Environmental and microeconomic reform

Tony Abbott has claimed to seek a middle ground on climate change opposing the government’s ETS whilst promising to somehow reduce greenhouse gas emissions whilst maintaining employment in carbon-intensive industries. The later commitment is incompatible with the previous one. But more broadly Abbott displays a remarkable faith in the power of governments to direct economic activity (if he was serious which he is not). How is a shift to a less carbon-intesive economy to be achieved without price signals? Perhaps by massively subsidizing nuclear power. Reminded here of the 1980s economic reform debate. Many on the left recognized that tariff protection had led to an inefficient and poorly structured manufacturing sector, but they largely rejected tariff reductions because they were unpopular with the left’s mass base. Instead faith was placed in the power of ‘industrial policy’. Abbott’s position, if we took it seriously, is perhaps curiously similar. There is a reasonable argument that industrial policy initiatives contributed to the revitalisation of sections of manufacturing, but the academic consensus would be that tariff reductions (a policy that Labor adopted with increasing enthusiasm across its term) were central to this process. There’s a broader ‘cultural’ issuse, the 1980s and 1990s saw Australian policy markers champion the cause of international competitiveness, and even authors critical of a tariff-reduction only policy approach such as Peter Sheehan and Brian Pinkstone highlight this cultural shift. What chance of Abbott PM championing such analogous cultural shift? Zero.

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