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Rudd right on rejecting buy local scheme

26 July, 2009

Rudd has rejected calls from unions to adopt the NSW Labor government’s policy to give local producers a 20 per cent price advantage, following its criticism of the NSW government’s adoption of the scheme (see previous post).

Mr Rudd said much of Australia’s national wealth depended on its access to export markets.

“We need to avoid any form of protectionist measure, which invites retaliatory protectionist measures from economies around the world, and that’s what would happen.”

But it’s not just retaliation from trading partners that is the issue, which for export-driven economies, constitutes a grave danger. It is also that local quotas and subsidies ultimately pushes prices up, resulting in further drop in demand or, when the public sector has been entrusted to stimulate demand, budget deficits spiraling out of control.

Unions appear far too myopic to recognise this point, as AMWU national secretary, Dave Oliver was quoted in the SMH today:

“the best way to maximise jobs is to have a focus on maximising local content” and cost of a good or service should not be the only factor.

And ABC reports that the unions (AWU and AMWU) claim the community is behind them after a survey the unions commissioned found 90 percent of 1,000 respondents gathered using an undisclosed sampling method responded positively to an undisclosed survey instrument. (As most researchers would know, you can get a survey to say anything you like, that is why disclosing your methodology is vital). The Sydney Morning Herald indicated on Sunday some of the contents of the survey’s questions, suggesting that, as feared, the questionnaire is likely to have elicited answers the unions want by linking respondent’s fears of their own unemployment with outsourcing of jobs overseas and the ability of governments to intervene to protect their jobs.

It’s important not to confuse this ‘buy local’ campaign with a green and gold “Product of Australia” tag on a product that allows consumers to make an informed choice. It is an attempt to protect local industries (not jobs) through price discrimination. A blanket 20 per cent price advantage to all Australian firms irrespective of the industry is likely to ultimately push prices up for taxpayers.

Providing support for SMEs to assist with marketing, support services, and increasing scalability is a policy that many people are likely to support. But the policy the NSW government has adopted and that unions are now pushing the federal government to accept offers local firms little opportunity to improve productivity. If anything, it is ultimately a productivity-destroying subsidy.

If governments – and unions – want to help local industry and local jobs, they should be finding ways to make them more competitive in global markets. Otherwise the policy is likely to lead to a “buy local, stay local, die local” scenario for these businesses.

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