The Tiwai industrial bailout (updated)

By Paul Walker 08/08/2013

Over at the TVHE blog Matt Nolan writes on what he calls The Tiwai industrial subsidy. He points us to two articles from Infometrics that are relevant to the topic:  Tiwai and electricity and on the Southland workforce and a managed exit. These are well worth reading.

I would like to make an additional point about the opportunity cost of the bailout. Let us assume, for no good reason, that the bailout actually works and 800 jobs are “saved”. Does this mean that the government has spent your money wisely? May be not, the government could have used the $30m in some other way and these alternative uses could have generated more than 800 jobs. The bailout will stop or at least delay what is most likely a necessary reallocation of resources within the New Zealand economy. Aluminium smelting is an industry that New Zealand doesn’t now, if it ever did, have a comparative advantage in. Reallocating resources and people from the smelter closure will in the short term be painful but beneficial over the longer term. This is why Matt’s point about the government helping the plant wind-down in an orderly fashion has merit. Thus to show that this particular bailout is a good use of taxpayer’s money the government not only has to show that it will work but it also has to show that the bailout is the best use of taxpayer money. What’s the bet it can’t do either?!

I do, also, find myself wondering – and not in a good way – about the relationship between this deal and the forthcoming partial sale of Meridian.

Update: Seamus Hogan comments here on the politics of all of this.