Wednesday 15 Aug 2018 | 01:26 | SYDNEY
Wednesday 15 Aug 2018 | 01:26 | SYDNEY

When governments choose poorly


Sam Roggeveen


25 October 2010 12:10

Mark Thirlwell reminds us that, for every government-backed industrial success story (Among Mark's list was Airbus, Japan's electronics industry and France's nuclear industry; he might have added the entire US military-industrial complex) there have been many notable failures.

To reinforce this point, our Canberra readers may wish to look out their windows at what is nowadays called Telstra Tower. As Fairfax journalist Peter Martin wrote in 2008, the Black Mountain Tower was:

...a design statement that would rise high above the national capital and provide for all of the intercity links that Australia would need. It was an expensive bet on what seemed at the time to be the technology of the future. (So expensive that a restaurant and viewing platform were included to help fund it.)

Within years of its opening in 1980 it was out of date. Telecom Australia and its predecessors in the Post Master General’s Department had made the wrong bet...All of Australia’s television operators began sending their programs around the country by satellite. The iconic tower, which was designed to be an essential part of the process of distributing television programs, instead suffered the indignity of having a small satellite-receiving dish placed next to it so that it could receive them for rebroadcasting to a local audience. And then the laying of huge amounts of optical fibre cable between Sydney and Melbourne made the telephone transmission part of its role irrelevant as well.

The failures are easy to mock, but what about the success stories: how do we know they really are successes' Sure, Airbus is now a huge multinational concern that employs tens of thousands and reduces the costs of air travel. But couldn't the taxpayer money that was used to build Airbus have been more efficiently allocated by the private sector'

Perhaps, but then we wouldn't have Airbus, since the returns on investment in large passenger aircraft take so long that it would seem to be a highly unattractive business from a purely commercial standpoint. And if Airbus had never been created, Boeing would probably be a monopoly now, with the cost, safety, efficiency and comfort of air travel suffering as a result.

So the lesson would seem to be that governments ought to get involved only where market incentives are weak. I'd love to hear more on this from our economically literate readers.

Photo by Flickr user Ararlis, used under a Creative Commons license.