Home > Economic policy, Oz Politics > Culture wars and smelters

Culture wars and smelters

January 21st, 2017

The Victorian and Commonwealth governments have just announced a bailout of the Alcoa aluminium smelter at Portland, achieved primarily by pressuring AGL to supply cheap electricity. It’s unsurprising that a state government wants to save jobs: that is par for the course. The Commonwealth intervention reflects total policy incoherence. It’s entirely comprehensible, however, in terms of the culture war approach that drives the Abbott-Turnbull government. I have a piece on this at Crikey, reprinted over the fold.

Reports that the federal government is committed to bailing out Alcoa’s Portland aluminium smelter — and has pressured AGL to offer a below-market deal on electricity supply — will be welcomed by the 600 workers at the plant, and by the people of Portland more generally. For the rest of us, it provides an object lesson on the policy incoherence of the Abbott-Turnbull government in just about every dimension.

The only way to understand this government is in terms of tribal loyalties and enmities. Policy positions are determined by the state of these loyalties and enmities, but their valence can change rapidly with shifts in the relative standing of different groups, so that yesterday’s orthodoxy is today’s heresy.

The most obvious illustration of this is the contrast between the all-out attempts to rescue Alcoa and the government’s eagerness to show General Motors and Ford the exit door in 2014 after nearly a century of vehicle manufacturing. For the advocates of economic “reform” in the government parties, the vehicle industry and, even more so, the vehicle industry unions, were tribal enemies of long standing. They had been at the forefront of the struggles over tariffs and quotas in the 1970s and 1980s. So, even though assistance had long been reduced to a very modest level, the reformers still wanted a final victory. Of course, it didn’t hurt that most of the job losses would be in Labor electorates.

Even at the time, there were plenty of contradictions, with the government offering $16 million to bail out Cadbury’s Tasmanian operations, a deal that ultimately failed. But the contradictions have mounted over time. The $5 billion Northern Australia Infrastructure Facility (NAIF) is a throwback to the publicly subsidised developmentalism of the 1950s, precisely the kind of policy thinking that gave us a protected, foreign-owned car industry. But at least the car industry created jobs on a large scale, unlike the putative beneficiaries of the NAIF, most notably Adani’s Galilee Basin coal project.

The political rationale, in terms of industry policy, is equally confused. Defenders of the government’s shift to interventionism point to the rise of Trump and Hanson, politely referred to as “populists” rather than “racists” as evidence of a change in the political landscape, which must be recognised and respected. Meanwhile, Prime Minister Malcolm Turnbull is still pushing the doomed Trans-Pacific Partnership, and denouncing Opposition Leader Bill Shorten’s opposition as “populism”.

The contradictions are even more severe when it comes to energy and the environment. Most obviously, subsidising an energy-hungry plant — both directly and through cheap electricity derived from fossil fuel — goes directly against the commitments made, with some fanfare at the Paris Conference on climate change in 2015.

To be fair, there are no real surprises here. Perhaps in 2015, Turnbull had some idea that he would be able to do something serious about climate change, while sticking to the deals he made to get the PM, including the continuation of Abbott’s “Direct Action” policy. Certainly, that was his implicit commitment to the Australian public. But his capitulation to the denialists in his own party has gone far beyond the specific terms of his commitment.

Indeed, since the Direct Action program (always intended as a fig leaf) is about to run out of money, Turnbull appears to be violating the letter of his agreement. Of course, none of the denialists who pushed Direct Action as a pretext for scrapping the carbon price is complaining about its demise.

The really big contradiction is that between the Alcoa rescue and the government’s oft-stated commitment to secure and cheap electricity supplies for Australian families. As the government’s supporters have been keen to point out, the impending closure of the Hazelwood power plant is bound to push up prices, by withdrawing a large block of supply. Conversely, of course, the network failure that has taken most of Alcoa’s plant offline has reduced demand.

If, as would have happened if the market were left to operate, Alcoa shut down the plant permanently, around half of the impact of the Hazelwood closure would be offset. The result, obviously, would be lower prices for households.

The situation is made even worse by the pressure that’s been brought to bear on AGL to give Hazelwood a sweetheart deal. Favours like this don’t come for free, and AGL will almost certainly seek to recover the losses incurred on this deal with higher returns elsewhere in the network.

In policy terms, then, the Alcoa rescue makes no sense whatever. But when policy is framed by culture wars, ideological coherence is expendable. The Abbott-Turnbull government’s commitment to coal is, above all else, a matter of “my enemy’s enemy is my friend”. The right’s bitterest and longest-running culture war is that against environmentalists, which has been running without interruption for decades. The greenies want Portland to close, and therefore it must be kept open.

Added to this, of course, is old-fashion pork-barrel politics, which is now enmeshed in the culture war. The Portland workers are virtuous since they live in a country town (because, decades ago, Liberal minister Digby Crozier managed to get the smelter located, quite absurdly, in his Western electorate), and the impact of its closure would be obvious. By contrast, the loss of jobs in some of the most depressed suburbs in Adelaide counted for nothing.

