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.