or history of sales on which to obtain funds from the usual sources; the Sarich orbital engine project is a good example, albeit a more fortunate one than most.
The Management and Investment Company Program of 1984 was an attempt by Labor to establish a domestic venture capital industry. It was destroyed by administrative sabotage by the economic rationalists in Canberra; first, the Tax Office produced a ruling that reduced the value of the tax concessions, then the Bureau of Industry Economics produced an evaluation in 1987 that ensured the strangulation of the program.
All the roles proposed for the R&I and other public banks assume that the lenders and regulators will ensure that the projects are conducted in a manner that maximises the benefit to the public.
The truth has often been otherwise; we have to devise mechanisms to ensure that public organisations act in the public interest. There is a lot of room for interventionist investment policies in the platform of any socialist party.