EDITORIAL: by Peter WestmoreNews Weekly
Whom the gods wish to destroy
, August 5, 2006
The great danger to the future of Australia is the naïvety and complacency of those who guide it.In his recent comment on the future of Australian manufacturing industry, BlueScope Steel's CEO, Kirby Adams, warned that free market "ideology" was threatening to destroy manufacturing industry in Australia. He said, "We are caught up in ideology ... in the fantasy that we can lead the world to a free trade 'nirvana' by unilaterally dropping our tariffs." (See special feature on pages 4-5 of this issue of News Weekly).
The response to his comments was revealing. ANZ chief economist Saul Eslake, himself a former Treasury economist, said that Australia must continue to support free trade policies because they benefit consumers in Australia.
He said: "What people like Kirby Adams are saying is that Australian consumers should be forced to pay a higher price for a narrow range of manufactured goods, because other countries forced their consumers to pay higher prices for manufactured and agricultural goods. It is economic nonsense."Relaxed
Australia's loss of manufacturing industry and rising dependence on imports are a major reason for our burgeoining foreign debt, soon to top $500 billion.
The Federal Treasurer, Peter Costello, is relaxed about the foreign debt problem and the associated loss of industry.
Interviewed by Paul Bongiorno on Channel Ten's Meet the Press
before delivering this year's Budget, Mr Costello said, "The Government doesn't owe any debt, so that taxpayers have no obligation to pay taxes either to service debt or to re-pay it. We've repaid $96 billion of Labor's debt. Now then, when you come to foreign debt, well, if the Government doesn't owe any money, who does owe money to overseas lenders? Principally, the Australian banks. About 80 per cent of that debt is owed by Australian banks - Westpac, National, ANZ, Commonwealth."
Mr Costello added, "That would be a worry if the Australian banks suffered some big shock which they weren't prepared for. We've done stress tests on the Australian banks. They are very well capitalised, they are extremely profitable; the IMF, APRA, the Reserve Bank, all believe that the Australian banking system which carries most of that foreign debt under various scenarios wouldn't be in trouble at all. ... As the IMF has found, this is not a substantive problem."
The Government's economic advisers are clearly committed to the view that there are no storm-clouds on the horizon, despite the clear problems of soaring global fuel prices, rising interest rates, and the uncertainty of depending on China's voracious appetite for raw materials, including petroleum, iron ore and coal.
Others are not so complacent. Dr Peter Brain, who first warned of the Asian economic meltdown in 1997, recently commented on the dangers of Australia's soaring foreign debt.
He told the Society for Australian Industry and Employment that the fundamental danger to Australia's economy arises from the unsustainable growth in Australia's net foreign debt, now about $500 billion, making Australia highly vulnerable to economic shocks, because the economy is now structurally unbalanced towards the finance sector and services which cannot be traded overseas.
He said the predictors of an economic shock in Australia included the growth of the current account deficit, which for the first quarter of 2006, came in at almost $12 billion. This was a rise of 15 per cent on the same quarter in 2005. For the past year, the current account deficit - which reflects Australia's need to borrow from overseas to finance its spending and its export shortfall - has been about $45 billion, which is well above the generally accepted danger level of 5 per cent of GDP.
Dr Brain said that, additionally, credit growth is continuing to expand faster than nominal GDP, and foreign debt continues to grow as a percentage of GDP.
He said that net foreign liabilities, as a percentage of GDP, had risen from 38 per cent in 1988 to about 58 per cent in December 2005, and continues to trend upwards.
He also showed figures which indicated that the ratio of personal debt to household net disposable income had steadily risen from 50 per cent in September 1983 to about 180 per cent in September 2005, and concluded that Australia faces the possibility of a "severe correction" as soon as 2010.
Both economist Peter Brain and the CEO of BlueScope Steel found that Canberra is not listening.
In the meantime, as Australia's manufacturing and rural industries continue to decline, the economy is increasingly characterised by service industries funded by overseas borrowing.
The issue is not, however, purely about economics. The same "free market" ideology is behind the moves to erode quarantine standards, most recently documented by a Senate inquiry into the outbreak of citrus canker in central Queensland. If quarantine standards are further reduced by allowing the entry into Australia of bananas from the Philippines and apples from New Zealand, it will further devastate already suffering rural industries.
The impact of this ideology is also seen in the recent push for privatisation of utilities such as the Snowy Mountains Scheme, national competition policy (NCP), and water-trading, the latter providing an economic justification for the diversion of rural water into the cities.
What we have seen in Australia is also evident in other parts of the world.
As a result, internationally, there is growing public rejection of unrestrained capitalism. From the 1980s onwards, Latin American nations replaced authoritarian dictatorships with democracy, often electing parties committed to open markets. But the experiment has soured, and parties of the left have won elections in many countries, including Venezuela, Brazil, Argentina, Chile, Uruguay, Bolivia and Colombia.
Countries such as China and Japan, not to mention the countries of the EU, have never accepted the radical free-market agenda, and never will.
The great danger to the future of Australia is the naïvety and complacency of those who guide it.
- Peter Westmore is national president of the National Civic Council.