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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Saying no to corporate welfare

Saturday, January 18, 2014

Prime Minister Tony Abbott has promised to do away with corporate welfare. Thank goodness!

Corporate welfare is effectively a business prop, most frequently for big businesses that aren’t well run. In the last 16 years $30 billion has been given to car manufacturers. What’s that achieved?  Mostly wasted money and painful delays to the ultimate closures of Ford and Holden!

Now Coca-Cola Amatil wants $50 million to ‘save’ its dying food manufacturing business SPC Ardmona. Yet Coca-Cola Amatil made $247 million profit last year.

The sad joke is that this corporate welfare has all the elements of a high level, political-big business ‘scam’. It’s worked like this.

Unions’ private-sector membership is almost exclusively in big businesses. Unions agitate within big businesses for industrial agreements that are bad news for productivity but good news for union membership. Corporate executives want an easy life and so cave in, but there’s a condition.

Unions agree to use their lobbying muscle and political connections to assist big businesses to obtain big grants from government. It’s done in the name of ‘saving jobs’, but it’s a scam.

It’s not the pay rate to workers that are the issue. Instead its productivity! Look through badly performing big business industrial agreements, particularly in manufacturing, and a pattern emerges. Agreements frequently transfer the capacity of managers to run their operations to union-controlled ‘consultative committees’. Effectively, nothing can happen in operations without approval from these committees.  

Companies actually agree to this, heavily neutralizing their own managers’ capacity to manage. The result is that no-one has responsibility for anything: managers, unions or workers! Apparently this is ‘industrial democracy’, but it’s a profitability and productivity killing cancer that’s been introduced.

None of this applies with small business people. If a small business person runs their business badly, they personally suffer, risking personal bankruptcy. In big business, corporate executives receive fat redundancy payouts if the business falls over. They don’t personally suffer!

Through the big business welfare scam, however, its small business people who subsidize big business failure through their taxes. It’s big money. The Centre for Independent Studies estimates that $8 billion a year can be saved by ending corporate welfare.

Don’t think that jobs are at risk. Of Australia’s roughly 9.5 million people working in the private sector, some 7 million are in small businesses. The real jobs growth potential is in small business. Badly run big businesses that receive government handouts drag everyone down damaging job prospects in the process.

If small business programmes disappear as a result of the closure of business welfare, that’s a good thing. For example, small clothing businesses can receive government grants of $50,000 to ‘improve the business enterprise culture’. What public servant dreamt up that one? Governments are hardly competent to teach business people about business culture! Yet $35 million is budgeted for this. Close it down!

A smart government that wants job-creating businesses will do smarter things than business welfare. Cutting red and green tape, ensuring efficiency in government operations and reducing debt so that taxes can be reduced are the sort of steps that will truly help businesses, big and small.

Corporate welfare mainly goes to those who have high-level political connections, and that’s mostly badly run big businesses.


Anonymous commented on 19-Mar-2014 01:27 AM
Having worked in large organisations and for federal government departments I am not sure that 'industrial democracy' is a completely bad thing. Professional managers in large organisation are often hopeless and self serving. The hands-on folks may well have a much better idea on how to improve productivity over the long term. Perpetuating the bosses v workers myth helps no one. Large organisations need good governance and great leadership but instead large organisation shareholders, employees and citizens get exactly what they deserve.

What is clear is that governments across the developed world are in significant financial trouble and that small business owners (the backbone of the economy) are expected to clean up the mess created at a drunken party they were not invited to.
Anonymous commented on 22-Apr-2014 09:04 AM
Are you trying to add serious debate to this issue or just being an Abbott cheerleader AGAIN?

No mention of BILLIONS in corporate subsidy to banks and 80% foreign owned mining companies?
No mention of YET ANOTHER subsidy program for already HUGELY profitable mining companies with Abbott's "exploration incentives"?

Stop promoting what Abbott promises (from the single most deliberately deceptive PM ever) and stick to objectively reporting on repercussions of his ACTIONS - frequently two entirely different things!
Anonymous commented on 09-May-2014 01:12 PM
We’re happy to have this criticism published on our website mainly because we’re not backward in dishing out criticism ourselves. Yes, we’re happy to criticise big construction firms colluding with unions to screw over construction subbies. [See here ] And we’ll criticise the ATO when it denies small business people ABNs. [See here] And we were pretty direct when we criticized the Howard government for ‘selling out’ owner drivers in 2006-07. And if the Abbot government doesn’t deliver fully on its promised small business agenda, we’ll be critical then as well. At this stage the Abbott government seems to be moving in the right direction, but we don’t want to see any delays!
Bill commented on 11-May-2014 12:47 PM
So that's it? One promise, an inquiry & a review? That's supposed to justify your cheerleading? Here's what I see: 8 months in govt and NOTHING for small business. Plenty for the 83% foreign owned mining industry that employs a piddling 2% of our workforce. Sounds more like you are auditioning for one of those plush govt advisory roles.
Anonymous commented on 11-May-2014 12:51 PM
Bill, oh what anger! If the Abbott government delivers on its small business promises, we will really cheer! But let's see if they do that first. At the moment they are just walking in the right direction. It's the end of the journey that counts.

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