Trade and Industry Policy

Peter Forsyth

Australian Economic Review, 1985, vol. 18, issue 3, 70-81

Abstract: This article consists of a review of changes in trade and industry policy, along with discussions of the determinants of change and the major problem areas. Policy between 1965 and 1985 is summarised, and the growth of unemployment in the 1970s is suggested as a key determinant of change. Higher protection in certain industries, and moves to more quantitative methods ot protection can be related to unemployment, in Australia as in other countries. Theory and empirical evidence suggest that protection is likely to prove ineffective in reducing unemployment. The reliance on protection in particular cases is ascribed to a wish by governments to preserve specific jobs, not to increase overall employment. Policy can have a role in facilitating or restricting structural change which can arise from several sources, such as changing trade patterns and preferences. The devices of policy are considered briefly to determine whether they are likely to facilitate change or not. It is concluded that they often provide incentives to avoid change. The scale problem is considered, and it is suggested that the cost of protection could be high in industries subject to significant scale economies. Scale and adjustments are considered in the light of two industries, motor vehicles and whitegoods, and the role of industry plans is examined. The actuality of trade and industry policy often differs from announced intentions, and this ambiguity can give rise to uncertainty which itself has a cost.

Date: 1985
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