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SA

Jan 23, 2014

In Holden's wake, let the market, not government, pick winners

The evidence is mounting that government grants for business don't work. InDaily journalist Kevin Naughton finds past subsidies to businesses have done more harm than good.

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Government-funded assistance programs for businesses hit by the Holden departure make little economic sense. And Michael O’Neil, the head of Adelaide University think tank the Centre for Economic Studies, also says subsidies and grants made to businesses that haven’t been able to secure funding from normal investment channels are a “poor economic model”.

The view backs previous analysis of structural adjustment funds, innovation and investment funds and other schemes that follow manufacturing upheavals, such as the closure of Mitsubishi, which shows a high failure rate.

“It’s a case of economic logic,” O’Neil told InDaily. “If you can’t tell a commercial opportunity from a non-commercial opportunity, then you shouldn’t be in business. Take the component suppliers, for example: these guys understand the market, and they will have already picked up new opportunities and got on with it. They don’t need a government assistance fund to do it for them.”

O’Neil says he was surprised by South Australian Premier Jay Weatherill’s response package in the wake of the Holden decision to cease making cars in Australia by 2017. “The Playford era age of attracting and subsidising industries is over, and Holden was the last chapter of it. Yet we hear the Premier talking about attracting another car maker to the Holden site. I can’t believe he’s thinking of trying to attract another car maker with a business model that we’ve just seen fail,” he said.

O’Neil says state and federal governments would be better placed putting the money into design and research centres. “Out of research comes development. You see it in defence. SA has had the Defence Science and Technology Organisation here for years, and that underpins our defence industry expertise,” he said. “Similarly, the CSIRO has led us into a whole new range of agricultural opportunities. Rolling out subsidies and grants for business ideas that can’t attract their own private investment or finance is not the way to go.”

In recent years InDaily has revealed a string of failures from the various schemes that followed the closures at Mitsubishi Lonsdale and Mitsubishi Tonsley and, in more recent times, the Automotive New Markets Program, designed to fund diversification projects for component makers. As recently as yesterday InDaily contacted Intex Holdings, a solar energy products developer that was given $1 million in the October 2008 round of the SA Innovation and Investment Fund. Intex Holdings, the state government had announced, would employ an extra 45 employees as it rolled out its “world-leading turbine technology to reduce fuel consumption in new and existing car and truck fleets”. The company is listed on its website as being based at 34-36 Oldham Road, Elizabeth Vale. The building, however, is home to a medical clinic, and staff there say they have never seen a company called Intex Holdings.

Intex company director Roger Davies, a radiologist, said yesterday the new solar technology was “poised to move to commercialisation”, but was unable to provide any further details. His business manager, Richard Neill, was also unable to provide any detail of how many people were now employed by Intex, adding that “there is a workshop at Edwardstown”. There is no telephone listing for Intex.

In 2011, InDaily revealed that Origin Solar, which had received $2 million from the post-Mitsubishi Structural Adjustment Fund to create sustainable jobs by making thinner solar cells, had packed up and moved to Idaho in the United States. The company had also received a further $6 million in renewable energy grants. A Origin Solar representative says the SLIVER cells project has ailed because the Australian market couldn’t support it. It later folded completely.

Another Structural Adjustment Fund project to hit the dust was the $3.5 million expansion of the Normanville Meatworks abattoir. The meatworks proposal didn’t pass development approvals, co-investors withdrew funds, and as the company’s managing director Bruce Webb said in 2011: “It never happened.”

A fourth project we reported on in 2011 was Labanalysis Services, one of the top-billed projects announced as “filling the gap created when Mitsubishi pulled out of manufacturing” in February 2009. The Labanalysis project was to provide services to SA’s growing mining sector. “The short answer is, no, nothing happened,” the venture’s then managing director, Tony Aykroyd, said.

Other fund recipients include Digislide (now in liquidation), Clean Seas (the tuna propagation project has been abandoned) and others that have been difficult to contact. A year ago the Gillard government announced a $1 million grant for Adelaide-based parts maker Hirotec to diversify its advanced manufacturing business. The grant has never been paid, and the project — for “e-coating technology” — hasn’t gone ahead. Federal government officials have declined to comment on the project.

There have been some successes: Broen Indsutries at Elizabeth created a handful of jobs with a $2.5 million grant and expects to employ up to 70 more people. But O’Neil believes the notion that governments can pick industry and business winners is flawed.

“How is a government panel going to have more success in picking what works in the market than the businesses that operate in it? Holden is closing because the Playford era of assisted and subsidised manufacturing has ended. There’s no point in trying to extend its life,” he said.

*This article was originally published at InDaily

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