The landmark National Reconstruction Fund is a significant achievement for the Albanese government. But since it was unveiled, the goalposts have shifted dramatically and it is no longer enough. Not by a long shot.
While the US and the Europeans and even Canada have raced ahead with whole-of-economy initiatives to re-invigorate industry, build domestic capability, and bolster critical supply chains, Australia has not.
These massive investments being made by like-minded countries around the world into reindustrialisation programs are a direct response to changed geostrategic circumstances around the world.
In terms of industrial policy, Australia has yet to respond to these changed circumstances at a meaningful scale, despite the sharp increase in strategic competition in our own region. The urgency of the programs in the US and Europe is not matched in Australia.
The world has changed since plans for a $15 billion National Reconstruction Fund were announced as an early election commitment in March 2021. The voices from industry that welcomed the arrival of the NRF are now calling – increasingly loudly – for a more substantial and considered program.
The call for a 10X increase in commitment has emerged as a consensus view, if only to give us a fighting chance of keeping companies and entrepreneurs in Australia who might otherwise be attracted offshore by the dollars on offer through programs like the Inflation Reduction Act (IRA) in the US.
For others it is a about urgency. Rather than trying to respond to initiatives like IRA, they want a whole-of-government response to the actual changes in Australia’s strategic environment that is large enough to make a difference.
That won’t be done through an investment fund.
Australia’s effort to rebuild its industrial base is a daunting challenge. It will need to turn around a 40-year decline in manufacturing. There is a giant amount of work to be done.
It will require enormous political will, relentless attention, and giant pots of money. It will need an urgency that Australia has so far not been able to muster.
The politics here are weird. The economic orthodoxy in Australia for 40 years has been all about the free market (a period that directly correlates to the decline in Australia’s industrial capacity), letting the market decide.
It’s not like the interventionist industry policy was taboo, but it was close. We learned this from the Americans.
Well, someone should tell the Biden Administration. Between three initiatives – the Bipartisan Infrastructure Law, the CHIPS and Science Act and the Inflation Reduction Act – the US will spend about $2 trillion in the next decade on measures to improve economic competitiveness.
Australia is a head-scratcher on industry policy. Still trying to catch up on where the rest of the world has already moved.
In February, Industry minister Ed Husic was chipped by the Opposition for drawing a link between national security and the ambitions of the National Reconstruction Fund. This was extraordinary, given the link is clear, and openly discussed by our partners around the world.
The Coalition subsequently voted against the National Reconstruction Fund, without ever really explaining how this squared with the global trend toward policies to urgently build domestic capability and capacity.
And then earlier this month, the Coalition’s shadow Defence minister Andrew Hastie used the inaugural Jim Molan Oration to argue that Australia’s AUKUS commitments can be used to build advanced manufacturing capability and to build new industries with dual applications across Defence and the civilian economy.
Pointing to our friends and allies as exemplars, Mr Hastie argued for greater government support for industry. Governments should pick winners.
“Governments need to be involved and support industry. The UK, US, Taiwan, Japan and South Korea have vibrant industries because their governments have supported them through different incentives and direct support,” Mr Hastie said.
“They pick winners and work closely with business and industry. And they aren’t squeamish about it,” he said.
“It’s a reality of the world we live in. We need to wake up to it.”
It’s hard to believe that Mr Hastie would oppose the National Reconstruction Fund, with its objectives mirroring many of his own.
But the central themes of the speech are absolutely on point.
That the dramatically changed strategic circumstances in our region demand a response.
That our national security requires comprehensive investment in our domestic production capability and capacity.
That we should look to our friends to secure critical supply chains. And that chief among these are the resources and technology to deliver energy security.
Perhaps inadvertently, he also makes the point that building industrial capability to meet challenges of the scale he describes requires whole governments.
It’s not just Defence, or the Industry portfolio, or Energy. The re-industrialisation project needs a whole-of-government urgency.
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