June 13th 1998

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Articles from this issue:

Free markets: the ups, the downs

The threat to sovereignty

Living in a globalised world

The new economic freedom

Globalisation: the downside

ASIA: What Happened?

Taking control of our destiny

Policy 2: Using the Reserve Bank to boost capital investment

Policy 3: Boosting national savings

Policy 4: Justice for families

New Struggle, New Agenda, New Strategy

EDITORIAL: An idea whose time has come


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The new economic freedom

by Patrick J. Byrne

News Weekly, June 13, 1998
Hans-Peter Martin and Harald Schumann from the German news magazine “Der Spiegel”, have described the development of globalisation in their new book “The Global Trap: The Assault on Democracy and Prosperity”: They say:
“World wide, more than 40,000 transnational corporations play their employees as well as their nations against each other. Forty per cent capital gains tax in Germany? Much too much. Ireland is satisfied with 10 per cent. Malaysia and some US states are willing to do without for five to ten years.

“Forty-five [German] marks an hour for a skilled labourer? Much too much. The British work for half that, the Czechs for a tenth. The Italian Government will only foot 33 per cent of the bill for a new factory? Much too little. In East Germany the state will gladly pay 80 per cent ...

“The standard-bearers of the new globalism would have us believe that all this is the result of a more or less natural process, product of unstoppable technological and economic progress. This is nonsense. The interweaving of the global economy is by no means a phenomenon of nature, but was brought about by single-minded political effort. Treaty after treaty, law after law, it has always been governments and parliaments whose decisions have removed barriers to the movement of capital and goods across national borders. From the decontrol of foreign exchange rates in the European market to the continual expansion of the Global Agreement on Tariffs and Trade, political leaders in the Western industrial nations have systematically brought about the situation that they cannot cope with.”

Corporations now scour the world in a relentless search for the lowest costs of production and for the best returns on the stock, bond and currency markets — all in the cause of maximising returns for other institutional shareholders. The 4%-6% rate of return on investment that was acceptable 20 or 30 years ago is not acceptable today when a 10% return is considered a minimum. Maximising shareholders’ value is a concept — like competition — that is invoked to justify any activity a company undertakes.

Western governments, including the Hawke-Keating and now Howard governments, have wanted to marry Australia to this new age by embracing the ideology of “economic rationalism”, the idea that deregulated capitalism holds the answers to the world’s economic questions and, contrariwise, that government involvement in all but the slightest form is damaging to the economy.

The top priority for a modern “reforming” government is, therefore, to embark on a four-pronged economic program:

  • Financial deregulation aims to ensure that financial capital can flow unhindered around the world. If this has a downside in the creation of Australia’s huge $220 billion foreign debt and excessive market speculation, then so be it.

  • Free trade must be achieved by removing all types of protection — not just tariffs but more subtle forms such as government preference for local products. This is reflected in the dictates of international conventions like the GATT agreement and its progeny, the World Trade Organisation.

    For example, the Multilateral Agreement on Investment (MAI) is an international treaty proposed by the Organisation for Economic Cooperation and Development. If ever accepted, it would mean that Australia could offer no protection or preference to any domestic industry over a foreign multinational — no tariff, quota, subsidy, legal protection or preferential government contract. While exceptions would be allowed, they would have to be rolled back over time. The MAI represents the total surrender of a small nation’s economic sovereignty.

  • Privatisation must be vigorously followed to sell-off monopoly public assets to the more “efficient” private sector. While the proceeds of the sales are to be used for debt reduction, this process has not dented Australia’s foreign debt burden, which continues to grow under compounding interest. Moreover, as leading finance journalist Alan Kohler recently wrote, there is a danger when publicly-owned monopolies become privately-owned ones. Maximising profits in a sector without competitors could be too tempting for some. And it is this open-ended future which may be behind the high prices paid for items such as electricity-generating facilities in Victoria.

  • Labour market reform, structural reform, micro-economic reform and downsizing are just different terms for the removal of the legal protection for wage minimums, the substitution of “enterprise bargaining” for arbitration. This weakens the power of workers and unions and creates a large pool of unemployed people who maintain constant downward pressure on wage rates.

From official quarters, there has been only muffled criticism about the implementation of the economic rationalist agenda.

When criticisms do surface, those arguing the case for economic rationalism and globalisation return again and again to the metaphor “the rising tide raises all boats,” rich and poor together. The long-term benefits are allegedly so outstanding that they far outweigh any short-term travail.

However, everyone is not better off. Corporate profits and shareholders dividends certainly have gone up. So too have executive salaries. For many others, the consequence has been markedly different.

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