The fading curse of government “assistance”

Workboat World Editorial August 2015

Having closely watched and studied the global shipbuilding industry for half a century I have observed some dramatic, unexpected and unprepared for changes. During that time I have visited more than 1,000 shipyards and talked with even more shipbuilders.

My travels have taken me from the traditional shipyards of north western Europe, Scandinavia and North America to Russia, Turkey, Italy, Spain, Greece and Croatia as well as my native Australia. I have visited dhow builders and modern shipyards around the Persian Gulf, junk builders in China and yards where Bugis “schooners” are still built in Sulawesi in Indonesia. I’ve toured naval and commercial shipyards in Argentina and Brazil and I have been to small shipyards in Papua New Guinea and New Zealand. Even Bangladesh, that prolific source of deadly ferries, has not escaped my eagle eye. As the sixties song title says: “I’ve been everywhere, man”.

During the latter half of that period, I have tended to concentrate more on Asia, visiting many yards in Japan, South Korea, Taiwan, China, Vietnam, the Philippines, Indonesia, Singapore, Malaysia, Thailand and India. They have built both commercial and naval vessels.

Those shipbuilders have taught me a lot over the years and I thank them for their patience and interest. What I have particularly learnt is that the biggest, most established and most prominent operators get too close to government and so are rarely the most innovative, efficient or profitable. Indeed, apart from one or two notable examples such as the Damen Group and Japan’s Tsuneishi, the opposite usually applies.

My long “stretch” as a director of the Australian Shipbuilders Association convinced me of the evils of government subsidy or other “support” of the industry. I’ve seen it close to hand in the publishing and printing industries also. Any government involvement is simply a dead hand that gradually chokes out all innovation and enterprise from any industry. It corrupts both morally and financially.

For sixty years until the mid-eighties, the Australian shipbuilding industry was the “beneficiary” of considerable government support in many forms. Of those, the “Bounty” was the most notorious and most destructive. Because it effectively eliminated competition for most of that period, the local industry became bloated and lazy.

A remarkable change came over the industry when the Hawke Labor (read socialist) government amazingly abolished the Bounty and practically all other forms of assistance. The old protected ship builders such as BHP, Adelaide, Walkers, Bundeng, Carrington and Evans Deakin closed down. They simply weren’t viable without substantial government assistance. Even the government-owned yards such as Cockatoo Island, Newcastle State Dockyards and South Mole Slipway faded away. They had essentially become “sheltered workshops” for some greedy, grasping unionists.

At the same time, though, a shipbuilding renaissance came over Australia. Essentially without government assistance, save for some very limited Export Market Development Grants, we saw the development of a whole new and world-leading sector in aluminium fast vessels that developed out of the West Australian lobster fishing industry. The newer builders such as Incat, Austal, Richardson Devine Marine, SBF, Strategic and Geraldton Boat Builders quickly became the globally competitive leaders in their field. Innovation, enterprise and, even, profitability had arisen from the ashes.

At the same time, one or two of the smaller, less conspicuous builders like NQEA and Harwood Slipway kept their heads down, adapted and ploughed on into the new era.

Much the same thing happened in the UK, the Netherlands, Sweden, Denmark and Norway. It has taken longer in Germany, France, Italy and Spain where government support has been something of an art form. However, it is slowly happening and, apart from Navantia and Fincantieri, which are government-owned sheltered workshops of the worst kind, the survivors are globally competitive. Indeed some, such as the French group Piriou, have successfully thrust into Asia.

Of the United States, however, the less said the better. Apart from a few smaller yards that are globally competitive, most are bedevilled by the Jones Act that protects them to death – and costs the American taxpayer zillions! The “Land of the Free” is far from free in a maritime sense and its citizens continue to suffer accordingly as Lobbying 101 prevails.

Inevitably, of course, as we are already seeing with Japan, even Asian countries will eventually become less competitive. While there will always be pockets of the world where ships can be built cheaper, I expect that in the long run, the iron law of comparative advantage will gradually become less relevant. The shipbuilding playing field will become almost level. Except, that is, for the United States where the Jones Act has become something of a state religion.

To me, as you have probably gathered, government support whether in the form of subsidy, bounty, protection, R&D grants, payroll assistance or whatever, is wasteful, counter-productive and often corrupting. From personal observation globally over the last fifty years, I am convinced that shipbuilding, like all industries, flourishes when real free enterprise prevails. Competition, particularly global competition, improves the breed. In the maritime industry that means better ships and boats at lower prices.

The world works much better when innovation, energy and enterprise are allowed to prevail. Thankfully, that is starting to happen.

Neil Baird