It remains to be seen whether these acrobatic and expensive contortions will be enough to save the Alcoa plant in the long run. No one can predict the gyrations of global commodity markets, or the fluctuations of exchange rates. But if aluminium prices resume the downward trend of the last ten years, or if the Australian dollar appreciates sharply, all the efforts of recent weeks will prove to have been in vain.

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  1. January 21st, 2017 at 11:20 | #1

    They really have a project with the acronym NAIF? And did not think to check in a dictionary? At least when Newcastle Polytechnic in England was symbolically upgraded to a university, they realised in time that City University of Newcastle-on-Tyne would not do.

  2. John Quiggin
    January 21st, 2017 at 11:25 | #2

    I think only urban intellectuals would get the joke, and they (we) are tribal enemies anyway

  3. Smith
    January 21st, 2017 at 11:25 | #3

    This explanation of the government’s motives is over-engineered by an order of magnitude. The true explanation can be stated in two words: One Nation.

    Also, how do you explain the state Labor government being even more enthusiastic than the Feds to save the smelter? They are tipping in even more money than the Commonwealth. Daniel Andrews might be many things, but a culture warrior of the right isn’t one of them.

  4. Jim Rose
    January 21st, 2017 at 11:37 | #4

    It does not help that the Senate cross-benches made up all populists; in the case of Hanson, who wins votes equally from labour and Liberal; and others who win more of their votes from labour. They are now troublemakers in state elections too.

    All opposed deregulation, privatisation and competition be it from home or abroad which plays well in the cauldron of expressive politics.

  5. Smith
    January 21st, 2017 at 12:04 | #5

    @Jim Rose

    They’re not all populists. Leyonhjelm seems to go out of his way to be as unpopular with as many people as possible.

  6. David Allen
    January 21st, 2017 at 12:04 | #6

    I would have thought that It’s not the smelter that should go but the lignite. We still need aluminium.

  7. John Quiggin
    January 21st, 2017 at 12:48 | #7

    “how do you explain the state Labor government being even more enthusiastic than the Feds to save the smelter? ”

    Reread the OP

  8. Ikonoclast
    January 21st, 2017 at 13:25 | #8

    @Smith

    ROFL. I think Leyonhjelm outdoes even me on that score, albeit much more publicly and as an alt-right essentially. I could be given a lot of labels but I doubt alt-right would be one of them. Leyonhjelm and Cory Beranardi will holding a love-in real soon I would say. Uh-oh, I am way too late in my prediction.

    They (“social justice warriors”) are themselves, racists, bigots and hypocrites and Senator Leyonhjelm’s complaint will establish this beyond all doubt. – Cory Bernardi, circa August 2016.

    How did that go for them? Anyone know?

  9. Donald Oats
    January 21st, 2017 at 19:08 | #9

    The “take no prisoners” attitude of the theo-neo-cons is par for the course; it hasn’t changed with the switch to Turnbull, and why would it—their collective hand is so far up him, you can see their fingers moving his tongue when he speaks. [Yes, I am grumpy.] In the short run, it is a successful strategy, although in the long run it is how wars start. Speaking of which, the poster-child for the “take no prisoners” method has ascended to the most powerful position in the world, which just goes to show that our moribund neo-liberal economies/societies richly reward the thugs and stuff the rest. Whatever happened with being nice to people? Was it merely a passing fad or something?

    The ALP isn’t short of tribalism either, but the Liberals have taken it to a whole ‘nutha level.

  10. Tim Macknay
    January 21st, 2017 at 21:27 | #10

    @Ikonoclast
    The Human Rights Commission threw out Leyonhjelm’s complaint in (I think) November, principally on the basis that it lacked the requisite level of seriousness, and that Leyonhjelm’s own public comments demonstrated that he was not genuinely aggrieved. He made some noises about appealing the decision at the time, but the surface of the teacup seems to have settled and no tea appears to have overflowed.

  11. January 23rd, 2017 at 08:54 | #11

    I remember once complaining to Barry Jones about one government acronym that sounded counterproductive. He said “Yes, that’s why we never gave an Institute of Technology to Swan Hill.
    And, just as a topper, when I told that anecdote to a friend she said “Yes, well – my father was the chairman of the Swan Hill Irrigation Trust.”

  12. Lindsay Berge
    January 23rd, 2017 at 22:26 | #12

    Guess why we had White Horse Institute of Technology in Surrey Hills.
    Also why they shorted the name of the Community University of the Northern Territory.

  13. Helen
    January 26th, 2017 at 09:37 | #13

    The Abbott-Turnbull government’s commitment to coal is, above all else, a matter of “my enemy’s enemy is my friend”. The right’s bitterest and longest-running culture war is that against environmentalists, which has been running without interruption for decades. The greenies want Portland to close, and therefore it must be kept open.

    Unfortunately, Labor’s culture war with the Greens is equally bitter. Look at young activists like Van Badham and others. The Labor idea seems to be that it doesn’t matter what we destroy in the creation of wealth as long as we focus on fairer distribution.

  14. January 29th, 2017 at 13:01 | #14

    The Alcoa smelter at Portland is an AWU shop, and the putative alternative government has not developed a political/economic strategy that accounts for either Portland or Hazlewood.

  15. BilB
    January 31st, 2017 at 07:11 | #15

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