The proposal 

"A high level report to the Prime Minister has called for a new strategy to attract foreign investment, including a single agency to promote Australia Inc overseas and a review of international taxation policies. Citing concerns for Australia's taxation policies, environmental and competition laws, the report also calls for industry specific promotion of sectors with strong potential .... the report has strongly criticized the system of investment attraction and promotion. These efforts have been hampered by the lack of a national strategy to pursue overseas direct investment, the involvement of a multiplicity of Commonwealth, State and Territory agencies, whose offices until now have been largely uncoordinated, some duplication of effort and the failure to establish an Australian investment brand in offshore markets" (Lewis S., 'Australia Inc: the new blueprint", Financial Review, 14/8/01 - referring to the Blackburn report, Winning Investment: Strategy, People and Partnerships) 

The Blackburn report contains many platitudes - but its criticism of the multiplicity of investment promotion mechanisms is valid (Walker T., 'Arrogance about our appeal unfounded', Financial Review, 14/8/01)

Sounds good: What's wrong with that?

[Caution:  the following CPDS comments are based on press reports about  the above proposal which may not accurately convey its intent] 

There is undoubtedly considerable value in assessing Australia's tax and regulatory environment from the point of view of strongly encouraging foreign investment - and in inhibiting the ineffectual efforts which assorted government agencies make to promote investment. 

However Queensland's experience shows that a centralized agency to coordinate government  responses to major investments could be VERY damaging. Reasons for this are set out below:

• FIRST: the interests of foreign investors can dominate over the interests of the community - because (a) political 'brownie-points' can be gained from announcing a few 'big projects' even if these have limited and quite narrow public benefits, (b) the political system can thus be captured by potential investors even to the point of providing subsidies to gain photo opportunities, and (c) agencies of central government can then in turn become dominated by individuals with only junior / project management skills who lack any orientation or ability to deal with the broad public interest and who fail to understand (or resist) any attempt to raise those issues.  For example, in Queensland:
  • A major factor in the growth of corruption and breakdown of effective administration in the 1980s which gave rise to the Fitzgerald Inquiry, was the concentration by central government on promoting the interests of foreign investors and the fact that no one was then 'minding the store' [Comment based on observation by the author]. The Coordinator General's role in promoting the strategic development of Queensland's system of public administration, which had been quite effective in creating a cohesive and purposeful system of administration in the 1970s, was diverted to primarily facilitating major investments after 1978. 
  • Pre-election reform policies by the Goss Government in 1989 favoured taking a broader approach to development of the economy - but that Government immediately reverted to (mainly just) ensuring support for foreign investors. The result was that Queensland did not cope well with requirements for economic change during the 1990s - giving rise to social stresses and political instability (see Defects in Economic Tactics, Strategy and Outcomes).   
• SECOND: the distortion of ordinary administration in central government in the pursuit of the interests of favoured investors can lead to (a) breakdown of cooperation and information exchange amongst agencies (because the concerns of specialist agencies tend to be over-ridden) and (b) the growth of obstacles to all other dealings with government - including obstacles to meeting the requirements of thousands of other potential (but individually smaller) investors;  
• THIRD: focusing on external investment is one of the seven secrets of failure in seeking to promote the development of an economically productive industry cluster. The alternative is to stimulate the knowledge and organization of those already in a local industry (see Developing a Regional Industry Cluster: A Possible Generic Process). Thus rather than providing information about a region to external investors (which enables them to build competitive advantages and capture value-added) it is far more likely to be constructive to encourage regional firms to acquire (technological and market) intelligence about the outside world;
• FOURTH: the best prospects for capturing value-added locally through dealings with foreign investment is likely if those projects (and the solicitation of foreign investment itself) are coordinated within Australia's business community - rather than by government. The former (but not the latter) can take initiatives to take commercial advantages of opportunities thus identified;
• FINALLY: Australia has traditionally had an extraordinarily high level of dependence on foreign investment by OECD standards and thus:
  • in Queensland (where the level of dependence on foreign investment has been very high even by Australian standards), Parliament has been a weak institution - largely because of the lack of independent sources able to provide the raw material for public policy options;
  • a highly productive economy has never developed - because the information which could give rise to competitive advantages (and thus allow value-added to be captured) was most often not held by Australians. This is likely to be a major factor in the poor traditional structure of Australia's economy (ie its focus on low value added commodity exports) and the steady decline in Australia's relative per capita incomes over the past century;
  • Australia has a very substantial structural current account deficit - which partly reflects transfer pricing decisions made by foreign investors to earn their income in lower taxed regimes;
  • it is significant that there is now seen to be a need for centralized machinery to promote and facilitate foreign investment. The probability that Australia is losing its attractiveness for resource investments (see Note 9) may explain why this is now seen to be needed (by those who assume that promoting such investment is the most effective way to strengthen the economy).

The proposal as put forward may risk a firm step along Australia's path to really becoming  'the banana republic' (see Note 24).

Developing an Alternative

Australia might consider adopting the traditional (West) German practice of giving precedence to owner / managers of firms in seeking advice concerning public support for Australian business and industry - rather than obtaining such advice from the local branch-managers of multinational firms.